Romney's deduction caps don't pay for tax cuts -study

WASHINGTON Wed Oct 17, 2012 6:59pm EDT

WASHINGTON Oct 17 (Reuters) - Mitt Romney's proposed cap on itemizing tax deductions could not on its own raise enough new government tax revenue to compensate for revenues lost by the Republican presidential candidate's plan to slash income tax rates, a think tank said on Wednesday.

The Tax Policy Center, a nonpartisan group that has weighed in on other Romney proposals, said his deductions cap could raise up to $1.7 trillion over 10 years. The center said earlier this year Romney's 20-percent tax rate cut would cost $4.8 trillion.

The former Massachusetts governor has argued that his plan will not cost $4.8 trillion. At a debate on Tuesday with Democratic President Barack Obama, Romney reiterated that he would pay for his tax cut proposal by capping tax deductions by a set dollar amount. Taxpayers could choose their deductions under the cap, such as the home mortgage interest and charitable donation write-offs, among others, he said.

"I'm going to bring rates down across the board for everybody, but I'm going to limit deductions and exemptions and credits, particularly for people at the high end," Romney said at the debate in Hempstead, New York.

The Tax Policy Center acknowledged its latest estimates were based on an incomplete picture of Romney's tax plan.

"The Tax Policy Center has again inserted their own assumptions in order to reach a biased conclusion," a Romney campaign spokeswoman said on Wednesday.

The Romney campaign had previously criticized the Tax Policy Center's estimates, saying they did not account for economic growth that can pay for tax cuts and that the center excluded some tax breaks in their studies.

The campaign has said the limit on itemized deductions would be only part of its plan to fund the rate cut. For instance, it would also revamp the tax treatment of healthcare, which now comes in the form of an exclusion when health insurance is workplace-based.

Romney has shifted the dollar amount taxpayers might be able to deduct. "I'll pick a number - $25,000 of deductions and credits, and you can decide which ones to use," he said.

Romney earlier this month floated a cap on deductions set at $17,000. His campaign later said that proposal is one of a range of options. Romney has also said $50,000 could serve as the cap.

The higher the cap, the less money Romney's tax plan could raise to offset tax rate cuts, the center's estimates show.

A cap of $17,000 would raise $1.7 trillion over 10 years while the $50,000 cap would raise only $760 billion. If Romney eliminated all itemized deductions, his plan could raise $2 trillion over 10 years, the center has estimated.

Obama has called for a cap on itemized deductions of 28 percent of adjusted gross income for individuals earning more than $200,000 a year and families earning more than $250,000.

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Comments (16)
slimy wrote:
But, the gains in the economy moving forward will more than make up for the shortage. 100% of nothing is nothing, while 20% of more is…more. Get it? It’s a better bet than continuing the same ole Obama spend and tax (hoping for change deal). Plus, the certainties of Romey’s plans give businesses a chance to see a brighter future and stimulate investing again. Please, God, let Romney win and send Obama home!

Oct 17, 2012 7:47pm EDT  --  Report as abuse
daveba67 wrote:
And Obama could tax all the rich people at 100% and still not come close.

Oct 17, 2012 7:57pm EDT  --  Report as abuse
NCVoter wrote:
This represents yet another study that shows that closing loopholes cannot come even close to covering the loss in revenue caused by an across-the-board 20% cut in taxes. Last week, it was widely reported that Congress “released a study that says eliminating all itemized deductions would pay for just a 4 percent cut in tax rates — far below Romney’s 20 percent target [Washington Post].” So even if we eliminate ALL itemized deductions — which Romney is not proposing to do — we can’t make up the difference. Romney also argues that the economy will grow because of the tax cuts — and that will make up the difference. But, Romney’s own economic advisor, Greg Mankiw, has said “I used the phrase “charlatans and cranks” in the first edition of my principles textbook to describe some of the economic advisers to Ronald Reagan, who told him that broad-based income tax cuts would have such large supply-side effects that the tax cuts would raise tax revenue. I did not find such a claim credible, based on the available evidence. I never have, and I still don’t….My other work has remained consistent with this view. In a paper on dynamic scoring, written while I was working at the White House, Matthew Weinzierl and I estimated that a broad-based income tax cut (applying to both capital and labor income) would recoup only about a quarter of the lost revenue through supply-side growth effects.” And that’s a best case scenario written by a supply-side economist!

Oct 17, 2012 8:05pm EDT  --  Report as abuse
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