President Obama could have made a very simple case about Romney’s tax plan, as follows:
Gov. Romney, you have been specific about some parts of your tax plan, but not others. For example, you have called for a 20% reduction in tax rates across the board, which, all sources agree, would in itself decrease income tax revenues by $4.8 billion over the next ten years. You and Rep. Ryan have objected to this characterization by insisting that you plan is revenue neutral. The Government will receive the same revenue, but just get if from different sources. (This is called redistribution of income.) You have been very specific about the shiny exterior of the rate cut but, like a used car salesman,have not let us look under the hood at the redistribuive part of your plan. Let’s see what these might entail.
- You have pointedly noted that about 47% of families pay little or no Federal income tax, although they pay many other taxes: payroll taxes, state property and sales taxes, etc. You have also said that this group, which includes the unemployed but also senior citizens, active duty soldiers and veterans, the very rich, like yourself, who pay taxes only on capital gains, and those working one or more low-paying jobs will see no benefit from this rate reduction. These benefits will thus go only to the upper 53% of wage earners.
- It may be possible to offset this 20% revenue loss by cutting these revenue expenses, but it will be difficult. Here are the major revenue expenses, in decreasing order, according to the Congressional Budget Office.
- Deductibility of health care premiums (businesses and individuals)
- Exclusion of pension contributions (businesses and individuals)
- Home mortgage interest deductions
- Special tax rates on interest and capital gains
- Exclusion of capital gains taxes on estates
- State and local tax deduction
- Charitable contributions deduction [Note: the last three are about the same size.]
Governor Romney, five of these seven revenue expenses mainly affect the middle class, but would have to be severely reduced to make your plan revenue neutral. Are you prepared to specifically include or rule out any of these? If not, why not?