President Obama and challenger Mitt Romney agree on the need fundamentally to overhaul the federal tax code: that is, to produce a simpler tax system with lower rates. But they disagree on whether tax reform should also raise government revenues, in order to rely less on spending cuts to reduce federal deficits.
Here are five issues where they differ on tax policy: extending the Bush-era tax cuts, raising taxes on the highest incomes, corporate taxes, the estate tax, and how taxes affect the economy.
Obama supports extending the Bush-era tax cuts for households earning less than $250,000 a year, and he has followed that up with a tax-reform call for "lower individual ... tax rates and fewer tax brackets." How do you do that and still get enough government revenue?
Tax experts say it can be done by "broadening the base" of income that is subject to taxation, by eliminating or reducing deductions and credits. Obama says he supports broadening the base while keeping unspecified deductions in place for the middle class. “There is no reason that those making over $1 million should get any tax subsidies for housing, health care, retirement, and child care,” Obama’s latest budget proposal says.
Another espoused Obama principle is fairness. He would replace the Alternative Minimum Tax (AMT), which currently snares many middle-class families, with a new regime focused on increased tax rates for millionaires.
Romney has been more specific about tax rates, calling for a 20 percent reduction from Bush-era rates in all income-tax brackets. The bottom bracket would be taxed at 8 percent instead of 10 percent. The top bracket would be taxed at 28 percent instead of 35 percent. He would repeal the AMT.
He pledges to broaden the base by eliminating or reducing deductions and credits, but does not specify which ones would go.
Experts from the nonpartisan Tax Policy Center have called into question whether Romney's plan is capable of simultaneously meeting five objectives stated by him or by his campaign surrogates. Those objectives are 1) enact the 20 percent rate cut, 2) preserve and enhance tax incentives for saving and investment, 3) eliminate the AMT, 4) eliminate the estate tax, and 5) raise the same amount of federal revenue as current policy does.
The Tax Policy Center report wasn't meant to say whether Romney's plan is better or worse than Obama's. And, despite publicity to the contrary, the authors say they weren't implying that a President Romney would end up raising taxes on the middle class to pay for tax cuts for the rich. But they do foresee that, if Romney were to get the chance to implement his plan, some adjustments would be needed amid the tug and pull of competing priorities.
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