In the second presidential debate on Tuesday, an audience member asked Gov. Mitt Romney how his tax plan would affect her personally. She specifically asked him what he would do to tax provisions such as the home mortgage interest deduction and education credits. As he has done throughout the campaign, the former Massachusetts governor refused to give a straight answer.
In response Gov. Romney floated one idea for how to pay for his $5 trillion in tax cuts—a dollar-cap on itemized deductions. But as a new analysis makes clear, limiting or even eliminating itemized deductions doesn’t come remotely close to paying for his tax plan. And as the new analysis from the Tax Policy Center shows, even with the deduction limit, the richest Americans would still receive enormous tax cuts from Romney’s plan.
Gov. Romney proposes about $5 trillion in tax cuts weighted toward high-income Americans and corporations, but his plan includes no specific proposals on how to pay for it. As previous research by the Tax Policy Center methodically demonstrates, the magnitude of Romney’s cuts, given the details he has outlined, can only be paid for with a significant middle-class tax increase. Gov. Romney denies this, suggesting that if enough tax breaks for high-income Americans are sacrificed—tax breaks that he refuses to identify—his plan can be “revenue neutral” without shifting the tax burden from the rich onto everyone else.
Yet the latest analysis by the economists at the nonpartisan Tax Policy Center shows two important things:
- Gov. Romney’s itemized deduction idea does not come remotely close to paying for Romney’s tax plan
- Even with a tight cap on itemized deductions, the richest Americans would receive enormous net tax cuts from Romney’s plan
The upshot is that any way you cut it, Gov. Romney’s tax cuts for the rich and corporations create a massive revenue hole that can only be made up by raising taxes on middle- and low-income Americans. Here are the details.
Romney’s itemized deduction idea does not come remotely close to paying for Romney’s tax plan
Using its tax estimation model, the Tax Policy Center finds that Gov. Romney’s idea to limit itemized deductions to $25,000 raises only $1.27 trillion over 10 years. It also finds that eliminating itemized deductions entirely would only raise $1.96 trillion over 10 years. That’s not nearly enough to offset his approximately $4.8 trillion in tax cuts. Donald Marron, who directs the Tax Policy Center and was George W. Bush’s top economic advisor, summarizes:
Capping itemized deductions at $25,000 would thus produce about one-quarter of the revenue needed to offset Governor Romney’s tax cuts, and completely eliminating them (which he has not suggested) would cover about 40 percent of the revenue needed.
Since Gov. Romney’s only idea for paying for his tax cuts gets only one-quarter of the way there, the question he still must answer is who pays for the remaining three-quarters. (See Figure 1)
Even with a limit on itemized deductions, the richest Americans would receive enormous net tax cuts from Romney’s plan
The new Tax Policy Center analysis shows that limiting or even eliminating itemized deductions can’t possibly offset Gov. Romney’s tax cuts for the rich. It provides further evidence that Gov. Romney’s assertion in the debate that “I am not going to have people at the high end pay less than they’re paying now” was flatly false.
To be sure, the analysis shows that limiting itemized deductions in and of itself is very progressive. The further you go up the income scale, the more that such a limit would raise your taxes as a share of your income, but combining the itemized deduction proposal with everything else he proposes results in a massively regressive tax cut. The richest Americans would receive enormous tax cuts overall from the Romney plan. (see Figures 2, 3, and 4)
Bottom line: Gov. Romney’s tax cuts giveth much more to the rich than any limit on deductions taketh away. Even with a $0 cap on itemized deductions, the net tax cut for the richest Americans is only a little bit smaller.
What’s more, these numbers do not even include the huge windfall that the richest Americans receive from making the Bush-era tax cuts permanent, which Romney supports. (President Barack Obama would let the Bush tax cuts expire for incomes above $200,000 for individuals and $250,000 for couples.) Citizens for Tax Justice finds that if you include the Bush tax cuts, millionaires receive an average tax cut of more than $250,000 from the Romney plan even if all of their tax breaks are eliminated (except those for investments, which Gov. Romney leaves off the table).
The Romney campaign’s dishonest and unsettling response
In a blog post, the Romney campaign offers several responses to Tax Policy Center’s recent analysis, but none hold any water. Here is why they’re wrong:
- Other tax breaks can’t make up the difference. Gov. Romney’s campaign notes that the universe of tax breaks goes beyond itemized deductions so the potential savings from reducing them could be greater. It’s true that itemized deductions are only one form of “tax expenditure” and that there are others. The problem is, Gov. Romney could not possibly get much additional revenue from the other tax breaks without burdening middle- and low-income Americans. That’s because the largest tax breaks for the rich—tax breaks on investments such as capital gains and dividends—are off the table under his parameters. And the other major tax breaks, such as the exclusion for employer-sponsored health insurance and the child tax credit, predominantly or exclusively benefit Americans with incomes under $200,000. The Tax Policy Center’s original analysis considered all tax breaks except those for investment income and others whose elimination would be impractical or extremely politically unrealistic. It tried to make Romney’s tax cut add up in the most progressive way possible but found that the math is impossible without a middle-class tax increase.
- Including corporate tax cuts in the analysis makes Romney’s math harder, not easier. The Romney campaign complains that the Tax Policy Center does not include the potential savings from reducing corporate tax breaks. But the itemized deduction proposal falls far short of paying for Romney’s tax cuts even if you don’t include the more than $1 trillion in corporate tax cuts he has proposed. Moreover, Gov. Romney says the savings from reducing corporate tax breaks will be reserved for even bigger corporate tax cuts in the future. (Don’t believe me? Read this, this, and this, and see page 5 of this.)
- Voodoo economics can’t make Romney’s plan add up. Gov. Romney’s campaign also made the age-old supply-side argument that the tax cuts for the rich would have such positive economic effects that it would pay for itself in significant part. But these claims are unfounded. In fact, the Tax Policy Center examined Gov. Romney’s plan using aggressive growth estimates and it still fell far short of adding up.
- Romney’s “six studies” actually show why his plan doesn’t add up. Gov. Romney continues to use the thoroughly debunked talking point that “six studies” show that his tax math can add up. But these six studies (most of which can’t really be called studies) actually serve to show why his plan doesn’t add up. At least one of the analyses quite clearly documents why the Romney tax plan would at the very least require a tax increase on Americans making between $100,000 and $200,000 a year, which Romney continues to deny.
- Romney’s attack on the nonpartisan Tax Policy Center is shameful and unsettling. The Romney campaign’s blog post calls the Tax Policy Center’s most recent estimates “deceitful” and insinuates that their attempt to inform voters was politically timed. The attack on Tax Policy Center, a nonpartisan and universally respected research organization, is shameful.
The Romney team is showing that its modus operandi is to conceal details of its plans, deny mathematical truths about those plans, and attack the integrity of those who point out those truths in the interests of giving voters an informed choice. This has frightening implications for more than just tax policy.
Seth Hanlon is Director of Fiscal Reform at the Center for American Progress Action Fund.