Harvey Rosen, Princeton University "Growth, distribution and tax reform: Thoughts on the Romney proposal"
Rosen’s main point is that any assessment of the Romney tax plan that ignores its impact on economic growth is incomplete. "This is curious," Rosen said, "because increasing growth is the motivation for the proposal in the first place." Growth creates more income for the government to tax which would help offset the revenues lost through rate cuts.
Rosen said he’s not alone in thinking this oversight is odd. He said economists he spoke to were "incredulous when I told them that the numbers being discussed in the press are based on calculations that explicitly rule out any changes in labor supply or saving behavior."
Rosen readily admits that no one can accurately predict the future so he runs the numbers using three growth rates for GDP - 3 percent, 5 percent and 7 percent. By comparison, the White House budget planners assume an average rate of close to 3 percent.
Like Feldstein, he used 2009 data. Unlike Feldstein, he analyzed what happens for taxpayers making $100,000 and up, and then repeated it for those making $200,000 and up.
Rosen found that when all possible deductions are eliminated, from home mortgages to charitable giving to health insurance benefits, it means that increased revenues can balance out the money lost through tax cuts.
There is only one scenario where Rosen saw a wrinkle -- when households making less than $200,000 are shielded from the loss of deductions under certain tax and growth assumptions. Rosen saw a $28 billion gap and said "maintaining an approximately constant tax burden on high-income individuals would be more challenging." But not "mathematically impossible."
The response
Some news organizations noted the Tax Policy Center did factor in higher growth in its original study. It used a model developed by a Romney adviser, Gregory Mankiw, and found that while growth softened the burden on people making less money, the shift is still there.
"Our results are not qualitatively different, even if we include additional taxes generated from the growth effects," the authors wrote.
The center said groups including the Congressional Budget Office and the Joint Committee on Taxation take a cautious approach on assuming that tax changes alone will lead to new growth. This is particularly true when tax cuts are combined with base-broadening, which lies at the heart of the Romney plan. The center pointed to a study from two American Enterprise Institute economists that found the two changes largely cancel each other out, leaving effective tax rates about the same and thus have little impact on growth.
PolitiFact | Romney claims five studies back up his tax plan
