Presidential debate 101: Does $25,000 deduction cap make Romney tax math work? (+video)
At the last presidential debate, Romney floated the number $25,000. According to one analysis, such a cap on deductions would generate $1.3 trillion in revenues, short of the estimated $5 trillion in tax cuts.
Mitt Romney stirred a new round of debate over his tax reform plan this week when he said a few simple words: "I'll pick a number."
The number the Republican presidential nominee picked was $25,000, as a cap on deductions that individual taxpayers can make from their taxable income.
This, Mr. Romney suggested in Tuesday's presidential debate, would be a central way to pay for his proposed 20 percent cut in income-tax rates for all payers. After weeks of debate over whether the math of his tax plan adds up, does the picture look any clearer with this number plugged in?
The nonpartisan Tax Policy Center has offered a new analysis concluding that within the context of Romney’s general plan, a $25,000 cap would yield $1.3 trillion in tax revenue over 10 years. That goes only about one-quarter of the way toward paying for what's estimated to be about $5 trillion in Romney tax cuts.
By itself, the gap between $1.3 trillion and $5 trillion doesn't prove that the Romney math is "impossible." But it provides one more hint of how challenging it would be to simultaneously accomplish core Romney goals: cutting tax rates while maintaining level tax revenues for the federal government, and ensuring that the rich still pay the same share of taxes they pay now.
Here are some of the issues in play:
• Because Romney wants the top 5 percent of households to keep paying the same share of US taxes they do now, one of the tasks he faces is finding enough new revenue (to offset the tax cuts) from high earners. The deduction cap is a good start toward achieving that end, the Tax Policy Center concludes. Of all the revenue brought in by a $25,000 deduction cap, fully half would come from the top 1 percent of earners, and 90 percent of it from the top quintile of households, the center reckons.
The deduction cap and other tax changes can bring in some new revenue from households below the top 5 percent, but on average, Romney says, he want middle class families to end up paying fewer taxes, not more.