Romney tax plan 'conceptually' close to Simpson-Bowles? No way!(Read article summary)
Romney tax plan avoids several key Simpson-Bowles proposals that would raise taxes overall and reduce the deficit. Instead, Romney tax plan relies solely on mostly unspecified spending cuts to trim deficit.
In the recent contretemps over Mitt Romney’s tax plan, some Romney partisans have asserted that the Massachusetts governor’s revenue plank mimics the tax elements of the deficit reduction plan proposed in 2010 by Erskine Bowles and Alan Simpson, the chairs of President Obama’s deficit fiscal commission.
This claim is absurd. These two proposals could hardly be more different.
True, both propose a significant across-the-board rate cut on ordinary income. But after that, their tax plans have about as much in common as Infected Mushroom and the New York Philharmonic. True, they both play music, but after that….
The Bowles-Simpson tax reform was fundamentally a trillion-dollar tax increase designed to help cut the deficit, while Romney flatly opposes any deficit-reducing tax hike. Bowles and Simpson would have raised taxes on capital gains and dividends, Romney would cut them. Bowles and Simpson included very specific proposals for eliminating popular tax preferences. Romney is largely silent on how he’d broaden the tax base to pay for his rate cuts.
“The Romney plan of cutting the top tax rate to 28% and closing loopholes to pay for it is conceptually very close to what Simpson-Bowles recommended….If Mr. Romney’s numbers don’t add up, then neither do those in the bipartisan Simpson-Bowles plan that the media treat as the Holy Grail of deficit reduction.”
To see how wrong this is, let’s look in a bit more detail at what the two plans would really do:
The goal: Bowles and Simpson wanted to increase taxes on everyone—by about $1 trillion over 10 years. Cutting the deficit was their primary goal and, to them, it required a mix of both spending cuts and tax increases. Romney’s aim could not be more different. He’d slash the deficit entirely through largely-unspecified spending reductions and not raise taxes at all. Indeed, he’d start by making the 2001-2003 tax cut permanent, then follow up with a tax reform that generates the same amount of revenue as today’s tax rules.
Tax Rates: Here there is some similarity, at least at first glance. Romney would keep six brackets but cut all rates by 20 percent across the board. He’d repeal the Alternative Minimum Tax and the estate tax. Bowles and Simpson proposed three reform options, but the version they thought most likely would have three brackets of 12 percent, 22 percent, and 28 percent. They’d repeal the AMT but would retain the estate tax.
Capital gains and dividends. Bowles and Simpson would tax gains and dividends at the same rate as ordinary income. Romney would make all gains and dividends tax-free for those making $200,000 or less, and set a rate of just 15 percent for everyone else. The Journal thinks these are conceptually very close? And I thought the Journal’s editorial page had no sense of humor.
Base-broadeners. Romney has refused to disclose what tax preferences he’d reduce or eliminate. Top aides hint at an across-the-board reduction in the value of tax breaks for some high-income households, but don’t explain how that would work. By contrast, Bowles and Simpson explicitly described how they’d distribute the pain. They’d eliminate, cap, or restructure almost every tax preference—including the mortgage interest deduction, the exclusion for employer-sponsored health insurance, and the deduction for charitable gifts. In their 28 percent option, they described exactly how: They’d retain low-income credits, turn the mortgage and charitable deductions into credits etc. This candor was likely a major reason why their plan died.
Feel free to love Romney’s tax plan or hate it. But beware of politicians and their friends who pretend it and Bowles-Simpson are the same thing. They are not.