DeLong vs. Feldstein on Romney Tax Cuts
By David Henderson
I know that there are not a lot of Brad DeLong fans who read this blog. I’m not one either. But when someone gives a good analysis, I tip my hat. If I understand the analysis of Marty Feldstein (my former boss at the Council of Economic Advisers) and of Brad DeLong correctly, Brad wins.
I could go into detail about why I say that, but there’s no need. All you need do is check Martin Feldstein’s article in today’s Wall Street Journal and then read Brad’s take-apart. Marty’s article is titled, “Romney’s Tax Plan Can Raise Revenue.” He goes through and does a static analysis that purports to show that with reasonable assumptions about the dynamic feedback effect of cuts in marginal tax rates, Romney could keep his promise to cut all marginal tax rates by 20% (not 20 percentage points) and some other taxes, and, by ending itemized deductions, keep government revenue from the income tax constant without raising taxes on middle-income people.
But Marty makes a key error. When he goes to estimate the increased revenue from ending itemized deductions, he applies the old rates (25 to 35%) rather than the rates to which Romney would cut (20 to 28%). Brad catches it.
I know that some of you can’t access the Journal, but on my reading, Brad does not pull a fast one and he does quote Marty correctly.
Interestingly, though, with Marty’s assumptions and Brad’s correction, the cut in marginal tax rates plus the other cuts Romney proposes would cut government revenue by only $34 billion annually.