This week's numbers: 51%; 85%; 2.3%; 87%; 62%

51%... is a diminished number. That’s how many Americans were part of the middle class in 2011, according to the Pew Research Center. That’s down 10% since 1971 and represents the only way the U.S. has slimmed down in the middle since then.

85%... is a struggling number. That’s how many middle class Americans say their lifestyle is getting harder to maintain. Keeping up with the Joneses presents new challenges when the Joneses are underemployed and underwater on their mortgage.

2.3%... is a middling number. That’s how much the median net worth of middle class households has grown since 1983. The trickle-down effect Republicans started touting around then has turned out to be an awfully slow drip.

87%... is a bountiful number. That’s how much the median net worth of the wealthiest households has grown during the same period. Instead of lifting all boats, the rising tide seems to be lifting the luxury yachts and capsizing the canoes.

62%... is a frustrated number. That’s how many middle class Americans blame Congress for their hardships. But policymakers haven't completely ignored the problem; they’ve spent years discussing how their opponents aren’t doing anything about it.

Tim Price is Deputy Editor of Next New Deal. Follow him on Twitter @txprice.

This week's numbers: $360 billion; $86 billion; 20%; $175,000; $130

$360 billion... is an unpaid number. That’s how much Romney’s tax plan would reduce revenue in 2015, according to a Tax Policy Center analysis. Maybe rather than running for president he's just trying to engineer a leveraged buyout of the country.

$86 billion... is a shifted number. That’s how much more of the tax burden would have to fall on the middle class and poor for the plan to be deficit-neutral. Since there's only so much room on their shoulders, Romney has dropped his plan to have them carry the rich around in litters.

20%... is a flat number. That’s how much Romney’s plan would cut from all individual tax rates, with the highest dropping from 35 and 28 (time to buy that yacht!) and the lowest dropping from 10 to 8 (time to buy that sandwich!).

$175,000... is a saved number. That’s how much less the average millionaire would pay each year under Romney’s plan, though some have tried to compare it to how much they usually pay and gotten a divide-by-zero error.

$130... is an expired number. That’s how much more the average person earning less than $30,000 would have to pay due to the end of Obama's tax cuts. The GOP always said he would raise taxes; little did they know he'd trick them into doing it themselves.

Tim Price is Deputy Editor of Next New Deal. Follow him on Twitter at @txprice.

A quick analysis based on class shows that the math simply doesn't add up, particularly for the poor and middle class.

The big news in campaign trail policy wonkery last week was the Tax Policy Center's white paper by Samuel Brown, William G. Gale, and Adam Looney arguing that it is mathematically impossible for the Romney tax plan to meet its described goals. Ezra Klein has write-ups here and here, and James Pethokoukis has analysis here. Since Romney hasn't released his plan, Brown, Gale, and Looney cleverly put together the best case scenario and crunch the numbers -- and conclude they don't work.

How is that? Romney's plan has three goals. It starts by lowering tax rates by 20 percent. It then seeks to keep raising the same amount of tax revenues as it did before by removing tax expenditures, or the variety of exemptions, deductions, or credits in the tax code that function as government spending. As the wonks would say, it wants to "lower the rates and broaden the base." However, and this will be crucial, it excludes expenditures related to investment income and savings from being available for these cuts. Finally, it wants to maintain the current level of progressivity by making sure that the top one percent pays no less in taxes and everyone else pays no more. The Tax Policy Center analysis shows that it is impossible to do all three: enacting the Romney plan requires cutting taxes on the top one percent and raising them on everyone else.

In order to better understand why this is impossible we need a quick, back-of-the-envelope class and distrbutional analysis of how tax expenditures work in the United States. Tax expenditures are thought to be regressive, benefitting those with more resources. The general argument for why is because tax expenditures are closely linked with employment compensation or spending, so those who have jobs and get paid more or spend more benefit more. Being able to pay less in taxes disproporationately benefits those better off and those with the resources and ability to take advantage of often complicated tax planning. A privatized welfare state administered through these coupon-like mechanisms, compared to public ones, involve less compulsory risk-pooling and more individualized risk-bearing, which tends to benefit those who are better off.

But we can get more granular than that, and we need to in order to understand why Romney's plan fails. Let's take a quick look, using this great New York Times chart based on Tax Policy Center numbers, at who gains from different types of tax expenditures in the United States.

This chart looks at five types of tax expenditures and then at the distributional consequences for each class. Let's grab this stick by the other end and look at what sets of tax expenditures benefit three classes of people.

The first are tax expenditures that go to the working poor. These are focused on refundable credits, where almost 60 percent of them go to the bottom 40 percent of Americans. Low-income workers are, by definition, struggling to find decent wages, and these tax expenditures are meant to help boost wages at the bottom end. The big driver here is the Earned Income Tax Credit, which is a credit for low-income workers. The Tax Policy Center has this "on the table" for being able to be cut under Romney, and it is telling that the GOP hasn't said whether they want to cut it and seem to be dropping hints that they might want to go after these "lucky duckies."

The second are those that go to the middle class and upper-middle class. I don't mean middle class as the median person, but more along the lines of people whose work requires having at least some college education and who often are defined by longer-term attachment to an employer or middle management positions. These are focused on itemized deductions and tax exclusions. As seen in the chart, over 50 percent of these go to those between the 80th and 99th percentile of income. The big drivers here are two goods that are closely associated with middle-class life: health care provided by employers and a home mortgage. Both mortgage interest and employer health care spending are subsidized through tax exemptions.

And the third set are those that go to the top one percent. These are focused on special treatment for capital and dividend income. Dividends and capital income are taxed at a lower rate than wages, and as those incomes are predominately earned by the top one percent, these benefits tend mostly to benefit that group. The top 0.1 percent earn more than half of this expenditure, with the top one percent taking home a total of 75 percent of the benefit. Because of this differential, people working in certain elite financial positions often claim that their wages come from money rather than labor, and thus qualify for this exemption.

Tax policy doesn't create the conditions for each of these groups, but it helps sustain them. Making low-wage work more bearable, keeping the middle class in long-term employment relationships and making sure they are property owning members of their communities, and increasing the financialization of the economy and the explosive wealth of the top one percent all are boosted by the system the government uses to identify and collect taxes.

So with this framework in mind, what's the problem with Romney's plan? What it wants to do is lower taxes on each group and make up that difference by reducing the tax expenditures each group receives. But remember that he doesn't want to touch the tax expenditures in the third set, all the ones for savings, capital gains, and dividends, which go overwhelmingly to the top one percent. So he wants to lower taxes on the one percent, and he has to make the lost revenue up by cutting a set of tax expenditures for them that largely go to either the working poor or the middle class.

Now it is true that the top one percent benefit from exclusions as well, but this is largely a function of tax preferences for retirement savings, which the Tax Policy Center excludes from Romney's plan. The rest of the major exclusions and credits don't do very much and can't make up the shortfall given runaway inequality. Qualified retirement plans have caps on them, and health care premiums do not scale with inequality at the top end. Child tax credits are a fixed amount and don't scale at all with income. There's simply very little in this space that could be done.

So, and I'm not seeing this emphasized enough, if you are going to "lower the rates and broaden the base" for the rich, you need to actually broaden the base of the tax expenditures that the rich receive. This will be true for all of these plans going forward, and especially for Romney's. Otherwise, as the Tax Policy Center found, the exercise can't actually work.

One question I have, and I'm surprised the paper doesn't touch on, is whether the Romney plan is mathematically impossible, period. Would broadening the base on the third set of savings and investment income actually make the plan work? The 99 to 99.9 percent gain an average percent change in after-tax income of 3.5 percent, and the top 0.1 percent gain 4.4 percent, while everyone loses 1.1 percent under the Romney plan.

According to another Tax Policy Center paper, "Distributional Effects of Individual Income Tax Expenditures: An Update" by Eric Toder and Daniel Baneman (p. 7), eliminating the tax preference for capital gains and dividends would reduce after-tax income by an average of 4.5 percent for the top 1 percent. That would get Romney most of the way there, and perhaps removing exclusions for savings would make the entire plan work. However, if you lower rates while broadening the base, reducing tax expenditures brings in less money. So bringing in the tax expenditures for the top one percent may still not allow the plan to work. It's likely that these exclusions for savings and investments would be expanded, not cut, under the Ryan budget and what Romney eventually ends up doing, but it is worthwhile to see if this plan could work under any set of base broadening.

Mike Konczal is a Fellow at the Roosevelt Institute. Follow or contact the Rortybomb blog:

  

The real question isn't whether Mitt Romney paid his taxes. It's whether we want to make an unfair tax code even worse.

Republican presidential nominee Mitt Romney last week promised ABC News he would “go back and check” whether he had ever paid a tax rate lower than 2010's 13.9 percent. He hasn't, and the questions keep piling up. This week Senate Majority Leader Harry Reid repeated a rumor, attributed to a former Bain partner, that Romney had paid no taxes for 10 years. And in the New York Times on Tuesday, Michael Graetz, a former official in the first President Bush's Treasury, speculated about what might be in the returns. It's possible we'll find something in Romney's taxes that's disqualifying or suggests that he broke the law, but I doubt it. We're unlikely to learn anything about Romney from his tax returns that we don't already know – that he's a very rich man with a taste for cutting-edge financial engineering. It's what we'll learn about taxes that might shock us. The Romney tax returns are a rare opportunity to see how the tax code really works for the very wealthy and whether we want to change it in the direction that Romney has proposed or take it in the direction of real fairness and efficiency.

Let's start with the possibility that Romney paid a tax rate much lower than 13.9 in some years, or something in the low single digits. Graetz says that's “plausible” but might be “perfectly legal.” If he did, he would probably have to show real losses on his investments, which would offset his gains. These might be “capital loss carryovers” from previous years. He had a $4.5 million carryover on his 2010 taxes, from which NYU professor Dan Shaviro inferred that he probably had more losses than gains on his 2009 return – that is, he had to “carryover” the extra losses to the next year. If so, it's possible that he paid very little in taxes in 2009 – a bad year on the stock market – because he lost money. It's hard to see that as a problem, though. If Romney really lost money, he had no gains to pay taxes on.

But this also reveals another way in which the tax code benefits those whose income comes from investments: they are able to move their gains and losses around and use the losses when they need them to offset their gains. Most of us can't do that. With a couple of exceptions, as our income goes up and down, we can't move deductions that we couldn't use in one year and carry them over to another. We can't use our bad years to offset the good ones. 

And then there's that massive Individual Retirement Account, valued in his financial disclosure at between $20 million and $101 million. How does that happen? Contributions to that type of IRA are limited to $30,000 a year, so these are remarkable returns. (The average IRA has about $67,000 in it.) The answer is that he's not putting cash in the IRA; he's putting in stock. The trick is to put in stock that has a low value but a huge upside. Graetz says that “we have to presume that Mr. Romney valued the assets he put in his retirement account at far less than he would have sold them for.” Apparently this is not uncommon – if you had just founded Facebook, for example, you could load up your IRA with shares when they were valued at $1, and then as the company grew, the capital gains would be tax-deferred in the safety of the IRA. As Graetz says, “The IRA also allows Mr. Romney to diversify his large holdings tax-free” – by which he means that if you want to have a typically diversified portfolio of high-risk/high-return investments and low-risk ones, by putting the high-return stocks into the IRA, you keep all the capital gains in that tax-deferred space. (I say tax-deferred rather than tax-free because eventually the gains are supposed to be taxed, depending on whether the Romneys withdraw funds from it or pass it on to their heirs.)

More interesting than how Romney did it is the fact that it's even possible to wall off such a massive amount of money in an IRA. A policy that allows and encourages people to save enough for retirement makes a lot of sense, but this is way beyond what anyone needs for retirement. It's doubtful that anyone in Congress, when IRAs were created in 1974, imagined they were creating a system for large fortunes to be held untaxed, but that seems to have been the effect.

There are two important points about the tax system that Romney's taxes, even what we already know about them, reveal: The first is that the creation of tax-deferred accounts can take huge amounts of investment income out of the tax system entirely. A major thrust of Republican tax policy has been to expand the number of opportunities to put money – and the income it generates -- into accounts that fall outside the scope of taxation. These include various forms of IRAs, health savings accounts, education savings accounts, and others. Many of them benefit the middle class, although they provide little value for low-income workers. But as we see from the Romney example, they can provide huge benefits to the wealthy. Any serious tax reform should aim to reduce the number and scope of these accounts in order to bring as much income as possible under the purview of the tax system and keep rates as low as possible.

And second, Romney's taxes reveal how misleading just looking at the “rate” paid by Romney or any other wealthy person really is. When we eventually see the returns, we won't know what percentage of Romney's income he pays in taxes because we aren't seeing all of his income – some large amount of it is flowing through this IRA. Again, that's not a Romney problem; it's an example of how ordinary high-end tax practices make it difficult to even judge whether the system is fair or equitable.

When we eventually see Mitt Romney's tax returns, I hope that the debate about whether he's a tax cheat or a mere tax-avoider won't distract us from the fact that we've created a tax system that doesn't make any sense and absurdly benefits the very well-off. There's a choice between policies that would take the tax code even further in that direction and policies that would begin to restore sanity and fairness.

Mark Schmitt is a Senior Fellow at the Roosevelt Institute.

Tax shelter image via Shutterstock.com.