Romney's tax cuts would blow big hole in budget: report

WASHINGTON Thu Mar 1, 2012 6:20pm EST

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WASHINGTON (Reuters) - Republican presidential hopeful Mitt Romney's plan to dramatically cut U.S. tax rates would dig a $3.4 trillion budget hole that would need to be filled by closing some major tax breaks, a think tank estimated.

A campaign spokeswoman for Romney, who is hoping to win his party's race to challenge President Barack Obama in November, said the think tank's analysis is misleading and incomplete.

The centrist Tax Policy Center estimated Romney's plan to slash all tax rates by 20 percent, as well as scrap a minimum tax on the wealthy, would force sharp curtailments of tax breaks like the deductions for mortgage interest and charitable giving, if Romney wanted to keep his pledge to not bloat the deficit.

"It is a very deep hole," said Roberton Williams, a fellow at the center and former deputy assistant director at the Congressional Budget Office.

"The bottom line is, there is a lot of revenue lost to the rate cuts and you have to make that up somewhere."

Romney, who narrowly edged out Rick Santorum to win the Michigan primary this week, has not spelled out which tax breaks he would end. His campaign has said that lowering taxes would spur economic growth as well.

"Governor Romney's tax cuts will not increase the deficit," said Andrea Saul, a spokeswoman.

"They will be fully paid for through a combination of economic growth, base broadening and spending restraint. Any analysis that claims otherwise is incomplete," she said.

Romney wants to end the alternative minimum tax on the wealthy, enacted decades ago to ensure high-income earners do not avoid taxes altogether. The policy is widely criticized, because it was not indexed for inflation and has been hitting more people in the upper middle class.

That change would cost $670 billion over a decade, while cutting tax rates for all wage earners across the board by 20 percent would cost $2.8 trillion, for a total of $3.4 trillion over a 10-year period, according to the think tank.

The Tax Policy Center is led by Donald Marron, a former economic official under Republican president George W. Bush. It also has former Democratic officials on its staff.

Limiting popular tax breaks like those for charitable deductions and mortgage interest would be politically risky.

Romney's plan, like proposals made by other presidential hopefuls, is somewhat vague.

Economist Alex Brill of the conservative American Enterprise Institute said increased economic growth is not part of the center's estimate, which Williams conceded.

Brill said: "I surely am curious about what tax expenditures he'd curtail or repeal, but I understand the difficulty any campaign faces in describing that much detail."

Williams said the $3.4 trillion figure is so big that Romney would have to make major cuts to the biggest tax breaks, like the mortgage interest deduction.

Romney has said he will keep the mortgage interest deduction and some other big breaks for those in the middle class.

"There is not enough money there if you just go after the rich," Williams said.

(Reporting By Kim Dixon; Editing by Kevin Drawbaugh and Todd Eastham)

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