The Brookings Institute has analyzed Mitt Romney’s somewhat vague tax plan. Essentially, Romney is proposing lowering the tax rates and closing loopholes. Everyone who runs for office suggests that but the closing of loopholes is always difficult because the businesses that benefit from them are potent lobbying forces. Basically, Romney believes that his plan will be revenue neutral but fairer. The problem is that to make it revenue neutral then the fairness must be tossed aside.
Here is a more detailed explanation of the Romney plan from the Brookings Institute:
In this exercise, we estimate by how much tax expenditures would need to be reduced to maintain current revenues given the tax rates specified in presidential candidate Mitt Romney’s tax plan as described on his campaign website. This plan would extend the 2001-03 tax cuts, reduce individual income tax rates by 20 percent, eliminate taxation of investment income of most taxpayers (including individuals earning less than $100,000, and married couples earning less than $200,000), eliminate the estate tax, reduce the corporate income tax rate, and repeal the alternative minimum tax (AMT) and the high-income taxes enacted in 2010’s health-reform legislation. We estimate that these components would reduce revenues by $456 billion in 2015 relative to a current policy baseline. According to statements by Governor Romney and his advisors, the remainder of the plan will include policies to offset this revenue loss, although there are no details on how that would be achieved.
After allowing for modeling assumptions, Brookings concludes that those who make under $30,000 a year will have their taxes increased, plus popular middle class deductions like child credits and home mortgages will need to be dropped.
In effect, Romney is proposing that he gets a tax break but the majority of Americans should pay more. If there ever was a tax plan for the 1%, this is it. Here is the Brookings’ summary:
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.
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.
This issue is difficult to explain in the one-minute soundbites so prevalent in politics today. The Obama campaign tries in the video below, but most of those who dislike Obama are going to look at one of his ads skeptically.
Yet the tax proposal by Romney, or most of those proposed by the Republican Congressional leadership, is roughly the same as Romney’s. The rich are going to do better, while the rest of America will not. The media is doing a poor job passing this information along to the average voter
This is not to say that the current tax situation, which Obama has done nothing to change, is anything to brag. It is just that Romney’s proposal creates an unfairer tax system from the unfair one currently in existence. Taking a step backwards is not progress. Yet proposals like this that are not supported by a majority of Americans edge closer to reality because substantial issues do not get the attention they deserve. Instead, we are treated to gaffes, campaign distorted images, spin doctors and millions in biased political ads. The result from this dysfunctional system is dysfunctional tax plans like Romney’s.