For me, there was one key moment in the debate. It is when, in describing how he was going to cap deductions in his new tax plan, Mitt Romney said make up a number at which to cap those deductions. He said just make up a number. Then he threw out 25,000, thought better of it, realizing that might catch a lot of people, and said 50,000. Well if you have an objective of not adding to the deficit, and you want to lower tax rates and raise military spending, than you do not have a choice as to the deduction cutoff number. Your objectives determine the number. If you do not know what that number is, you do not have a plan, you have a talking point. And I guarantee you, the number is far less than 25,000, if it even exists. This is where the President should have hammered Romney on his vagueness.
I want to bring down the tax burden on middle-income families. And I'm going to work together with Congress to say, OK, what are the various ways we could bring down deductions, for instance? One way, for instance, would be to have a single number. Make up a number — 25,000 (dollars), $50,000. Anybody can have deductions up to that amount. And then that number disappears for high-income people. That's one way one could do it.
Thanks to NPR for the transcript.
Not only can you not simply make up a number, but you also have to factor in the consequences, and you cannot do that without knowing the number. Charitable giving and homebuilding will be obviously affected. But to what extent depends on the number at which the cutoff is set. But the list of deductions is very large, and make no mistake, setting a cutoff will have quite an effect on people's behavior. And if you want to lower tax rates and increase military spending that cutoff number is going to be low.
Also make no mistake, the very wealthy have many ways of getting around the tax code. So don't expect to be generating quite the income you expect from eliminating deductions on the wealthy. One trick they use is endlessly pushing income into future years. This will become very attractive if they lose their deductions.
But the real issue is the vaguery. I wish the President had nailed Romney on this. Economic solutios are not about making up numbers.