Bloomberg News

Santorum Tax Cuts Boost Deficit by $1.3 Trillion, Study Says

January 24, 2012

(Updates with comment from Pomp starting in sixth paragraph. For more campaign news, see {ELECT}.)

Jan. 19 (Bloomberg) -- Republican presidential candidate Rick Santorum’s plan to cut taxes for many individuals and corporations would expand the U.S. budget deficit by $1.3 trillion in 2015, an analysis found.

The study released yesterday by the nonpartisan Tax Policy Center in Washington compares the revenue that would be generated under Santorum’s plan with the amount that the U.S. projects to collect under current law, which assumes several income tax cuts will expire at the end of 2012. The analysis doesn’t consider the $1.2 trillion in spending cuts mandated to begin in 2013 or the $5 trillion in cuts that Santorum has pledged over five years.

Still, the Tax Policy Center’s analysis serves as a benchmark of how Santorum’s policy positions would affect federal revenue compared with the plans of his rivals for the Republican presidential nomination. Previous studies by the Tax Policy Center found that former U.S. House Speaker Newt Gingrich’s proposals also would expand the deficit by $1.3 trillion. The budget shortfall would grow by $600 billion in former Massachusetts Governor Mitt Romney’s tax proposal.

“I was surprised at how large the revenue losses were,” said Roberton Williams, a senior fellow at the Tax Policy Center. “It’s a lot of rate cuts and doesn’t get rid of anything to help pay for that.”

Alternative to Romney

The study was released in advance of South Carolina’s Jan. 21 primary, in which Santorum hopes to solidify his status as an alternative to Romney. Representatives for his campaign didn’t respond to requests for comment on the study’s findings.

The size of the potential deficit increase would make it difficult for Congress to enact the policies Santorum and other Republican candidates have proposed, said Richard Pomp, a professor at the University of Connecticut School of Law in Hartford.

“It’s politically attractive,” Pomp said. “From a tax policy perspective, the whole thing is very difficult to implement.”

For individuals, Santorum would condense the six income tax brackets that now range from 10 percent to 35 percent into two with rates of 10 percent and 28 percent. The tax rate for capital gains and dividends, which is 15 percent through 2012, would drop to 12 percent.

Family Friendly

Santorum’s tax proposal reflects his emphasis on what he calls family-friendly policies. He would triple the deduction that could be claimed for each child. His plan would retain deductions for charitable giving, home mortgage interest, health care and retirement savings.

Keeping those provisions in place would make it more difficult to lower tax rates without creating a revenue shortfall.

“If you cut the rate, you have to pay for it somehow,” Williams said. “You have to go after these big meat-and- potatoes things.”

The top tax rate for corporations would be cut in half from 35 percent now to 17.5 percent. Manufacturers wouldn’t pay any income tax.

Santorum’s plan also wouldn’t tax offshore income that corporations return to the U.S. and invest in manufacturing. Other repatriated income would be subject to a 5.25 percent tax.

Businesses would be able to write off the entire cost of capital investments and take advantage of an expanded research and development tax credit, which would become permanent in Santorum’s plan.

The study found that Santorum’s plan would reduce tax bills for 81 percent of U.S. taxpayers by an average of about $9,700. Those benefits would be concentrated in the higher-income brackets. For instance, about 97 percent of taxpayers with annual cash income of between $40,000 and $50,000 would receive a tax cut averaging $2,090. Meanwhile, 100 percent of taxpayers with cash income exceeding $1 million a year would receive a tax cut averaging $590,394.

--Editors: Jodi Schneider, Laurie Asseo

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

To contact the editor responsible for this story: Jodi Schneider at jschneider50@bloomberg.net


The Success Issue
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus