Can the math work for Romney's tax rate cuts?  The Laffer Curve is not a laughing matter.  It's the growth.

I have a little twist on an old saying.  If you give a man a fish, he can eat for a day.  If you teach a man to fish, he can feed himself for a lifetime.  If you take the man's fish to redistribute them to others, he'll stop fishing and get in line for free fish.

Now in my little story, it might all depend upon the number of fish taken from the fisherman (his tax rate) to redistribute.  If you are only taking 2 out of 100, I'm sure he'd keep fishing.  Leave him 2 out of 100, he's more likely to leave it up to someone else to do the work.  Take 50 out of 100 but 750 out of 1,000; and he might  fish for an hour but he'll be less interested in outfitting a new boat in order to get a larger number of fish but with a diminishing return for him.  The varying effect that the tax rate has on gross product is what Professor Arthur Laffer years ago drew up as the "Laffer Curve".

When it comes to the recent discussions of how Romney's proposed tax rate cut would "cost" the government, they are looking for him to explain how he would make up for the lower rates by only reducing deductions on the individual's own return.  "The math doesn't work" they tell you.  "There aren't enough tax deductions or loopholes to close to make up for the lower rate".  I've seen Bill Clinton explaining for his own self how even if you eliminate all of his deductions, the lower rate applied to the remaining income results in a lower overall tax.  But all of these calculations are based on there being no growth.  If Bill Clinton were paying a combined state and federal marginal income tax on the next speech honorarium of 65%, he might say "pass" rather than taking in the remaining 35%.  Cut his marginal rate on combined taxes to 25%, and he might do an extra speech per week.

With the extra income coming in, Bill might decide to hire both an extra speech writer and travel secretary.  The naysayers to the Romney tax cut play a "zero sum game" in which the same gross domestic product results regardless of the tax rate.  If Bill hires two additional employees that might otherwise been out of work, then their income increases the gross that the lower rate is applied to as well.  Which works better to grow the economy, offering those two people a $2,000 tax decrease when they have no job, or a new job for $20,000 or more.

An increase in the growth of gross domestic product won't normally offset a tax rate cut in just a year or two.  The advantage comes by compounding the growth, each year you are going up by some percentage of an increasing number.  If Gross Domestic Product grows by 2.5% per year (a greater rate than it has been) it would take about twice the number of years for it to double compared to a 5.0%, and by the time GDP doubles at a 2.5% rate it has quadrupled with a 5.0% rate.  The rate after a tax rate cut has been at times over 8%, though it has usually been followed within a couple of years with a rate increase, slowing the economy back down prior to reaching the point of the tax revenue catching up from the lower rate on the higher gross.

When they say that there is no historical evidence that it works that is mainly due to the fact that they've failed to leave the rate cuts in place long enough.  In Romney's plan he plans to offset in part not from growth but a lowering of deductions.  Might it hurt the middle class if they did away with a deduction like home mortgage interest?  Not so much if they simply raise the standard deduction and personal exemptions enough so that you might completely exclude so that a married couple (without considering children) get the first $25,000 of income exempted compared to about $19,000 currently.  You'd likely then be losing out on the deduction if your annual interest was something over $10,000 year while having a lower rate to pay on whatever taxable income you might still have left.  You could do away with a number of deductions altogether without effecting the middle class just by upping the amount that is first exempt.

Obviously there are so many possible variables taking effect over some years that is impossible to come up with much in the way of specifics.  But is there any reason to expect a tax rate cut would not result in a growing economy?  Take the flip side and consider how many fish would you bring in with a 100% tax.  There wouldn't be a decline in economic growth with an increase in the tax rate?