Plan Like Romney’s Would Tax Rich Less
A tax system overhaul along the lines that Mitt Romney has proposed would give big tax cuts to high-income households and increase the tax burden on middle- and lower-income households, according to an analysis from economists at the Tax Policy Center.
The researchers did not analyze the exact Romney plan, since it is incomplete and the researchers were reluctant to make assumptions until the campaign released more details.
Instead they created a model for a revenue-neutral income tax change that incorporates some of Mr. Romney’s proposals, which include lowering marginal tax rates, eliminating both the alternative minimum tax and taxation of investment income of most taxpayers, doing away with the estate tax and repealing the additional high-income taxes passed with the Affordable Care Act.
On their own, these cuts to personal income and estate taxes would reduce total tax revenue by $360 billion in 2015 relative to what is expected if current policies continued, according to the report.
Mr. Romney has said that his plan will include offsets to the revenue lost through his proposed lower tax rates, although he has not said what kinds of policies would provide revenues to offset those cuts (that is, how he would come up with an additional $360 billion to compensate for the lost amount in tax revenue).
The analysis assumes that those offsets would be achieved chiefly through reducing or altogether eliminating other tax breaks — like the mortgage interest tax deduction or the child tax credit — and does not factor in spending cuts as a means to offset lost tax revenue.
The Tax Policy Center analysis assumed that the first tax breaks to go would be those that primarily affected the highest earners.
But even if all possible loopholes for households earning more than $200,000 were eliminated, this group would still be a net gainer under Mr. Romney’s plan, since the marginal tax rate decreases and other changes lop off much of its tax burden.
As a result, middle- and lower-income households — the 95 percent of the population earning less than about $200,000 annually — would have to make up the difference, according to the review by the center, which is affiliated with the Brookings Institution.
“It is not possible to design a revenue-neutral plan that does not reduce average tax burdens and the share of taxes paid by high-income taxpayers under the conditions described above, even when we try to make the plan as progressive as possible,” write the study’s authors, Samuel Brown, William Gale and Adam Looney.