R i g h t a r d i a: Mittens' tax plan is toxic to the middle class and the deficit

Friday, August 3, 2012

Mittens' tax plan is toxic to the middle class and the deficit

Absent any base broadening, the proposed reductions in individual and estate taxes specified in Governor Romney’s plan would decrease federal tax revenues by $360 billion in 2015.

These tax cuts predominantly favor upper-income taxpayers: Taxpayers with incomes over $1 million would see their after-tax income increased by 8.3 percent (an average tax cut of about $175,000), taxpayers with incomes between $75,000 and $100,000 would see somewhat smaller increases of about 2.4 percent (an average tax cut of $1,800), while the after-tax income of taxpayers earning less than $30,000 would actually decrease by about 0.9 percent (an average tax increase of about $130) due to the expiration of the temporary tax cuts enacted in 2009 and extended at the end of 2010.

The Romney tax plan's effect on income

In order to form a revenue neutral plan, the proposed revenue reductions from lower rates must be financed with an equal-value elimination or reduction in available tax preferences. (In our analysis, we assume that eliminating preferences that lower rates on savings and investment is off the table.) Offsetting the $360 billion in revenue losses necessitates a reduction of roughly 65 percent of available tax expenditures.

Such a reduction by itself would be unprecedented, and would require deep reductions in many popular tax benefits ranging from the mortgage interest deduction, the exclusion for employer-provided health insurance, the deduction for charitable contributions, and benefits for low- and middle-income families and children like the EITC and child tax credit.

The key intuition behind our central result is that, because the total value of the available tax expenditures (once tax expenditures for capital income are excluded) going to high-income taxpayers is smaller than the tax cuts that would accrue to high-income taxpayers, high-income taxpayers must necessarily face a lower net tax burden.

As a result, 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. This is true even under the assumption that the maximum amount of revenue possible is obtained from cutting tax expenditures for high-income households.

The Romney tax plan is smoke and mirrors. It would dramatically increase the deficit and shift even more of the federal tax burden to the middle class.

Anyone making under $100,000 a year who votes for Mittens is voting against their own self-interest.

copy: http://www.taxpolicycenter.org/UploadedPDF/1001628-Base-Broadening-Tax-Reform.pdf

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