Lett's see if there is any possible way to square the circle of his promise to both massively cut taxes for the rich and be revenue neutral about it, because he says he will make up the lost revenue through closing loopholes, or more aptly, taking away certain deductions. Which deductions? Neither he nor his running mate will tell us. But they will - to an extent - tell us which tax expenditures they will not remove - namely, the ones that rich people use the most.
From the Romney campaign's own tax plan, Mr. Romney's plan would:
Just so you know, this is what "across the board 20% cut in marginal rates" looks like in real terms: If you make $25,000 a year, you will get a whopping $276 in tax cuts while those making more than $1 million a year will get $250,000 on average. "Across the board 20%" tax cut ends up reducing the highest marginal rate by 7 percentage point (from 35% to 28%) while it cuts the lowest rate by a paltry 2 percentage point (from 10 to 8%).
- Make permanent, across-the-board 20 percent cut in marginal rates
- Maintain current tax rates on interest, dividends, and capital gains
- Eliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gains
- Eliminate the Death Tax
- Repeal the Alternative Minimum Tax (AMT)
But in this particular piece, we're talking about tax deductions, so let's get back to that. Now remember that combined with extending all of the Bush tax cuts, Mitt Romney's new tax cut plan will cost about $600 billion a year. If Mitt Romney is telling the truth about being revenue neutral by the means of cutting out deductions, he must come up with at least $600 billion a year on average (the more time that goes by, the more it costs us to give these tax giveaways) - $5 trillion over 10 years from his own plan and $1 trillion in 10 years from extending the upper-end Bush tax cuts - in deduction closures just to break even without making a penny's worth of dent in the national debt.
At this point, it makes sense to examine just where the tax deductions/expenditures are to close. Let's have a look. On the individual taxation side of things, the tax code results in deductions totaling about $760 billion a year. So Romney and Ryan really has a very small amount of room. Actually, they don't even have the $160 billion wiggle room they seem to have at this point. Why? Let's take another look at Mitt Romney's tax plan (what little of it he decided to make public): see the "Maintain current tax rates on interest, dividends and capital gains" part? That tells you that Romney would keep in place the tax loophole that allows for his "investment" income to be taxed at a lower rate than the income of a middle class family. And how much is that deduction costing us? Nearly $100 billion a year.
Lower tax rates on capital gains and dividends than on ordinary income. People at the top of the income scale receive significantly larger gains as a share of income from this group of tax expenditures than other taxpayers. “Lower tax rates on capital gains and dividends disproportionately benefit the top 1 percent of taxpayers and provide little income gains for anyone else,” TPC notes. This group of tax expenditures cost $99 billion, with no AMT.That amount would only grow over the years. At this point, by Romney's own admission, his wiggle room is down to a mere $60 billion a year, under the most generous interpretation. Let's be generous and round that up to $100 billion, given that cost of that these expenditures grow over time as well. That means Mitt Romney will be able to leave in place - at best - only about $100 billion in deductions. If that accounted for just one category of credits, it would entirely be consumed by the earned income tax credit and the child tax credit for families.
Meaning? Meaning that Mitt Romney would have to eliminate every other tax deduction in the individual code. You know what the funny part is? The $600 billion in average annual reductions in expenditures that Romney must put in place is basically the sum of all the deductions from saving for retirement, employer provided health insurance, home mortgage deduction, student loan interest deduction, deductions for child care expenses, and more. Basically, if Mitt Romney wants to protect the preferential tax treatment for money made without working, as well as the earned income and child tax credits, he must essentially eliminate every other tax deduction to make his tax plan be revenue neutral.
And that is what results in an average $2,000 tax increase for middle class families with children, and an overall tax increase on 95% of American taxpayers. Remember that paltry little break you would get in your tax rate under Mitt Romney? Yeah, he would more than make up for it by taking away you mortgage deduction, your child care tax credit, and anything you are able to save. Just so that he can give a big tax cut to millionaires and protect the privileged status of "investment income" over earned income.
But wait a minute, you say. The tax expenditures I have talked about thus far doesn't include any business loopholes! Ahahahaha. Stop making me laugh. Here's Mitt's plan on corporate taxes
Switch to a territorial tax system... that's fancy speak for let corporations take all their profits offshore and keep it sheltered from US taxes forever. Mitt Romney has no plans to close any corporate tax loopholes - in fact, he plans to blow them wider. Mitt Romney would cut the corporate tax rate, without closing any corporate loophole. Mitt Romney's party has consistently blocked closing corporate tax loopholes such as the one that allows them to take a tax writeoff for moving American jobs overseas. Or the $4 billion a year subsidy for oil companies.
- Cut the corporate rate to 25 percent
- Strengthen and make permanent the R&D tax credit
- Switch to a territorial tax system
- Repeal the corporate Alternative Minimum Tax (AMT)
Mitt Romney has already said that he would raise some taxes, of course, such as ending the reduction in payroll taxes, the higher earned income credit, the education tax credit, etc. Why? Because those tax cuts were enacted by Obama, and therefore, are stinky-poo tax cuts.
I am for closing tax loopholes and expenditures - ALL of them. I advocated for the Fiscal Commission's plan to eliminate all deductions - including for businesses - and bring the overall rates down. One may or may not like it, but my personal opinion is that the government ought not be skewing certain marketplaces - whether it is the housing market through the mortgage deduction, the gasoline market through the oil company subsidies or the stock market through the preferred treatment for investment income.
However, we must do so by a fundamental, progressive reform of the tax code: lowering the overall tax burden on the poor and the middle class (yes, the poor pay taxes), increasing it on the wealthy, ending the preferential treatment of investment income over earned income, and taking away corporate incentives to move American jobs overseas as well as eliminating corporate subsidies. "Tax reform" cannot mean taking away the help for middle class and poor families in the tax code in order to give to the uber wealthy. So long as we have a tax code that is written on the basis of subtraction (i.e. you have a rate and then you deduct for certain things), those deductions must prioritize opportunity.
Mitt Romney is not serious about getting America's fiscal house in order. He's interested in running America the Bain, Romneyhood way: steal from the poor, give to the rich, explode the deficit, and use that as an excuse to take away services from the poor and the middle class and end investing in our future. Then rinse and repeat.