I know what it takes to balance budgets. I’ve done it my entire life. So for instance, when he says, yours is a $5 trillion cut -- well, no, it’s not, because I’m offsetting some of the reductions, withholding down some of the deductions and [crosstalk] I just described to you, Mr. President, I just described to you precisely how I’d do it which is with a single number that people can put -- and they can put their deductions and credits into that bucket.Huzzah! With those words, Mitt Romney finally took ownership of a specific mechanism to pay for his tax cut plan, the cost of which is $5 trillion over 10 years and includes both a $1 trillion corporate income tax cut and a 20 percent across-the-board tax cut which would cost $4 trillion.
Up until Tuesday's debate, Romney had refused to explicitly endorse a mechanism for offsetting the cost of that tax cut, steadfastly avoiding putting his name next to anything that could be evaluated by independent economic analysts. But now that's changed: Romney is now explicitly in favor of leaving deductions in place, but placing a limit on the total amount of deductions that any one taxpayer can take. The thing that he hasn't said is what that limit would be, but based on his comments in the past and during the debate, it would be either $17,000, $25,000 or $50,000. That's a pretty big range, but it's nonetheless specific enough for economists to analyze, and yesterday the non-partisan Tax Policy Center ran the numbers. Here's what they found:
The Tax Policy Center did the math yesterday. Capping deductions at $25,000 would raise $1.3 trillion in tax revenue over 10 years, $3.7 trillion short of what Mr. Romney needs to pay for his tax cut promises. Capping deductions at $17,000 – a level the Romney campaign floated a few weeks ago – would raise $1.7 trillion, a shortfall of $3.3 trillion. Even if Mr. Romney eliminated all itemized deductions, his plan would raise only $2 trillion, a deficit of $3 trillion.That writeup leaves off a couple of important numbers. First, TPC also looked at a $50,000 cap and found it would generate just $760 billion. Second, their prior analysis of Romney's tax plan assumes he will be able to offset the entire cost of his corporate income tax cut, knocking $1 trillion off the shortfalls listed above. With those two numbers in mind, here's the size of Mitt Romney's math problem under the three scenarios he's outlined:
- $17,000 cap: $2.3 trillion math problem
- $25,000 cap: $2.7 trillion math problem
- $50,000 cap: $3.2 trillion math problem
Remember, Romney says his plan would be revenue neutral so as to avoid adding to the deficit, but as these numbers show, it wouldn't be revenue neutral no matter what the size of his deduction cap. Instead, his tax cut proposal would add between $2.3 trillion and $3.2 trillion to the deficit.
And don't forget, because Romney reduces rates by 20 percent for everybody—including the top one percent—the wealthiest taxpayers will be getting the biggest tax break. And we'll all end up paying for it with higher budget deficits.
There are only two conceivable ways for Romney to avoid higher deficits without abandoning his pledge to not raise taxes on the middle class. The first would be a dramatic reduction in federal spending, but he's already proposing to add another $2 trillion in defense spending, so that's not a plausible scenario.
The other way to avoid deficits would be for his tax cut plan to unleash so much economic growth that they end up paying for themselves. But that's what Republicans always say, and it never works out. It would be like giving the Bush economic plan another try, except instead of starting with the Clinton tax rates as the baseline, we'd be using the Bush tax rates as a baseline—so we'd end up with an even bigger disaster than we experienced the first time around.
And with Tuesday night's debate and yesterday's Tax Policy Center analysis, the big news is now that Mitt Romney has taken ownership of that plan—for now, at least.
Sign up to help get Democratic voters to the polls in swing states with Workers' Voice, the largest independent Democratic voter turnout operation in the country. You can participate no matter where you live.