The one specific idea Mitt Romney has floated to pay for his nearly $5 trillion in proposed tax cuts would cover only a fraction of the cost, according to a new nonpartisan study released Wednesday.
Capping itemized deductions available to taxpayers at $17,000 — which Romney has mentioned as one possible way to make his plan revenue-neutral — would raise just $1.7 trillion over 10 years, according to the Tax Policy Center. TPC averred that his lack of specifics in other areas makes its analysis imperfect.
But based on the details he has offered, the deduction cap idea would leave a $3.3 trillion shortfall in the budget if he follows through on a promise to reduce income tax rates 20 percent below Bush-era levels, cut corporate taxes, and repeal the estate tax, Alternative Minimum Tax and taxes in the Affordable Care Act. TPC assumes optimistically, for the purposes of its analysis, that the reforms would create the same amount of economic growth as one of Romney’s top advisers forecasts.
“It’s safe to conclude that Romney would have to do a lot more than just cap deductions to make his plan revenue neutral,” TPC senior fellow Roberton Williams, the author of the report, told TPM.
Romney isn’t wedded to the idea. He hasn’t officially added it to his platform, and has also floated raising the number to $25,000 and $50,000. The former would raise $1.3 trillion, the latter $760 billion, leaving even bigger deficits and magnifying the challenge of making his plan revenue neutral without raising taxes on middle income earners. Eliminating all itemized deductions still won’t raise $5 trillion, TPC found.
Romney has recently mentioned the deduction cap idea as one alternative to the more politically daunting task of targeting specific expenditures in the tax code for elimination. The provision is expected to cost high earners more, although the collective effect of his proposed reforms would likely still end up providing disproportionate benefits to the well to do.
Williams said the TPC analysis does not take into account other ways Romney might raise revenues — and their impacts on the itemized deduction cap — because he hasn’t specified any deductions or credits he would be willing to roll back.
“Our analysis of capping itemized deductions does not actually look at Romney’s tax plan — we don’t really know what that is. But we do measure the effects against a baseline that includes two provisions of that plan, the 20% rate cuts and repealing AMT,” Williams said in an email. “Against that baseline, capping itemized deductions at $17,000 would raise $1.66 trillion over ten years. That’s a lot less than the $5T revenue loss from cutting rates and repealing AMT and the estate tax and other things Romney would do.”
