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What’s the point of Romney’s tax plan?

Mitt Romney and Paul Ryan have been remarkably evasive about the details of their tax plan which calls for reducing the marginal tax rates by 20% (which reduces revenue) but also reducing or eliminating deductions and loopholes (which raises revenue).

They are not specifying what each number is but deny that the reduction in rates will cost $480 billion per year (nearly $5 trillion over ten years) as estimated by the well-regarded Tax Policy Center. They have also refused to specify what deductions and loopholes are on the cutting block. They have simply asserted that their plan is ‘revenue neutral’, meaning that that the cost of the reduction in tax rates exactly equals the increase gained by their actions on deductions and loopholes.

Critics have charged that there is no way that the increased revenue can compensate for the tax cuts, the numbers simply don’t add up (or cancel out in this case), and the evasions by the Romney-Ryan camp suggest that this charge has some merit.

Bu suppose we take their claims at face value. If there is no net gain or loss to the US treasury, then it will neither reduce the deficit nor be a fiscal stimulus to the economy. Then what is the point of this tax plan? Why would anyone care if their federal income tax rates go down while their deductions get reduced so that they end paying the same net tax?

The only reason for such a plan is that although there is no net gain or loss to the treasury, some classes of people will pay more and the other classes pay less. So who will be the winners and losers? Maybe that is the question that should be posed to them when they deflect questions about the details by saying that their plan is revenue neutral.

Comments

  1. gshelley says

    Not only is there no way of balancing the two things, I think he also said it will free money for small businesses (so they will have bigger cuts than they lose from deductions/credits) and that the wealthy will not be paying more. Which means to keep it neutral, everyone else will have to foot the bill

  2. TGAP Dad says

    This would be, as smarter people than me have already explained, a (nother) tax shift to the lower incomes. These deductions, like the standard deduction, have a dramatic shift on lower incomes where the deductions can reduce the taxes levied substantially. This is because most of them have upper limits. Reducing these deductions for higher incomes has virtually no impact on their taxes, but reducing their tax rates has a dramatic effect.

  3. raven says

    I’ve tried to understand the Romney/Ryan tax plan. They are vague and ever changing. It’s not possible to understand. This is obviously on purpose. If people knew, they wouldn’t vote for these guys.

    1. They claim to cut taxes 20%, close loopholes, and have it be revenue neutral. This is impossible. They claim they will keep the biggest loopholes, mortgage interest deductions and health care spending.

    2. If you read their complete version, they say they will cut tax revenue expenditures to make it revenue neutral. This means they intend to cut federal spending 20%.

    80% of the budget is social security, Medicare, defense, and safety net and the federal budget is running lean. So who is going to get the axe here? Probably safety net. In other words old people and kids on food stamps mostly.

    It doesn’t really matter what Romney says though. He is an ever morphing, ever changing empty suit.

  4. Greg P. says

    Thanks for asking this question, Mano. I was hoping I wasn’t the only one wondering this. I assumed since it wasn’t being discussed in these terms, that there was some piece of the puzzle I was missing. I think this is simply a case of the media not being willing or able to ask the obvious question.

  5. Tim says

    I’m with Raven:

    “It doesn’t really matter what Romney says though. He is an ever morphing, ever changing empty suit.”

    Ever since George H.W. Bush said, “Read my lips. No new taxes,” and then went ahead and raised taxes, I have been highly suspicious of any campaign promises made around taxes.

    Why should we believe he is telling the truth?

  6. jamessweet says

    The excuse is that this is supposed to “help small business”. The idea, I guess, is that small businesses are able to take fewer deductions or something? I dunno, it doesn’t really make sense to me either, and as TGAPDad points out, actually closing enough “loopholes” to really make a dent would substantially hurt the middle- and lower-income families.

    In any case, it’s not quite true that nobody has asked this question. It’s just that the answer they are giving isn’t any better than their answer to the “which loopholes, exactly?” question.

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