2021 Presidential Debates: Is there or is there not a $5 trillion tax cut in Romney's plan?
Romney says he does not want to pass a plan that would add to the deficit and that any tax changes should not favor the rich. Here is what he said during various debates:I'm not in favor of a $5 trillion tax cut. That's not my plan. My plan is not to put in place any tax cut that will add to the deficit.My plan is to bring down rates, but also bring down deductions, exemptions and credits at the same time. The top 5 percent of taxpayers will continue to pay 60 percent of the income tax the nation collects. So that'll stay the same.Here are Romney's tax proposals, as listed on his website:Make permanent, across-the-board 20 percent cut in marginal ratesMaintain current tax rates on interest, dividends, and capital gainsEliminate taxes for taxpayers with AGI below $200,000 on interest, dividends, and capital gainsEliminate the Death TaxRepeal the Alternative Minimum Tax (AMT)The Tax Policy Center looked at the cuts Romney proposed. Their main conclusion was a reduction in 2021 tax revenue by $456 billion, or about $5 trillion over ten years.They claimed that if he wanted to adequately fund that plan by eliminating deductions, the middle class would pay about $86 billion more in annual taxes. This claim is not based on anything Romney has said. Instead it's based on thinking about different ways he could pay for it, so there's no real backing behind that claim.It's important to take into account what Romney has actually said when evaluating that number.Romney has said he would close corporate loopholes and corporate tax receipts would be unchanged. The Tax Policy Center said that if corporate tax receipts were unchanged, the impact of Romney's tax changes would be $360 billion in 2015. This reduces the $5 trillion number to about $4 trillion.Romney has said he would have a cap on individual income tax deductions, which would raise tax revenue primarily from the rich, offsetting other changes which benefit the rich. The Tax Policy Center says that would raise taxes by $1.7 trillion over ten years (I discuss that at length below.) That brings the total down to just over $2 trillion.Romney would eliminate Obamacare, a maneuver which was estimated by the CBO to save $1.2 trillion over 10 years, helping to offset some of the tax increases that were used to fund Obamacare. It's worth noting that Obamacare raises taxes by 0.5% of GDP, which would be about $90 billion in 2015. That might total 1 trillion over ten years. It's worth noting that eliminating Obamacare therefore might reduce taxes by trillion over ten years and reduce the budget deficit by another trillion, allowing for $2.2 trillion of tax cuts, in total.Romney believes that cutting and simplifying taxes may spur economic growth. On his website, he claims "A significant body of economic research concludes that fundamental tax reformcould increase real GDP growth over the next decade by 0.5 to 1 percentage point per year." If that happens, it could boost revenue.Romney has also talked about a middle class tax cut which is not included in these numbers, which would reduce tax revenues slightly.Romney has talked about cutting credits and exemptions which are also not in these numbers, which would increase tax revenues slightly.Romney has also talked about other spending cuts which are not included here. Of course, Romney has also talked about increasing defense spending and other spending increases which are not included here.Also, the rich may not preferentially benefit from an income tax perspective, but they may unfairly benefit from the elimination of the estate tax.Eliminating the estate tax would cost about $410 billion over the coming decade, assuming the 2001-level tax returns as scheduled next year, according to the nonpartisan Tax Policy Center. President Barack Obama's push to return to the 2021 levels would cost the government about $199 billion, compared with next year's scheduled rate.Romney has talked about putting a cap on total income tax deductions. Doing that would preferentially raise income taxes on the rich, potentially offsetting other changes."As an option you could say everybody's going to get up to a $17,000 deduction, and you could use your charitable deduction, your home mortgage deduction, or others -- your health care deduction, and you can fill that bucket, if you will, that $17,000 bucket that way," Romney said. He added: "Higher income people might have a lower number." Romney used a different number in the October 16th debate.And so, in terms of bringing down deductions, one way of doing that would be say everybody gets - I'll pick a number - $25,000 of deductions and credits, 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 amount of money lost from people taking tax deductions is huge, and could be used to offset rate decreases. Paul Ryan talked about why the math could work there in the VP debate.What we're saying is, here's our framework. Lower tax rates 20 percent. We raised about $1.2 trillion through income taxes. We forego about $1.1 trillion in loopholes and deductions. And so what we're saying is, deny those loopholes and deductions to higher-income taxpayers so that more of their income is taxed, which has a broader base of taxation...Bloomberg's Lynch estimates total deductions claimed at $1.3 trillion. Whatever it is, it's a high number.So the idea is that tax rates would drop across the board by about 20% but there would a be a limit to the amount of deductions and credits one could get. The result is that tax rates would be lower for everyone, but rich people would be able to claim fewer deductions. Importantly the rich would still pay the same percentage of total income tax receipts, roughly.It's definitely possible to make the math work out there. The thing to realize is that these are all rough numbers. The total cut might be 20%. It might be 15%. The total cap on deductions might be $25,000, or $35,000. It might only be $17,000, and not $25,000. The more you slice taxes, that reduces revenue. The more you cut the maximum limit for deductions, the more that increases revenue. It's definitely possible to work with these two variables to make it work.Another way to look at this is that those in the top quintile currently pay between 20 and 25% of their income in taxes - and that rate is lower than the marginal rate because of deductions. If you limit their ability to make deductions and lower the rates, the math works and the rich don't get a cut on balance.Some analyses suggest that certain people could pay more under Romney's plan, depending on where his deduction cap is.Rosen’s analysis -- and separate studies by the Tax Policy Center and Martin Feldstein, a Harvard University economist and once a top adviser to President Ronald Reagan -- found that households with more than $100,000 in annual income could pay higher taxes, even with Romney’s promise to “bring taxes down for middle-income people.”Now let's run some numbers for someone making $300,000, assuming a 20% across the board cut and a $25,000 cap on deductions.If someone makes $300,000 and they claimed $100,000 of deductions, their tax burden would in 2021 would be about $48,020 If the Romney plan were implemented and only $25,000 of those deductions were elligible, their tax bill would be $72,770, and then if that $72,770 were reduced by 20% that would be $58,216, an increase of $10,000 from what they are paying today.Someone making $300,000 and claiming $50,000 of deductions would pay $64,520 today and would pay $58,216 under the new plan, a decrease of around $6,000.The point here is that people who are taking a lot of deductions would pay more. People making fewer deductions would pay less.The next question is whether this is possible without hurting the middle class. Well, the top quintile of income earners, who make at least $107,000, pay $38,000 in deductions on average, and account for 80% of savings from itemized deductions. This demonstrates that first, putting a cap on deductions hurts the rich more than others and second that doing so allows tax rates to be lowered, on balance.The next question is how much money those deduction eliminations would raise. In a world where the AMT was gone and marginal income tax rates were cut 20%, eliminating all deductions would raise about 2 trillion, and limiting deductions to $17,000 would raise $1.7 trillion and a $25,000 cap would raise $1.3 trillion. Further the rich would preferentially be affected.With tax rates 20 percent below today’s rates, about 83 percent of the revenue gain in 2021 from a $17,000 cap would fall on the top quintile and about 40 percent on the top 1 percent. Raising the cap to $25,000 would boost those shares to nearly 90 percent on the top quintile and fully half on the top 1 percent. A $50,000 cap would virtually exempt the bottom four quintiles from higher taxes: less than 4 percent of the tax increase would fall on them, while nearly 80 percent would hit the top 1 percent. The point is, it's possible to actually cut tax rates, while limiting deductions so much that actually more tax revenue is collected. It all depends on just how much you choose to limit deductions and how much you choose to cut tax rates.In any event, putting a $17,000 cap on income tax deductions which would raise $1.7 trillion, 83% of which come from the top 20% of income earners. If one assumes that Romney's corporate tax proposals are revenue neutral, and that he repeals Obamacare, the total cost of these proposals could be close to revenue neutral and well under $1 trillion over ten years. Beyond that, he may well have other proposals in mind that he has not yet announced. http://politicalticker.blogs.cnn... http://abcnews.go.com/Politics/O... https://www.calcxml.com/calculat... http://www.foxnews.com/politics/... http://www.mittromney.com/jobsplan http://www.bloomberg.com/news/20... http://taxpolicycenter.org/numbe... http://www.taxpolicycenter.org/n... http://www.npr.org/2012/10/03/16... http://www.npr.org/2012/10/16/16... http://www.taxpolicycenter.org/U... http://www.cbo.gov/sites/default... http://www.cbo.gov/publication/4... http://online.wsj.com/article/SB... http://www.csmonitor.com/USA/DC-... No, ‘Obamacare‡ isn’t ‘the largest tax increase in the history of the world‡ (in one chart) List of countries by future GDP (PPP) estimates