Right now voters are leaning toward reelecting President Obama. An average of the latest public opinion polls gives Obama a lead of 48 percent to 44 percent over former Massachusetts Gov. Mitt Romney. Polls also show that Obama is favorably viewed by 50 percent of voters compared with 35 percent for Romney. In the United Kingdom, a $100 bet on Romney will net you a $175 profit if Romney wins. A winning bet on Obama yields only $40.
But there are a lot of reasons for Democrats to worry. New voter registration rules will restrict turnout by Democratic voters. Citizens United means rich Republican donors can contribute unlimited funds for attack ads in critical television markets. And the turnout by youth and minority groups that was so high in 2008 may recede in 2012 because of waning enthusiasm.
Moreover, the media's obsession with reporting poll results tends to make us forget that the Electoral College picks the president, and national opinion polls do not necessarily predict outcomes there. Low-population, conservative-leaning states are disproportionately represented in the Electoral College. And the large margins Obama enjoys in California and New York do not get him any extra electoral votes.
According to 270towin.com, Obama is firmly in the lead in 15 states and the District of Columbia, yielding him 196 electoral votes. Romney is pretty much a sure bet in 22 states, with a total of 181 votes. The 13 swing states where all campaigning will take place are Florida (29 electoral votes), Pennsylvania (20), Ohio (18), Michigan (16), North Carolina (15), Virginia (13), Missouri (10), Wisconsin (10), Colorado (9), Iowa (6), Nevada (6), New Mexico (5), and New Hampshire (4). So, for example, Romney could be victorious in the hardly implausible scenario in which he wins Florida, Pennsylvania, North Carolina, Virginia, Missouri, and New Mexico.
Currently, Democrats and the two independents who caucus with them control the Senate with 53 seats. Most political prognosticators believe there is a slightly better than even chance the Republicans will retake the chamber. According to Real Clear Politics, 46 Democratic and 46 Republican seats are safe or not up for reelection. The races too close to call are in Florida, Maine, Massachusetts, Missouri, Montana, Nevada, Virginia, and Wisconsin.
In the House, Republicans hold a 242-191 majority. Although Republicans might lose some ground from the landslide gains of 2010, redistricting by Republican-controlled state legislatures will save many seats that otherwise would be in play. Few political experts believe there is much chance Republicans will lose the House, although House Speaker John A. Boehner, R-Ohio, recently put the odds of a defeat at 1 in 3.
Of course, all of this can and probably will change. The unbearably long battle for the Republican nomination may be over, but Election Day is still more than six months away.
Out of the fog of all this uncertainty, one game-changing outcome emerges. If Romney wins the presidential race, the nation will have shifted to the right, and in that case the outcome of the congressional elections will be more favorable to the GOP than is now being predicted. If Romney gets 270 electoral votes on November 6, he will certainly have a Republican majority in the House and most likely a majority in the Senate, too.
In that case, if there are no changes to Senate rules, Democrats would still be able to block legislation with a filibuster that only 60 votes can overcome. But there is one glaring exception to this rule. Passage of a budget reconciliation bill requires only 51 votes. Using budget reconciliation procedures, Romney and the Republican Congress could enact any tax legislation they want with straight party-line votes. Democrats would be powerless to stop them.
Big Tax Cuts?
If elected, Romney -- like Presidents Reagan and George W. Bush -- might set to work immediately on moving major tax legislation that fulfills his campaign promises. Using the reconciliation process, as Bush did in 2001, he would have a clear path in Congress. But unlike Bush, who had a large projected surplus, Romney faces huge deficits.
Romney's tax agenda is ambitious. According to his campaign documents, he would extend the Bush tax cuts across the board (if they aren't already extended for him in the lame-duck session). Then he would add tax cuts that include a 20 percent cut in all individual income tax rates; elimination of all tax on interest, dividends, and capital gains for households with incomes below $200,000; elimination of the estate tax; repeal of the alternative minimum tax; and a reduction of the corporate rate to 25 percent. Because he would also repeal the Patient Protection and Affordable Care Act, Romney would eliminate that act's 3.8 percent tax on investment income of high-income individual taxpayers and the 0.9 percent tax on wages that is scheduled to take effect in 2013. The Romney campaign says eliminating tax benefits will offset the cost of these tax cuts, but it has not specified what tax benefits it intends to cut.
The price tag for the tax cuts is staggering. According to the Urban-Brookings Tax Policy Center, assuming the extension of the Bush tax cuts is already included in the baseline, the reduction in revenue would be $480 billion for 2015. That's about 3 percent of GDP.
There would have to be a lot of tax expenditure cuts to pay for that. The individual base broadening would have to be on a much grander scale than anything that was done under the Tax Reform Act of 1986. As noted, Romney needs $480 billion in 2015 alone. Table 1 shows revenue estimates for the largest tax expenditures Romney might conceivably consider (that is, excluding tax expenditures for investment income).
Table 1. Official Revenue Estimates of
Major Tax Expenditures
Tax Expenditure Fiscal 2015
Deduction for mortgage interest $113 billion
Charitable deduction $57 billion
Deduction for state and local taxes $85 billion
Exclusion for employer-provided health benefits $176 billion
Source: Joint Committee on Taxation, ``Estimates of Federal
Tax Expenditures for Fiscal Years 2011-2015,'' Jan. 17, 2012.
These four add up to $430 billion, but official estimates of tax expenditures cannot be used as accurate estimates of potential revenue gains under the Romney plan. Official estimates assume the Bush tax cuts expire and the patch on the individual AMT is not extended. Romney's rate reductions reduce the size of these estimates, while repealing the AMT raises them. According to the Committee for a Responsible Federal Budget, these official estimates probably should be increased by about 25 percent to gauge the revenue effect of tax expenditure reductions under the Romney plan. (See "How Would Governor Romney Pay for His Tax Cuts?" Apr. 20, 2012, http://crfb.org/blogs/how-would-governor-romney-pay-his-tax-cuts.)
Making this adjustment means that eliminating all four tax expenditures would yield tax increases above the $480 billion Romney needs to pay for his rate cuts. So it is mathematically possible for tax expenditures to pay for the Romney plan. But he would have to gut not just some, but all major tax expenditures. There is nothing in history to suggest that this is even a remote political possibility. So, realistically, there is little chance of the Romney plan becoming law if he is dependent on base broadening to fund it.
Undoubtedly, the Romney campaign will argue that additional revenue from economic growth induced by tax cuts will help offset the cost. That might work for campaigns, but it does not work for legislation. Official scorekeeping conventions do not include this type of dynamic estimating. And it is unlikely Republicans gaining control of Congress will change that. The Republican Congress that swept into power in 1995 gave serious consideration to dynamic estimating, but after much study it had to reject it as unworkable.
Taxing the Rich?
On April 15 reporters overheard Romney telling supporters at a closed-door fundraiser that to pay for his rate cuts, he would eliminate the deduction for state and local taxes and the mortgage interest deductions for second homes. The following day, in an interview with ABC's Diane Sawyer, Romney said:
I'm going to limit certain deductions and exemptions for high-income individuals so that even as we lower the rates for all Americans, we're not going to shift the burden from middle-income people to higher-income people. I want to help middle-income people the most. . . . My plan will not in its final plan reduce the burden paid by the highest-income people in the country. I'm not looking for tax cuts for the rich.
The question whether the Romney plan is or can be distributionally neutral is complex. His plan will provide little or no benefit to low-income Americans who do not pay income taxes. So, taking all taxes into account, it is hard to see how Romney's plan could ever keep the benefit of tax cuts from tilting in favor of upper-income households. And that is what the Tax Policy Center found. Its distributional analysis of the Romney plan (not including the unspecified base broadening) shows that it disproportionately favors higher-income taxpayers.
Romney will probably argue that the burden of the income tax -- as opposed to all taxes -- will remain the same. He would have a good shot at achieving this if he can follow through with his idea of cutting tax expenditures for high-income households. Although there would be stiff opposition, among all the possibilities for raising significant amounts of revenue, limiting tax expenditures for high-income taxpayers probably has the best chance of becoming law. In his budgets, Obama has proposed limiting the tax value of deductions to 28 percent for high-income taxpayers.
While cutting tax expenditures for the rich is far more politically palatable than cutting them across the board, it also significantly reduces the amount of revenue available. Again, a promise of cutting rates by 20 percent is not credible if it must be paid for with base broadening.
And that means that even if Romney wins and Republicans are running Congress, it is unlikely Washington will go on a tax cutting frenzy. Republicans may be unconstrained by Democrats, but they will be constrained by themselves. Base-broadening tax reform is not a battle of partisan politics but of special interest politics. And special interests will still be alive and well after a Republican sweep. If the Republicans try anything too gimmicky with how they score the tax cuts, alarm bells will sound in the bond market -- something a president with close ties to Wall Street is unlikely to tolerate.
No doubt there will be spending cuts in social programs, but one must believe most of the savings will be devoted to deficit reduction. This is not 1981. This is not 2001. The next president, regardless of whether it is Obama or Romney, must put federal finances on a sustainable path. It is hard to see how a President Romney could propose a plan that significantly cuts taxes. If his plan must be revenue neutral, or close to it, the amount of rate reduction it can achieve will be severely limited.