Joint Committee on Taxation’s analysis casts doubt on Romney’s tax plan
Closing some of the largest tax loopholes would pay for only a 4% across-the-board tax reduction, according to a preliminary study by the bipartisan Joint Committee on Taxation.
The JCT’s analysis called into question the feasibility of Republican presidential nominee Mitt Romney’s tax proposals.
Throughout the campaign, Romney has championed his plan to:
(1) cut tax rates across-the-board by 20%;
(2) repeal the Alternative Minimum Tax (AMT), which ensures that ” an individual who benefits from certain exclusions, deductions, or credits pays at least a minimum amount of tax” according to the Internal Revenue Service;
(3) broaden the tax base by eliminating tax expenditures – or tax deductions and credits used to reduce the amount of taxable incomes – and use the additional revenues to pay for the across-the-board tax cuts.
The former Massachusetts governor maintained his tax plan would be “revenue-neutral”, which means the tax cuts won’t add to the federal deficit.
“I want to bring the rates down, I want to simplify the tax code,” said Romney during Tuesday’s town hall presidential debate at Hofstra University. “[Because] I’m going to bring rates down across the board for everybody, but I’m going to limit deductions and exemptions and credits.”
Romney has refused to specify which deductions and credits he would repeal to pay for the double-digit tax cuts but suggested during the debate of capping the total deduction and credit amount (to, say, “$25,000”) and allowing taxpayers to “decide which ones to use.”
When asked during Tuesday’s debate whether the math adds up, Romney adamantly insisted, “Well of course they add up”.
But the latest Congressional study suggested otherwise.
At the request of the Senate Finance Committee, the Joint Committee on Taxation examined how much the overall individual tax rates could be lowered if “a number of the largest tax expenditures under the individual income tax” were to be repealed.
Many of the assumptions used in the JCT’s analysis reflect the key features of Romney’s proposals, including repealing the AMT and itemized deductions. Although not proposed by Romney, the JCT also removed the preferential tax treatments for capital gains and dividends – which are capped at 15% and are large tax expenditures – and taxed them as ordinary incomes.
“The revenue-neutral tax reform package outlined above would permit a 4% decrease in all ordinary income rates,” wrote Thomas Barthold, Chief of Staff of the Joint Committee on Taxation.
The JCT’s findings were dismissed by Republicans. A memo from Sen. Orrin Hatch (R-Utah), Ranking Member of the Senate Finance Committee, labeled the analysis “rough and incomplete”.
“This JCT study is but one analysis of one hypothetical tax reform option,” according to the GOP memo. “Furthermore, this study does not include all the base-broadeners available for tax reform. If more were included, those base-broadeners would provide the means for further rate reductions and other structural reforms of the tax system.”
Indeed, the JCT’s analysis did not factor in other large tax expenditures, such as the earned income tax credit, child tax credit, deduction of employer-provided health benefits, and tax preferences for retirement incomes and pensions. But as implied in Hatch’s memo, those popular tax deductions and credits designed to help middle- and lower-income individuals are on the chopping board to pay for Romney’s 20% tax rate reduction.
But an earlier study by the independent, non-partisan Tax Policy Center found that if many of the aforementioned deductions and credits are removed, middle-class households could actually end up paying more in taxes even if their tax rates are lowered.
The study concluded that achieving Romney’s 20% across-the-board rate reduction while “maintaining revenue neutrality mathematically necessitates a shift in the tax burden of at least $86 billion away from high-income taxpayers onto lower- and middle-income taxpayers.”
“Because many of the largest tax expenditures benefit middle- and lower-income households, deep reductions tax expenditures can alter the distribution of the tax burden,” according to the Tax Policy Center. “Given the [Romney’s] proposed tax rates and proscription against reducing tax expenditures aimed at saving and investment, cutting tax expenditures will result in a net tax cut for high-income taxpayers and a net tax increase for lower- and/or middle-income taxpayers—even if individual income tax expenditures could be eliminated in a way designed to make the resulting tax system as progressive as possible.”
During Tuesday’s debate, President Barack Obama criticized Romney’s tax plan for its lack of specificity and questioned how fiscally responsible his proposals are given the dire need to reduce the federal deficit.
Obama claimed that Romney’s proposals to lower rates by 20%, eliminate the estate tax, cut corporate taxes, and extend the Bush-era tax cuts to the wealthiest Americans would cost about $6 trillion. In addition, Obama said, Romney has proposed to increase military spending by an additional $2 billion above what the Pentagon had requested. The President questioned how Romney would pay for all that spending without raising taxes or increasing the deficit.
“If somebody came to you, Governor, with a plan that said, here, I want to spend $7 or $8 trillion, and then we’re going to pay for it, but we can’t tell you until maybe after the election how we’re going to do it, you wouldn’t take such a sketchy deal and neither should you, the American people, because the math doesn’t add up,” said Obama.
- WhatTheFolly.com: Text of the Joint Committee on Taxation’s letter on eliminating major tax expenditures to lower tax rates
- WhatTheFolly.com: Presidential town hall debate excerpts – Mitt Romney on his tax plan
- WhatTheFolly.com: Presidential town hall debate excerpts – President Barack Obama on Romney’s tax plan
- MittRomney.com: Taxes
- Senate Finance Committee: Memorandum to reporters and editors – JCT experiment
- WhatTheFolly.com: Analysis: Romney’s tax plan would shift tax burden to middle and lower-income Americans
- WhatTheFolly.com: N.Y. Sen. Chuck Schumer outlines Democrat’s deal to avoid ‘fiscal cliff’
- WhatTheFolly.com: Analysis: Romney paid 14.1% effective tax rate in 2011
- WhatTheFolly.com: House Budget Committee Chairman accuses generals of lying