Bloomberg News

Romney Tax Plan Adds $600 Billion to Deficit, Analysis Says

January 14, 2012

(Updates with comment from Williams in fifth paragraph, campaign comment in sixth paragraph. For more news, see ELECT.)

Jan. 5 (Bloomberg) -- Republican presidential candidate Mitt Romney’s tax proposal would add $600 billion to the U.S. budget deficit in 2015, according to a study released today by the nonpartisan Tax Policy Center in Washington.

The analysis compares the revenue that Romney’s tax-code changes would generate compared with expected U.S. revenue under current law, which assumes that several income tax cuts will expire as scheduled at the end of 2012.

The numbers were released five days before Romney, a former Massachusetts governor, seeks to solidify his front-runner status with a win in the New Hampshire primary.

The analysis said Romney’s plan would “reduce federal tax revenues substantially” though not as deeply as some of his opponents. In a separate study released Dec. 12, the Tax Policy Center said former U.S. House Speaker Newt Gingrich’s proposed tax regime would add $1.3 trillion to the budget deficit in 2015.

Romney’s proposal “does more changing around the edges than wholesale getting rid of things,” said Roberton Williams, a senior fellow at the Tax Policy Center. “He would, for instance, maintain the tax on capital income for high income folks, which brings in a lot of money.”

‘Pro-Growth Tax Policies’

Andrea Saul, a Romney campaign spokeswoman, said in an e- mail that he proposed “dramatic spending cuts to reduce the deficit and pro-growth tax policies that permanently extend the Bush tax cuts, dramatically cut the corporate tax rate to create jobs and deliver real tax relief to middle-income taxpayers.”

Romney’s economic plan calls on Congress to immediately lower the top corporate tax rate to 25 percent from 35 percent. He has said he would be open to additional rate cuts if they are accompanied by measures that would broaden the income base.

He would move the U.S. to a so-called territorial system of taxation, in which the government taxes only domestically generated corporate income. Republican leaders in Congress have shown interest in this concept. House Ways and Means Chairman Dave Camp, a Michigan Republican, introduced a proposal in October that would shield 95 percent of profits earned offshore from taxation in the U.S.

Individual Taxes

For individuals, Romney would lower the maximum tax rate over time though he hasn’t specified a rate target. He would eliminate the estate tax and make permanent the current 15 percent rate on dividends and capital gains. Taxpayers with an adjusted gross income of less than $200,000 wouldn’t pay any taxes on capital gains or dividends.

Romney’s tax plan, unlike those of some of his Republican opponents, isn’t an attempt to escape the confines of the complex U.S. tax code. It doesn’t give taxpayers the choice of sticking with the current tax system or paying a flat tax instead, as Gingrich and Texas Governor Rick Perry have proposed. There isn’t a national sales tax like the one Herman Cain outlined before his campaign collapsed.

“My administration will make America the best place in the world for entrepreneurs, inventors and job creators,” Romney said at a campaign event in Davenport, Iowa, on Dec. 27. “I’ll lower and simplify taxes, especially for middle-income Americans.”

The Tax Policy Center’s study doesn’t take into account a $1.2 trillion reduction in spending scheduled to take effect in 2013. Those savings won’t prevent Romney’s proposal from increasing the deficit, Williams said. He said the $600 billion revenue reduction under Romney’s proposal would happen in 2015 while the $1.2 trillion spending cut will be spread out over a decade.

“This goes in the wrong direction,” Williams said. “It still worsens the deficit situation.”

--Editor: Laurie Asseo, Ann Hughey.

To contact the reporter on this story: Steven Sloan in Washington at ssloan7@bloomberg.net

To contact the editor responsible for this story: Laurie Asseo at lasseo1@bloomberg.net


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