Mitt Romney is playing coy with his proposals, revealing as little as possible about his plans for when he gets to play President, lest voters get wind of them, and then not vote for him.
Still, some details have slipped out to voters who matter - big donors - and the little we've heard isn't pretty.
Not suprisingly, other than ending the deduction for interest on a second home mortgage, the plan favors the wealthy. After letting the Bush tax cuts become permananent, he'd slash tax rates another 20% across the board. Nevertheless, he is trying to claim that his plan is favorable to the middle class, by cutting the tax on earned interest, dividend income, and capital gains. Notwithstanding that seniors on a fixed income do live on retirement portfolios, this is not a major income source for the middle class. The middle class derives only 3.9% of the preferential tax treatment of capital gains and dividends. So Romney might have a hard time convincing middle class voters that this will help them.
"I'm going to keep the burden on the upper-income people the same as it is today," the Republican presidential nominee-in-waiting said as he campaigned across Pennsylvania on Tax Day. "I know Democrats will say it day in and day out, `They are for tax cuts for the rich,' he said, mimicking his rivals. "No,'" he added firmly.What seems more ominous is his proposal to eliminate the deduction for local and state taxes. This seems to be targeted right at voters in blue states who pay the highest local taxes, and give more of them to Washington then they get back. This seems to be the zombie revival of a similar proposal during the Bush admininstration that looked like it had died.
He favors extending all the Bush-era tax cuts that are set to expire at the end of the year, and has said he wants to cut rates an additional 20 percent across the board.
Romney has also said he would reduce or eliminate some common tax breaks used by the wealthy to make up some of the revenue that would be lost.
But he has yet to provide much additional information, or even define what he means by "wealthy."
In his conversation with Thomas and others around the picnic table, Romney emphasized that middle-income Americans would benefit from his proposal to eliminate taxes on interest, dividends or capital gains for anyone earning $250,000 or less.
But Romney’s announcement that he could well end the deduction of state taxes is the real bombshell.That's one sixth of the population that would see its taxes go up, but all in two blue states.
And because of the red state/blue state divide, there is a compelling political argument for the big policy idea: it would mostly punish blue-state voters who aren’t going to back Romney anyway.
That’s because blue states generally have higher state and local taxes. For example, many Californians and New Yorkers—nearly 50 million Americans—would see their taxes go up significantly.
Closing this loophole would have no effect in Texas which has no income tax, or Florida (where Romney was speaking) Alaska, South Dakota, Washington and Wyoming.
But significantly—and here’s the political risk—many swing states would be affected, including Colorado, Iowa, New Mexico, North Carolina, Ohio, Pennsylvania, and Virginia.This is very lopsided and unfair strategy, favoring the red states. States like New York and California have high taxes because they have generous social programs, like Medicaid, unemployment, SNAP, etc. So residents of these states would get punished for helping to raise the revenue to pay for such programs. And, since local taxes tend to be much more regressive than federal ones, it would hit the middle class and even the poor (who of course Romney is not concerned with) much harder, despite Romney's claims to the contrary.
The Romney camp would be quick to counter that his plan for an across-the-board tax cut would more than offset these lost deductions, but the idea of eliminating the local tax deduction gives Team Obama new argumentative ammunition in its courting of the middle class.Except that it wouldn't. Even the $860 billion that elimination of the state tax deduction would generate over a decade would still only fill 20% of the fiscal hole his tax cuts would create, as the Atlantic demonstrates.