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Mitt Romney showed us in the debate that he is going try to to grab as many of the voters in the middle by lying about who he will favor with his tax policies. Some of them have been outright lies - lying about the $5 Trillion dollar tax cut coming from an across the board 20% rate decrease that he has mentioned several times in the past.

But a more important strategy is going to be to be truthful but deceptive. He will talk about eliminating loopholes and deductions - things that the average uneducated voter hears and thinks - "OK, those are things that help the rich and I don't get to use".

Another deception - the cap on personal deductions....

Prior to the debate I had heard rumblings of a cap on deductions at 17%.

During the debate, he threw it in amongst his ramblings - throwing out numbers of 25,000 or 50,000. has an analysis here

At first glance it sounds like "soak the rich" which plays well to the middle. But the analysis is way too simple.

Let's say you live in San Francisco or New York, and are fortunate enough - maybe you work in IT at a decent company - and you make enough money to buy a 2 BR condo with no parking or a yard. That might cost you 500,000, so you are making a lot of money to buy a condo like that, but you also live in a high cost of living area. Fine.

Your state taxes and mortgage interest deductions would easily put you over a 25,000 dollar cap. The top end of your income would now be higher, taxed at the ordinary income rate. Romney cuts your rate by 20%, but this is not offset by the loss of your deduction. You lose.

Now - imagine you are Mitt Romney. Romney would lose more of a deduction than our San Francisco friend - but here is one of the keys to the deception. The vast majority of Romney's income comes from investments and are taxed at the much lower capital gains rate. He's losing deductions on income being taxed at 15%, but the upper middle class San Franciscan is losing deductions on income being taxed at 25%. You win.

Imagine instead you are a high salaried trader. You have a lot of straight salary/bonus. You were deducting a lot of home mortgage interest on your 2.5 Million dollar pad. You lose part of your deduction, but you have a lot of money that was being taxed at the top rate which Romney just lowered by 20%. You win.

Additionally - this is only the personal deduction. The more money you have, the more money you can earn and spend outside of the scope of taxes. Our hypothetical San Franciscan with a comfortable IT income takes a trip with his family to Lake Tahoe, pays for lodging, lift tickets, whatever, has a nice vacation. His neighbor the trader in the 2.5 Million dollar house down the street goes to Lake Tahoe with his family - and a client. He writes the entire thing off as a business expense - entertaining you know - and the money goes against the earnings of his business and his kids ski lessons are deducted from his taxes - BEFORE they hit his 1040. There is a definite tax goal in a small business to make as little money as possible that gets thrown into your personal income by making what are effectively personal purchases as business expenses - a strategy Joe Schmo does not get to exploit.

Romney is throwing out this number like he's going after the one percent, but they'll be better off than they are now. The 47% who are paying no federal income taxes get nothing from a 20% cut. The people in between will get stuck with part of the bill - our children will get the rest. The one percent get the party.

It's a scam. And some of the 6% in the middle will fall for it.


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Comment Preferences

  •  I have a simple question for Mr. Romney (1+ / 0-)
    Recommended by:
    Deejay Lyn

    You say you can deliver this 20 percent across the board tax cut without raising taxes on the middle class. But how do you know that is true if you yourself haven't even worked out the numbers yet?

    You're throwing out different numbers for a deductions cap, 17, 25, 50 thousand, whatever. That means to me you haven't done the math yet.

    So how do you know any set of numbers work within your parameters?

    The people who have done the numbers, the Tax Policy Center, says they don't.

  •  you need to crunch some numbers. (1+ / 0-)
    Recommended by:
    Deejay Lyn

    right now I have absolutely no reason to think your position is correct.

    •  This is actually right and Willard (1+ / 0-)
      Recommended by:
      Deejay Lyn

      said it more than once.  He said he would lower rates and "eliminate loopholes, credits, deductions and exemptions so that the tax revenues stay the same and broaden the base"

      Broadening the base means more people pay more taxes because deductions/credits have been eliminated.

      I heard him say the $25K or $50K number too.  BUT he has also said other times there would be a bucket of say $17K that you could put anything into:  Mortgage interest, health insurance, personal exemption, charitable donations to reach the $17K

      Now, he also talked BS about helping small businesses because their income is Passed Through (LLC, Partnerships and S Corps) to be taxed at the personal level.  BUT when you take away the exemptions, deductions, credits and loopholes which are PERSONAL tax preferences, you aren't really lowering the taxes on small businesses.

      In fact, R/R have also considered taxing employer provided health insurance, which along with the Mortgage Interest deduction is the second largest middle class tax preference item there is.  So . . .

      Let's play a game:

      Net S corp income passed through = $250,000

      Current tax system:  SE health insurance = $12,000
      Itemized Deductions: = $25,000
      Personal exemptions (4 people) = $22,800

      Taxable income = $190,200
      Tax (blended between 25 and 28%) = $41,035

      Willards Plan:

      S Corp income = $250,000
      SE Health Ins (now taxable income) = $12,000
      BUCKET of deductions = $30,000 (avg of $17, 25 and 50)

      Taxable income = $232,000
      Tax rate 20%
      Tax = $46,400

      You Mr. Small business owner, get to pay more.

  •  You got it right about small business crooks (4+ / 0-)

    I worked for a small business years ago - kept the books. The owner deducted EVERYTHING from the business: his car, his country club membership, his daily lunch at the club, his biweekly massage at the club, art and furniture for his home - then complained the business wasn't profitable enough! The last straw was when he purchased a software suite with a business check, installed the programs on all the computers in the office, photocopied the manual, then returned the CDs for a refund telling the company it "didn't work right" and finally - the capper - had me deposit the refund check in his personal account. Let's see -- ripping off the software company, his business, and the IRS all at once -- I was so out of there! And he couldn't understand why I was quitting.

    That's the only job in my long life where the boss gave me a raise without my asking or as part of a regularly scheduled review process. Also the only job I ever quit outright.

    Democracy - Not Plutocracy!

    by vulcangrrl on Fri Oct 05, 2012 at 04:07:59 PM PDT

    •  Yep, me too. (0+ / 0-)

      Some small businesses I have worked for are scrupulously honest and careful.  Some... not so much.  And a couple were happy to launder every personal expense they could.  Those were the ones I quit.

      "The next time I tell you someone from Texas should not be president of the United States, please, pay attention." Molly Ivins

      by janmtairy on Fri Oct 05, 2012 at 05:36:37 PM PDT

      [ Parent ]

  •  Mitt signed Grover Norquist's Tax Pledge (1+ / 0-)
    Recommended by:
    Deejay Lyn

    Can someone please explain how he will be able to fulfill this:

    The pledger promises to "oppose any and all efforts to increase the marginal income tax rate for individuals and business; and to oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates
    What kind of tax reform could do the above as well as:

    1.  Will not reduce taxes paid by high-income Americans.
    2.  Will not add to the deficit.
    3.  Will not raise taxes on the middle class.

    As I read that Tax Pledge, it is pretty ironclad and set up in such a way that revenue can NEVER be increased.

  •  No one ever addresses AMT. (1+ / 0-)
    Recommended by:
    Deejay Lyn

    If you're subject to AMT, and if you're the hypothetical guy in SF as described above then you are very likely to be subject to AMT, thus...

    It doesn't matter if your tax rate gets cut by 20%.  Your AMT will just increase dollar for dollar to nullify your rate cut.

    It doesn't matter if your deductions are limited, because you already don't really get to take those deductions.  That's where the extra AMT liability comes from in the first place—it is the consequence of disallowing deductions.

    This is not to say that your main premise is incorrect.  Rmoney is certainly throwing out a lot of slick-sounding proposals meant to endear him to the electorate, and they don't add up.  Alas we don't have time to explain all the math.  There is no way, ever, to explain AMT to the American public.

    "They let 'em vote, smoke, and drive -- even put 'em in pants! So what do you get? A -- a Democrat for President!" ~ Faster, Pussycat! Kill! Kill!

    by craiger on Fri Oct 05, 2012 at 04:09:41 PM PDT

  •  About Mitt's 20% across the board tax cut... (0+ / 0-)

    Romney talked about his "20% across the board tax cut" several times during the debate. He claimed it was fully paid for, supposidly by closing loopholes. It wouldn't increase the deficit, it didn't cost $5 trillion. What kind of tax cut is that?

    A tax cut that is revenue neutral isn't a tax cut -- it's a campaign slogan. A tax cut that is revenue neutral means that for every dollar you cut from one persons taxes someone else's taxes goes up. It's hand-waving to distract from bad math. It is republican redistribution of wealth.

    A conservative is a man with two perfectly good legs who, however, has never learned how to walk forward. Franklin D. Roosevelt

    by notrouble on Fri Oct 05, 2012 at 09:07:43 PM PDT

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