Romney’s Tax Plan Doesn’t Cover Rate Cut Cost, Study SaysRichard Rubin
Republican presidential candidate Mitt Romney says his tax plan cuts rates and eliminates breaks in a way that doesn’t increase the budget deficit and doesn’t shift the tax burden from top earners to everyone else. That isn’t possible, according to a study released today.
Even if the top U.S. earners are most affected by eliminating tax breaks, there aren’t enough for high-income taxpayers to offset the rate reduction, according to the study. In 2015, the tax burden shift from those with incomes exceeding $200,000 a year to those earning less than that amount would be $86 billion, or at least $33 billion if the rate cuts generate economic growth.
“I don’t think you can do it in a distributionally neutral way, and I don’t think you can do it without really hammering things like mortgage interest,” said Adam Looney, one of the co-authors and a senior fellow at the Brookings Institution in Washington.
The study looked at how concentrated tax breaks are among top U.S. earners and estimated what would happen if those breaks were eliminated starting at the top of the income scale. It was conducted by Looney, an economist who worked in the White House under President Barack Obama, and two other researchers at Brookings.
Lanhee Chen, a policy adviser to Romney, said in a statement that the report “analyzes only half of Governor Romney’s tax program” and ignores his proposal for lowering the corporate tax rate.
Romney’s corporate tax proposal would lower the top rate to 25 percent from 35 percent and give U.S.-based companies lighter taxes on income they earn outside the country. He hasn’t specified what corporate tax breaks, if any, would be curtailed to cover the cost of the lost revenue.
Romney’s income-tax plan would reduce all rates by 20 percent, and the former Massachusetts governor has said he would do so in a way that doesn’t shift the current distribution of the tax burden. His plan would eliminate the estate tax and the alternative minimum tax, which is a parallel tax system designed to prevent high-income people from avoiding all taxes.
The study assumed that eliminating some tax breaks wasn’t an option. Those include preferential tax rates for capital gains and dividends and incentives for savings.
Obama’s tax plan would continue the George W. Bush-era income tax cuts for everyone except those in the top 2 percent of earners. His plan would limit, though not eliminate, tax breaks for high earners.
Obama cited the study during a speech today in Mansfield, Ohio, according to excerpts distributed by his campaign.
“That means the average middle-class family with children would be hit with a tax increase of more than $2,000,” he said. “But here’s the thing -- he’s not asking you to contribute more to pay down the deficit, or to invest in our kids’ education. He’s asking you to pay more so that people like him can get a tax cut.”