For an event so freighted with expectations of tax insights, the Obama-Romney debate on Wednesday offered few clues on what the candidates' tax plans could mean for average Americans.
Republican nominee Mitt Romney stuck to his strategy of promising tax cuts. To pay for this, he pledged again to close yet-to-be-named tax loopholes. And he said new tax revenues would come from economic growth spurred by lower taxes.
President Barack Obama reiterated his plan to raise taxes on the wealthy, to close or cap specific loopholes, and to use the tax code to boost alternative energy and domestic manufacturing.
Neither candidate veered from these long-standing positions, though both cited plenty of numbers in the Denver debate. Romney blurred the few tax specifics he had previously provided by throwing out new numbers on capping deductions.
Taxes are a big issue in any election, but this year they are at the heart of the urgent deficit problem and the gridlock in Congress over the size and role of the federal government. On the campaign trail, the candidates have seldom risen above carefully scripted rhetoric. The debate was not much different.
"A lot of time was spent talking about taxes, and yet I don't know that a whole lot new was really said," said Alan Viard, resident scholar at the American Enterprise Institute, a conservative think tank in Washington.
On four occasions in the debate, Obama, a Democrat, said Romney plans to cut taxes by $5 trillion. Each time, the former Massachusetts governor replied that he has no such plan.
This odd disagreement stems from Romney's promises, spelled out on his campaign website, for a "permanent, across-the-board 20 percent cut in marginal rates," and to eliminate the estate tax, the alternative minimum tax (AMT), and taxes on interest, dividends and capital gains for those making less than $200,000.
$5 TRILLION OR NOT?
Tax cuts of this magnitude would cost $4.8 trillion over 10 years, according to a March analysis by the Tax Policy Center, a centrist think tank run by both Democrats and Republicans.
That estimate - cited repeatedly by Obama and just as often denied by Romney - is controversial, said David Kautter, managing director of American University's Kogod Tax Center.
The Tax Policy Center "had to make so many assumptions to come up with the $5 trillion number that its accuracy, to say the least, is in question," Kautter said.
For instance, the Tax Policy Center said its estimate did not try to gauge the economic impact of curbing the tax breaks targeted by Romney because his proposals had no details.
Regardless of their exact size, the cuts proposed by Romney would present a huge cost to the U.S. Treasury at a time when the government is already running a $900 billion budget deficit.
Romney said in the debate, as he has for months, that he would offset revenue losses by curbing unidentified tax breaks and would be counting on economic growth to generate new tax revenue.
Obama - whose policies in tough economic times have greatly added to the national debt - said repeatedly in the debate that Romney's plan to pay for his tax cuts does not add up.
"It's math. It's arithmetic," the president said.
DOING THE NUMBERS
For many Americans, the numbers on taxes and spending are mind-numbingly confusing and much of the debate felt that way. But these issues are all about numbers. Like the following.
The 2013 federal budget will be about $3.8 trillion, but the current tax system will bring in only $2.9 trillion, resulting in a projected budget deficit of $900 billion.
The deficit is larger than the national defense budget. It is larger than Medicare. It is larger than Social Security. Entirely shutting down any one of these programs, the government's largest, would still not eliminate the deficit.
Most fiscal policy experts agree the deficit issue cannot be addressed without both spending and taxes being on the table.
Romney said in the debate he wants to "bring down the tax burden on middle-income families." He said he will not "reduce the share paid by high-income individuals."
He said, "I won't put in place a tax cut that adds to the deficit." And he said he wants to hold government revenue steady at its present level "when you also account for growth."
The tax code has not been fully overhauled in 26 years. As a result, it is encrusted with exemptions, deductions, credits and other provisions added on to help everyone from home buyers and donors to charities to workers with employer-sponsored healthcare plans, low-wage earners and corporate-jet owners.
Altogether, these "tax preferences" - which provide benefits at just about every income level - cost as much as $1.3 trillion a year. Ending all of them would eliminate the deficit.
But that would involve so much political pain that no Congress or president has been able to overhaul the code since President Ronald Reagan did it in 1986.
Here is why. The Congressional Joint Committee on Taxation lists the following as among the largest 2014 tax preferences, after adding back the 2001 and 2003 tax cuts made under President George W. Bush and other provisions that are scheduled to expire on December 31 of this year:
- Exclusion of employer health insurance, $164 billion,
- Exclusion of employer pensions, $163 billion,
- Mortgage interest deduction, $100 billion,
- Earned income credit, $58 billion,
- Local and state taxes paid exclusion, $54 billion
- Charitable donations deduction, $52 billion
Most of these provisions do not resemble the shady limited-partnership tax shelters that Reagan tackled 26 years ago.
Indeed, many of today's big tax breaks are central to the economy. They are vigorously defended by powerful lobbyists in Washington and, in some cases - such as the mortgage interest deduction - they are middle-class sacred cows.
None of the other tax preferences on the Joint Committee's list costs the government more than $50 billion a year.
Obama in the debate cited one tax break he wants to close - the one for corporate jets. It costs $3 billion a year.
The tax break for "carried interest," which reduces the taxes paid by partners in private equity firms, costs $18 billion a year. Obama wants to end that, as well. Romney has benefited from this because he co-founded Bain Capital.
A BRIDGE TOO FAR?
"When you add up all the loopholes and deductions that upper-income individuals ... are currently taking advantage of, you take all those away, you don't come close to paying for" Romney's tax and defense spending plans, Obama said.
Romney's tax plan had seemed to get clearer the day before the debate, when he proposed a hard dollar cap on tax breaks, possibly at the level of $17,000.
Obama in years past has proposed a 28 percent cap on deductions as a percentage of income for the wealthy.
But Romney confused the issue in the debate when he said the cap could be set at "$25,000, $50,000 ... And then that number disappears for high-income people."
Howard Gleckman, a fellow at the Tax Policy Center, said, "For all the words we heard about Governor Romney's tax proposal last night, we know less than we did going in."
The nation's most urgent tax-and-spending issue is the "fiscal cliff" on December 31, when the Bush tax cuts expire and other fiscal events converge, including deep automatic budget cuts and a jump in the payroll tax rate.
If Congress does nothing about it, taxes will rise in 2013 by an average of $3,500 per household for 90 percent of Americans, the Tax Policy Center estimated.
Regardless of who wins the November 6 election, Obama will still be in charge at year-end. With many in Congress expecting delays in dealing with parts of the "fiscal cliff," it is likely to be a 2013 issue for the next president.
Neither candidate even mentioned the "fiscal cliff" in the debate.
(Additional reporting by Patrick Temple-West; Editing by Karey Wutkowski, Martin Howell and Mary Milliken)