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A Project of The Annenberg Public Policy Center

Romney’s $4,000 Tax Tale

Mitt Romney falsely claims in a series of TV ads that President Obama “will raise taxes on the middle class by $4,000.” That’s nonsense. The ads cite a conservative group’s study, but even the group itself doesn’t say Obama will raise taxes on middle-income taxpayers. It says his budget could result in a “potentially higher tax burden” over the next 10 years.

In fact, the group’s study considered two other budget scenarios — current law (allowing the Bush-era tax cuts to expire as scheduled at the end of this year) and current policy (extending current policies into 2013, including extending the Bush-era tax cuts) — and determined that Obama’s budget “provides a middle ground between these two extremes.”

The American Enterprise Institute, which conducted the study, is described in one of Romney’s ads as “nonpartisan” and “independent.” In fact, it is a conservative, pro-business think tank whose leaders include former Vice President Dick Cheney and whose academic advisers include Romney’s chief economic adviser, R. Glenn Hubbard. Three of its board members — including its chairman — gave nearly $1.7 million in combined contributions to the pro-Romney super PAC Restore Our Future.

Regardless of the group’s political leanings and Romney’s misuse of its study, AEI makes a valid point. Debt being accumulated today is going to cost future taxpayers plenty, especially when today’s unusually low interest rates begin to rise. And debt will still be rising for years, whoever is elected.

Take, for instance, the House budget resolution crafted by Romney’s running mate, Rep. Paul Ryan. The federal debt would continue to rise under his plan, although at about half the rate that it would grow under Obama’s budget.

So, by Romney’s logic, the House plan crafted by his running mate and embraced by him “will raise taxes on the middle class by $2,732,” as we will explain later.

A $4,000 Tax Hike?

In the first of three TV ads, which was released Oct. 4, the Romney campaign asks and answers its own question, “Who will raise taxes on the middle class?” The ad’s answer, not surprisingly, is “Barack Obama and the liberals” — to the tune of $4,000.

A second TV ad released Oct. 7 makes the same claim in a slightly different way: “Obama’s plan? $4,000 more in taxes on the middle class.”

A third TV ad, titled “Putting Jobs First,” was released Oct. 10. In it, Romney is shown speaking at the Oct. 3 debate in Colorado about Obama’s proposal to increase taxes on the upper-income taxpayers to help reduce the deficit. But the screen shows something entirely different. It says, “Under President Obama: $4,000 tax hike on middle-class families.”

But Obama has no such “plan.”

The ad is referring to Obama’s fiscal year 2013 budget, which in fact calls for a tax increase on the upper-income taxpayers — not the middle class. Under the president’s budget, the Bush-era tax cuts would expire at the end of this year for individuals earning in excess of $200,000 and couples earning more than $250,000 — but remain in place for all other taxpayers. So, the middle class would continue to receive the Bush tax cuts.

Then, where does the$4,000 figure come from? The Romney ad cites an AEI study that measures the distributional impact of serving the federal debt across 11 income groups. The AEI’s report — “A Simple Measure of the Distributional Burden of Debt Accumulation” — determined that the president’s 2013 proposed budget would add $2,452 (see table 6, all federal taxes) to the “annual household costs of servicing government net debt” from 2012 to 2022 for families earning between $100,000 and $200,000.

While the AEI report itself does not contain the $4,000 figure used in the ad, there is an Oct. 2 blog post on the organization’s website written by James Pethokoukis that carries the headline “Study: Obama’s big budget deficits could mean a $4,000 a year middle-class tax hike.” In addition to saying Obama’s budget “could” raise taxes on the middle class, Pethokoukis writes of a “potentially higher tax burden” over the next 10 years.

Pethokoukis arrives at $4,000 a year by combining the $2,452 annual cost that is projected as a result of Obama’s fiscal year 2013 budget with the $1,604 annual cost that AEI says has accrued as a result of debt accumulated during Obama’s first term. (The tables for both figures are included in his blog post.)

But the $4,000 cost estimate — actually $4,056 — proved to be “the middle ground” compared with two other budget scenarios for those same families:

  • On the high end, the annual cost would be about $5,437 under “current policy,” which assumes that the 2012 policies would be extended through 2013, including retaining the Bush-tax cut for all taxpayers. (See Table 5 and Table A11.) That’s nearly $1,400 more per year than under Obama’s budget.
  • On the low end, the cost would be $2,784 a year under “current law,” which among other things assumes the Bush-era tax cuts expire for everyone as scheduled at the end of the year. (See Table 4 and Table A11.) That’s nearly $1,300 less per year than Obama’s budget.

The report says it is “unlikely that policy will exactly follow any of these paths.” But it is a useful exercise — one that shows how the federal debt will continue to burden future taxpayers, regardless of the next president.

For example, AEI calculated that the debt held by the public under Obama’s budget would rise $7.565 trillion by 2022, based on the CBO’s analysis of the president’s fiscal year 2013 budget. We looked at Ryan’s fiscal year 2013 budget and calculated that the public debt would increase $4.110 trillion during that same time. The difference between Obama’s plan and Ryan’s plan is $3.455 trillion — or 46 percent.

If Romney wins and implements Ryan’s budget, households earning between $100,000 and $200,000 would still be saddled with the $1,604 from Obama’s first term — plus another $1,128, which is 46 percent of the $2,452 that AEI says will accrue under Obama’s budget. The total annual cost for these taxpayers through 2022 would be $2,732 under Ryan’s budget.

So, by Romney’s logic, his plan “will raise taxes on the middle class by $2,732.” But that’s nonsense, too. It’s wrong to say Obama — or Romney, for that matter — has a “plan” to raise taxes by a given amount on any particular group.

‘Independent, Nonpartisan Study’?

The first of these ads — titled “Who Will Raise Taxes?” — touts the AEI report as an “independent, nonpartisan study.” It also says, “The same organization says the plan from  Mitt Romney and common-sense conservatives is ‘not a tax hike on the middle class.'”

Although the group bills itself as “nonpartisan,” it is a conservative pro-business organization whose board of trustees includes prominent Republicans, including Vice President Dick Cheney, and major GOP donors who are actively helping to elect Romney.

AEI senior fellows, too, are prominent Republicans — including John Bolton, who served as U.S. ambassador to the United Nations under President George W. Bush. Some of AEI staffers and advisers are Romney advisers and contributors.

The financial and ideological ties between AEI and the Romney campaign include:

  • Kevin B. Rollins, chairman of AEI’s board of trustees, has contributed $375,000 to the pro-Romney super PAC Restore Our Future, $42,500 to Romney Victory Inc., a joint fundraising committee, and $2,500 to Romney’s campaign. In all, he has contributed $450,800 to political committees working to elect Romney, Federal Election Commission records show.
  • Two other AEI trustees — Bruce Kovner, chairman of Caxton Alternative Management, and Harlan Crow, chairman and CEO of Crow Holdings — were also major contributors to Restore Our Future. Kovner gave $500,000 and Crow gave $150,000, according to ProPublica, a nonpartisan news website that tracks donations to super PACs. Crow Holdings separately gave $650,000.
  • In all, Rollins, Kovner, Crow and Crow Holdings combined to give nearly  $1.7 million to the pro-Romney super PAC, according to ProPublica.
  • AEI’s “national council” includes major GOP donors, including J. Joe Ricketts, who gave $100,000 to Restore Our Future, and David H. Koch, who founded the conservative Americans for Prosperity. AFP has spent $31 million on TV ads just in the presidential campaign, according to Campaign Media Analysis Group, a unit of Kantar Media.
  • R. Glenn Hubbard, a member of AEI’s academic advisers, serves as Romney’s chief economic adviser.
  • AEI senior fellows who are advising Romney include Leon Aron (foreign policy) and Scott Gottlieb (health care).
  • Gottlieb, Bolton and eight others who listed AEI as their employer contributed to Romney’s campaign. The others were Andrew Biggs, Mackenzie Eaglen, Philip Levy, John Makin, Peter Wallison and Christopher Harmer. They contributed a combined $13,250, according to a campaign finance database maintained by the nonpartisan Center for Responsive Politics.

The Romney campaign wisely dropped the description of AEI as “independent” and “nonpartisan” after the first TV ad. But the campaign continues to misuse the group’s study and, in the process, mislead voters.

— Eugene Kiely

Correction, Oct. 17: The AEI blog post was dated Oct. 2, not Oct. 8, as this story originally said.