Total Pageviews

Thursday, October 18, 2012

Romney\'s Proposal to Cap Deductions Would Not Pay for His Tax Cuts, Analysis Says

Mitt Romney said at the second presidential debate on Tuesday that he might try to cap itemized tax deductions in order to make up the revenue that would be lost by his proposal to cut marginal income tax rates across the board by 20 percent.

Mr. Romney has pledged that his tax plan will not add to the deficit, so he would have to find ways to make up the lost revenues. But an analysis released Wednesday by the Tax Policy Center found that capping deductions would not yield enough revenue to make up the roughly $5 trillion that Mr. Romney's various tax proposals are projected to cost over a decade.

The center calculated that eliminating all deductions, which would go much further than Mr. Romney's proposal, would yield only $2 trillion over 10 years if tax laws were changed along the lines Mr. Romney has proposed.

“Even if you zero out itemized deductions, you're still not going to get there,” Roberton Williams, a senior fellow at the Tax Policy Cente r, said in an interview. “The dollars just aren't big enough.”

When Mr. Romney was asked at the debate on Tuesday which tax breaks he might reduce to pay for his proposed rate cuts, he raised the idea of capping deductions, which he has been talking about for several weeks.

“In terms of bringing down deductions, one way of doing that would be to say everybody gets - I'll pick a number - $25,000 of deductions and credits,” he said. “And you can decide which ones to use, your home mortgage interest deduction, charity, child tax credit and so forth. You can use those as part of filling that bucket, if you will, of deductions.”

The Tax Policy Center estimated that capping deductions at $25,000 would yield $1.3 trillion.

“Without more specifics, we can't say how much revenue such limits would actually raise,” Mr. Williams wrote in a blog post. “But these new estimates suggest that Romney will need to d o much more than capping itemized deductions to pay for the roughly $5 trillion in rate cuts and other tax benefits he has proposed.”

Another of Mr. Romney's goals - making sure the wealthy continue to pay the same amount of taxes - could be difficult to achieve, the analysis suggests. A previous analysis by the center suggested that taxpayers in the top 0.1 percent would see an average tax reduction of $725,716 under Mr. Romney's proposal. The analysis released Wednesday suggested that capping deductions at $25,000 would raise their taxes by an average of $229,601. So they would still be getting a tax cut of nearly half a million dollars.

The Romney campaign has disputed the center's findings in the past, arguing that they fail to account for the economic growth it says the tax changes would spur.

The Romney campaign strongly disputed the center's findings. The campaign noted that Mr. Romney has only suggested capping deductions as a possible approach t o offsetting the cuts, hinted that other options would be explored to raise revenues and said that working against a target of $5 trillion over 10 years was wrong because some aspects of their tax plan, including lowering the corporate tax rate, would be handled separately.

“While Governor Romney has proposed cutting marginal rates across the board by 20 percent and eliminating the A.M.T., he has only suggested that capping itemized deductions is one option that could be explored, and there are others,'' Pierce Scranton, the campaign's economic policy director, said in a statement on the campaign's Web site.

Follow Michael Cooper on Twitter at @coopnytimes.