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Ezra Klein - "Tax plan specifics! From Mitt Romney!" - Romney's Plan Still Upside Down
Even with a cap on exclusions for local property taxes, mortgage interest and health insurance expenses, which benefit the middle class, Romney's plan is still upside down and not enough to pay for the huge tax cut to the rich.
This leaves a lot of unanswered questions. For instance, which deductions are covered in the $17,000 cap? Is it only the deductions he mentioned? Is it all itemized deductions? Is the state and local tax deduction in there? Is it really going to include the exclusion for employer-based health care? Is the cap in addition to, or instead of, the standard deduction? Do individual taxpayers have a lower cap than families?
Even if you assume the plan will be maximally stringent, it doesn’t look like this would raise enough money to pay for Romney’s tax cuts. Remember that to make the numbers work, Romney would have to fully eliminate all itemized deductions — and a few deductions beyond that — for wealthy taxpayers. This doesn’t go anywhere near that far. William Gale, of the Tax Policy Center, says the net revenue would likely be in the $1-$2 trillion range, while Romney’s rate cuts are in the $5 trillion range, though he cautions that that’s just a guess based on Romney’s description of the idea.
It’s also very difficult to see how Romney achieves his goal to keep the plan distributionally neutral using this policy. Remember that when the Tax Policy Center looked at Romney’s rate cuts, they went “top-down,” meaning they eliminated every dollar of deductions for people making more than $200,000 before eliminating any dollar of deductions for people making less than $200,000 — and they still couldn’t make the policy as progressive as the current system. This idea, while it hits the rich harder than it hits the poor, is not nearly so progressive, which means it does imply a net tax increase on those making less than $200,000 and a net tax cut on those making more than $200,000.
But this does give us some insight into how Romney is thinking about tax reform. Rather than picking fights over individual tax breaks, he’s looking to put a cap on total deductions. It’s reminiscent of Martin Feldstein’s “2% plan” and of Richard Thaler’s “28% plan.”
Even if you assume the plan will be maximally stringent, it doesn’t look like this would raise enough money to pay for Romney’s tax cuts. Remember that to make the numbers work, Romney would have to fully eliminate all itemized deductions — and a few deductions beyond that — for wealthy taxpayers. This doesn’t go anywhere near that far. William Gale, of the Tax Policy Center, says the net revenue would likely be in the $1-$2 trillion range, while Romney’s rate cuts are in the $5 trillion range, though he cautions that that’s just a guess based on Romney’s description of the idea.
It’s also very difficult to see how Romney achieves his goal to keep the plan distributionally neutral using this policy. Remember that when the Tax Policy Center looked at Romney’s rate cuts, they went “top-down,” meaning they eliminated every dollar of deductions for people making more than $200,000 before eliminating any dollar of deductions for people making less than $200,000 — and they still couldn’t make the policy as progressive as the current system. This idea, while it hits the rich harder than it hits the poor, is not nearly so progressive, which means it does imply a net tax increase on those making less than $200,000 and a net tax cut on those making more than $200,000.
But this does give us some insight into how Romney is thinking about tax reform. Rather than picking fights over individual tax breaks, he’s looking to put a cap on total deductions. It’s reminiscent of Martin Feldstein’s “2% plan” and of Richard Thaler’s “28% plan.”
