The tax dilemma for Republicans

The Republican party has managed to paint itself into a corner with its adamant stand against an increase in the marginal rates for the top 2% of income earners, even though that was the signature issue that Barack Obama campaigned on and won, and polls show consistent and considerable support for it. The party is now faced with finding ways to get around what is clearly a weak position and various proposals are circulating that would supposedly raise the same amount of revenue as a marginal tax rate increase and provide them with a face-saving compromise.

One suggestion is that there be a cap on the amount of deductions that one can take. In the second town hall debate Mitt Romney, who had been evasive all along about how his tax plan would lower rates while remaining revenue-neutral, suggested out of the blue that it may be achieved with a $25,000 cap on deductions. The Tax Policy Center did the math and found that this would raise $1.27 trillion over ten years, nowhere close to being enough to cover his increased spending costs. The new figure being tossed around is a deduction cap of $50,000 which would bring in even less revenue, about $700 billion over ten years.

These caps on deductions seem to me to be extraordinarily generous to wealthy people, considering that the median income for families is around $50,000. One of the things that surprised me is that the average deductions taken by a married couple filing jointly is nearly $32,000, which seems like a huge number. What that implies is that there must be a very few, extremely high-income earners who take enormous amounts as tax deductions, skewing the average so high.

With such a system already biased so much in favor of rich people, the Republican devotion to giving them even more breaks is really something to see.


  1. machintelligence says

    It may be that the Democrats are perfectly willing to play “chicken” with the “financial cliff”. All that they really need to do is to present a reasonable compromise of spending cuts and rate increases and wait for the Republicans to kill it. Then the Dems will get most of what they want and can point the finger (we all know which one) at the Republicans if the economy falters.
    The Republicans have painted themselves into a lot of corners lately.

  2. tbrandt says

    The standard deduction for a married couple filing jointly is $12,000, so any couple itemizing their deductions should have a dollar amount higher than that. So, it seems the average additional deductions from itemizing everything is $20,000. As you note, this is skewed by people like Romney who deduct hundreds of thousands of dollars in charitable donations.

    I’m not sure how that $32,000 number is calculated, but I imagine that it only includes people who bother itemizing deductions. That explains part of why it is so high–it sets a $12,000 floor for each couple.

  3. brucegee1962 says

    I know that David Brooks isn’t popular around here these days, but he came out strongly against the deduction cap (and in favor of a 2% tax increase). His point was that, if there was a deduction cap, then everyone would just take their entire allowable deduction as mortgage interest, and giving to charities would absolutely plummet.

    While it’s sad to think that there’s a class of people who are primarily given to charities as a tax dodge, he’s probably right. And I don’t think anyone wants to see that.

  4. northstar says

    Well, that’s predicated on the idea that these charities are, well, actually *charities* instead of personal foundations into which one, if wealthy, can move money in and out of as necessary for tax reasons. You know, like Romney’s personal “charity”.

  5. raven says

    In the second town hall debate Mitt Romney, who had been evasive all along about how his tax plan would lower rates while remaining revenue-neutral,…

    That and Ryan’s evasiveness probably were why they were defeated.

    Supposedly they were going to cut taxes and balance the budget. Which is just blatantly impossible. They didn’t give any specifics because if they did, no one was going to buy it.

    My three reasons (of countless others) for not voting for Romney/Ryan were:

    1. Romney/Ryan themselves. These were not appealing people I would trust to have my back. In fact, I’d panic if they were behind me.

    2. The lack of a coherent and visible economic plan and tax plan.

    3. Their New Dark Age social agenda.

    4-infinity. Everything else.

  6. Mano Singham says

    I am not sure that it is mostly charitable contributions that are being deducted. For high income earners a lot of it would be state and local taxes and mortgage interests on their mansions. There are also charities that are charities in name only but are largely tax dodges, as northstar points out.

  7. gshelley says

    From the Republican point of view, once the current tax breaks expire, they have much more freedom. They can vote in new tax cuts on everyone earning less than $2500000 and they are still only voting for tax cuts, not tax rises. If they do the same now, they are effectively voting for rises on those top few people

  8. pHred says

    Did Ryan ever open his mouth and not lie about something ? It seems like virtually everything that came out of his mouth was a lie of some sort.

    That Ryan was being hailed as this great budget wonk says volumes about the GOP in general. None of it good.

    It also seemed to me that Ryan virtually disappeared well before election night – views for selected audiences only ?

    Ugh. Now I just wish NPR would stop playing John Boehner talking – it does not go well with my morning caffeine.

  9. Mano Singham says

    The story behind Ryan’s disappearance is that the party hid him from the media because he had co-sponsored a bill that seemed to jibe with the views of the toxic Todd Akin and Richard Mourdock and the campaign did not want to have him answer such questions.

  10. pHred says

    Ah! Thanks for explaining that. When I mentioned to people that Ryan seemed to have disappeared I kept getting told I was imagining things. Now I know I wasn’t crazy – well at least not about that.

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