How Can I Trust AEI?

I meant to write this a few days ago, but never got around to it:

I want there to be a respectable conservative think tank. I want there to be good research out of the right. I want there to be policy analysis that constructively analyzes both the right and left’s proposals. Right now, there are a number of left organizations that do that. The Citizens for Tax Justice leans leftward but produces good, quality work.

It would be nice if the right could actually attempt to put out an unbalanced report. The Heritage Foundation long ago lost credibility in my eyes. But I’ve always tried to give the American Enterprise Institute (AEI) a chance. For instance, its response to the Tax Policy Center’s analysis of Romney’s tax plan is something I can at least respect and debate:

Now I don’t have a problem with the general analytical approach here, nor am I surprised by the findings given that approach. The U.S. has an extremely progressive income tax system where the top 1% pay 40% of the income taxes, while the bottom 50% pay just 2%. Across-the-board tax cuts will favor upper-income folks and “paying for them” will make the system less progressive in terms of the tax burden.

But I do have some issues with the study, as well as an observation or two.

First, the study assumes that Romney’s corporate income tax will be paid for by eliminating about $100 billion in business tax breaks. Yet an AEI study suggests that the U.S. corporate tax rate is deeply on the wrong side of the Laffer Curve and a cut to 25% might well pay for itself. So that $100 billion could help pay for individual income tax reductions.

Second, the study offers one scenario that assumes the tax plan produces greater economic growth than the TPC baseline scenario with a revenue loss of around $300 billion instead of $360 billion. Apply that $100 billion in corporate savings, and the revenue loss — before scaling back individual tax breaks — would be around $200 billion. At that point, the supposed tax hike for those making under $200,000 would likely be much less than 1%.

Third, I would guess the Romney campaign is betting on even higher GDP growth estimates than Brookings-TPC, assuming the economy might get a confidence bounce from business, investors and consumers after a Romney win, especially if he is able to produce major tax and entitlement reform.

I haven’t seen any other study on the correct Laffer curve rate for the corporate tax rate than AEI’s. It’s great that AEI has done that research. And while I don’t necessarily agree with their points (corporate tax revenue isn’t just related to the Laffer curve, it also has to do with the international system), I think that reasonable people can disagree over them. And on top of that, the authors agree that “across-the-board tax cuts will favor upper-income folks and “paying for them” will make the system less progressive in terms of the tax burden.” It’s good stuff.

But then the President of AEI, Arthur Brooks, comes out with a trash column in the Wall Street Journal. It mainly focuses on the Administration’s decision to issue welfare waivers. This has been thoroughly debunked all week so I’m not going to go into it. What I do want to point out is how Brooks opens the op-ed:

Within the space of just two weeks, Americans have witnessed two radically different philosophies about the free enterprise system from President Obama. In his notorious Roanoke, Va., speech of July 13, he said “If you’ve got a business—you didn’t build that. Somebody else made that happen.” That is, Americans have not fully earned their success. (bolding mine)

Are you kidding me?! It’s dishonest and slimy for Romney to slice Obama’s words like that. For a supposedly respectable head of a conservative think tank to do so is disgraceful and despicable. Honestly, Brooks 100% knows what he is doing here. His entire goal is to trick the American public. How can I trust anything AEI produces when its president writes such garbage?


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