Michael Schur aka Ken Tremendous, producer and writer for shows such as The Office and Parks and Recreation, tweeted "I'm fairly sure that if there were a way to make an across-the-board 20% tax cut revenue neutral, someone would've done it already." The problem that I've mentioned here, on Facebook, and in conversations with people is what are the details of the plan?
Romney has released the generaliteis of his plan. Which is as follows:
For corporate taxes:
Like I've stated before, we not only have a spending problem in this country but a revenue problem. Simply put, we're not generating as much revenue as we have in the past, especially compared to GDP. The Tax Policy Center found that if Romney did not repeal the Alternative Minimum Tax, much of the money lost due to the other tax cuts would mainly be recouped. The Tax Policy Center estimated that this tax plan for individual, corporate, and estate taxes would cost $480 billion per year for each of 10 years starting in 2015.
What is the Alternative Minimum Tax, you ask? It is an income tax imposed by the government on individuals, corporations, estates, and trusts. It is usually imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold (also known as exemption). This exemption is substantially higher than the exemption from regular income tax.
But anyways, back to the tax plan analysis. The plan would get the loss of revenue back by reducing or eliminating tax breaks. These tax breaks, are as of yet, unknown. Before we even look at the reductions or eliminations of tax deductions, who benefits, so far from the Romney plan? According to the Tax Policy Center, 99.97% of those making $1 million per year or more would receive a tax cut of what they're paying now. The average savings would be a little more than $250,000 each. For those making between $50,000 and $75,000, 94% of people would receive tax cuts averaging slightly over $1000. Romney's citation of the National Commission of Fiscal Responsiblity and Reform is wrong, because the report calls for taxing capital gains and dividends as ordinary income.
Romney has claimed that his tax plan will be revenue neutral. The Tax Policy Center went out to write a report on that. If you look at just the individual and estate taxes, they estimated that it would cost $360 billion per year. The report concluded, "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 report found a larger conclusion which was "our major conclusion is that a revenue-neutral individual income tax change that incorporates the features Governor Romney has proposed – including reducing marginal tax rates substantially, eliminating the individual alternative minimum tax (AMT) and maintaining all tax breaks for saving and investment – would provide large tax cuts to high-income households, and increase the tax burdens on middle- and/or lower-income taxpayers."
Romney opined that the Tax Policy Center was wrong because it ignored the positive benefits to economic growth among other things. Saying that his plan as a whole would work. The Tax Policy Center responded with "Any reductions in revenue due to the lower corporate rate would be offset by reducing corporate tax preferences. As a result, we examine only changes to the individual income tax, alternative minimum tax, payroll tax, and estate tax. We ignore the effect of the proposal to reduce the corporate rate to 25 percent.”
There is an argument to be made that cutting the corporate tax rate would spur economic growth. One such study estimates that cutting the corporate tax rate by 10% would spur 1.1 to 1.8% of economic growth. But, FactCheck points out that Romney would eliminate corporate tax preferences to offset the loss in revenue. George W. Bush wanted to do this but the Treasury Department concluded the following: "The Treasury Department estimates that the combined policy of base broadening and lowering the business tax rate to 28 percent might well have little or no effect on the level of real output in the long run because the economic gain from the lower corporate tax rate may well be largely offset by the economic cost of eliminating accelerated depreciation." If accelerated depreciation is maintained, FactCheck cites the Treasury Department as saying the corporate tax rate could be cut to 31% without losing revenue. It would have a 0.5% increase in economic output.
Romney claims that the economic growth is too low and maintains that there would be a 1% increase. So, the Tax Policy Center ran the study again. The result being that it would only offset 15% of the revenue loss. Saying that it would be a smaller burden on the lower to middle class but it would still require a net increase of taxes on the middle class.
So, we're still waiting on the details of how Romney's tax policy will work, in order to become revenue neutral. Be on the lookout for what deductions might be reduced or eliminated. The tax plan as currently suggested by Romney has a lot that can still be filled in but it's probably going to be filled with the elimination or reduction of popular tax deductions, which is why Romney refuses to name them. It's political gamesmanship but Romney can't complain that Obama is unfairly attacking his plan until he releases more of the details.