Romney looking at different caps on tax breaks
WASHINGTON (AP) — Mitt Romney's idea to impose a $17,000 limit on taxpayer deductions would hit hardest on wealthy Americans, who make the most use of deductions to reduce their tax burden. But that adjustment alone would not be enough to make up for the revenue lost in Romney's plan to reduce income tax rates for everyone by 20 percent.
Romney has vowed to make up for all revenue the government would lose due to his proposed tax cut by eliminating tax breaks, particularly for the rich, and by a spurt of economic activity he anticipates would generate more money for the Treasury.
This week Romney suggested that one option to help offset the lost revenue would be to set a $17,000 cap on deductions for all taxpayers.
A campaign official said the ceiling on deductions is being considered as one part of a three-pronged approach to limiting tax breaks as a way to pay for lower rates. Under Romney's plan, the top tax rate for those with the highest incomes would drop from 35 percent to 28.
Campaign officials, speaking on the condition of anonymity to discuss details of the plan that Romney has not yet announced, said Romney was also considering placing limits on two other tax breaks: the standard exemption that most taxpayers claim, and the tax exclusion taxpayers get if they have employer-backed health insurance.
The officials said Romney's deduction cap of $17,000 was not a fixed number and that it could be adjusted to meet the revenue demands of having lower tax rates.
Romney floated the idea for a $17,000 cap in an interview this week with Denver TV station KDVR, responding to criticism that he has not been specific enough about his plans. President Barack Obama has repeatedly denounced Romney's plan as a hidden tax increase on the middle class.
"As an option you could say everybody's going to get up to a $17,000 deduction," Romney said, adding that home mortgage, health care and charitable deductions could all count toward the limit. "You can fill that bucket, if you will, that $17,000 bucket that way. And higher income people might have a lower number."
An independent analysis by the Tax Policy Center concluded that even if Romney eliminated virtually all deductions for the wealthiest taxpayers, his plan would still not generate enough revenue to pay for the lower tax rates. The analysis concluded that unless Romney changed his tax rate goals or his intention to pay for the tax cuts, the only way to make up the cost would be to reduce or eliminate tax breaks for middle income taxpayers, who would then see a net increase in their tax payments.
Roberton Williams of the Tax Policy Center said higher income taxpayers are much more likely to itemize their deductions than lower income taxpayers. "So right away this is going to affect people at the top end more than at the bottom," he said.
But, Williams added, it won't be enough to fill the revenue hole created by lowering tax rates.
"It's a down payment, but the bills cannot be marked 'paid in full,'" he said.
Romney and his advisers say he can make up the difference using revenue generated from increased economic activity. His aides point to analyses that suggest his plan could increase economic growth by half a percentage point a year.
Economists who have advised Romney, such as Kevin Hassett of the American Enterprise Institute, have also said that if Congress did not eliminate as many tax breaks as Romney seeks, then Romney could adjust his plan and seek tax cuts that are not as steep.
But Romney's campaign officials have rejected that suggestion, saying Romney is committed to his goal of a 20 percent reduction in income tax rates.
Obama's campaign promptly seized on Romney's $17,000 limit on deductions. Obama's aides suggested that if Romney were to include the value of employer-sponsored health insurance in the $17,000 deduction limit, that would restrict the amount that middle income taxpayers could deduct from their taxes and would therefore make them susceptible to higher taxes.
But Romney's campaign said employer-backed health care plans would not count against the $17,000 deduction limits. Instead, the campaign official said, Romney would consider a separate limit on how much of those plans can be excluded from taxation.