Skip to main content
Part of complete coverage on
 

Romney starts to fill in blanks on his tax plan

By William Gale, Special to CNN
updated 11:31 AM EDT, Fri October 5, 2012
STORY HIGHLIGHTS
  • William Gale: Mitt Romney's $5 trillion tax cut proposal didn't add up for months
  • He says new idea of a cap on deductions is a first step toward a viable plan
  • Gale says the cap wouldn't be nearly enough to pay for the tax cuts, but it would help
  • He says that it could make taxpayers much less likely to give to charity

Editor's note: William Gale is a senior fellow at the Brookings Institution and co-director of the Urban-Brookings Tax Policy Center.

Washington (CNN) -- For months, voters have been in the dark about key details of Mitt Romney's tax plans.

He specified $5 trillion in tax cuts, a 20% cut in income tax rates, a 40% cut in the corporate tax rate, repeal of the estate tax and alternative minimum tax and elimination of taxes on interest, dividends and capital gains for households with incomes below $200,000.

He did not want his changes to raise the deficit, but he was utterly mum on how to raise $5 trillion to offset the tax cuts.

William Gale
William Gale

During the summer, two colleagues and I showed that if Romney did not want to add new taxes on savings and investments -- and raising savings and investments is the second of four main planks in Romney's overall economic package -- he could not finance his tax cuts without generating a net tax cut for households with income above $200,000.

Politics: 5 things we learned from the presidential debate

Even if all the available tax expenditures were closed in the most progressive manner possible, it would not raise enough revenue among high-income households to offset the tax cuts they would receive. This was true even when we adjusted the revenue estimates to allow for the impact of potential economic growth, and even when we gave the campaign a trillion-dollar mulligan by ignoring the cost of the corporate tax cuts.

As a result, we concluded that if Romney did not impose new taxes on savings and investments, the only way to finance his tax cut proposals and reach revenue neutrality was to raise taxes on households with income below $200,000.

This was not a forecast of what Romney would actually do; it was simply a matter of arithmetic.

Romney: I will not raise taxes
Obama: 'The real Mitt Romney'
The best from the Denver debate

But it highlighted the need for specifics; $5 trillion is not a trivial amount, even in Washington, and the prospect of middle-class tax increases sets off alarm bells.

Earlier this week, Romney finally started the process of proposing ways to pay for his tax cut proposals. He broached the idea of putting a cap on each taxpayer's total amount of itemized deductions -- including mortgage interest, state and local taxes, charitable contributions.

Although critical design features remain foggy, Romney has said the cap could range from $17,000 to $50,000, and it could vary with income.

Several things are already clear.

Opinion: Why you should vote for Romney

First, capping -- or even eliminating -- itemized deductions will not come close to paying for Romney's tax cuts. It would be a step toward financing, but much more will be needed.

Nevertheless, as a piece of the revenue puzzle, a cap is an interesting and important idea and a welcome step forward.

Members of Congress are quick to see the political advantages of a cap. Relative to curtailing specific deductions, a cap allows them to leave existing deductions in place but restrict the overall use of such deductions. In that sense, the cap is like the alternative minimum tax was intended to be -- a limit on the overall use of tax shelters, even if political leaders could not shut down each one.

A cap on itemized deductions goes after one of the three areas of the income tax where the money is. The other two are the exclusion of health insurance premiums from taxation and saving and investment incentives like 401(k) plans, and the lower tax rates on capital gains and dividends and carried interest. A cap on a taxpayer's use of all of these subsidies -- as opposed to just itemized deductions -- could get at all three areas.

Martin Feldstein of Harvard University and the Romney campaign and Maya MacGuineas of the Center for a Responsible Federal Budget have proposed a different style of cap that applies to more than just itemized deductions.

While Romney's cap appears to apply to all itemized deductions, it may have a disproportionately negative effect on charitable contributions. After all, people have to pay their state and local taxes, and many people are already in the middle of a long-term commitment to pay down their mortgage.

Opinion: Romney shakes up the race

For those households, there may be little room left under the cap to take deductions for charitable contributions. And, for all households, the cap would eliminate tax deductions for contributions larger than the cap, so large gifts to charities would automatically lose their tax-preferred status.

So, a cap is not a panacea, but it could well be one part of a constructive solution. Likewise, his acknowledgment that his earlier, disparaging comments about the 47% of households that do not pay federal income taxes were misguided suggests a reconsideration of the role taxes play in those households. If the journey of a thousand miles begins with a single step, Romney has finally taken the first step. But there is still much more work to be done.

Follow @CNNOpinion on Twitter

Join us at Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of William Gale.

ADVERTISEMENT
Part of complete coverage on
updated 6:10 PM EST, Mon November 24, 2014
If Obama thinks pushing out Hagel will be seen as the housecleaning many have eyed for his national security process, he'll be disappointed, says David Rothkopf.
updated 8:11 AM EST, Tue November 25, 2014
The decision by the St. Louis County prosecuting attorney to announce the Ferguson grand jury decision at night was dangerous, says Jeff Toobin.
updated 3:57 AM EST, Tue November 25, 2014
China's influence in Latin America is nothing new. Beijing has a voracious appetite for natural resources and deep pockets, says Frida Ghitis.
updated 4:51 PM EST, Mon November 24, 2014
Iranian President Hassan Rouhani speaks during a press conference in the capital Tehran on June 14, 2014.
The decision to extend the deadline for talks over Iran's nuclear program doesn't change Tehran's dubious history on the issue, writes Michael Rubin.
updated 2:25 PM EST, Fri November 21, 2014
Maria Cardona says Republicans should appreciate President Obama's executive action on immigration.
updated 7:44 AM EST, Fri November 21, 2014
Van Jones says the Hunger Games is a more sweeping critique of wealth inequality than Elizabeth Warren's speech.
updated 6:29 PM EST, Thu November 20, 2014
obama immigration
David Gergen: It's deeply troubling to grant legal safe haven to unauthorized immigrants by executive order.
updated 8:34 PM EST, Thu November 20, 2014
Charles Kaiser recalls a four-hour lunch that offered insight into the famed director's genius.
updated 3:12 PM EST, Thu November 20, 2014
The plan by President Obama to provide legal status to millions of undocumented adults living in the U.S. leaves Republicans in a political quandary.
updated 10:13 PM EST, Thu November 20, 2014
Despite criticism from those on the right, Obama's expected immigration plans won't make much difference to deportation numbers, says Ruben Navarette.
updated 8:21 PM EST, Thu November 20, 2014
As new information and accusers against Bill Cosby are brought to light, we are reminded of an unshakable feature of American life: rape culture.
updated 5:56 PM EST, Thu November 20, 2014
When black people protest against police violence in Ferguson, Missouri, they're thought of as a "mob."
updated 3:11 PM EST, Wed November 19, 2014
Lost in much of the coverage of ISIS brutality is how successful the group has been at attracting other groups, says Peter Bergen.
updated 8:45 AM EST, Wed November 19, 2014
Do recent developments mean that full legalization of pot is inevitable? Not necessarily, but one would hope so, says Jeffrey Miron.
updated 8:19 AM EST, Wed November 19, 2014
We don't know what Bill Cosby did or did not do, but these allegations should not be easily dismissed, says Leslie Morgan Steiner.
updated 10:19 AM EST, Wed November 19, 2014
Does Palestinian leader Mahmoud Abbas have the influence to bring stability to Jerusalem?
updated 12:59 PM EST, Wed November 19, 2014
Even though there are far fewer people being stopped, does continued use of "broken windows" strategy mean minorities are still the target of undue police enforcement?
updated 9:58 PM EST, Mon November 17, 2014
The truth is, we ran away from the best progressive persuasion voice in our times because the ghost of our country's original sin still haunts us, writes Cornell Belcher.
updated 4:41 PM EST, Tue November 18, 2014
Children living in the Syrian city of Aleppo watch the sky. Not for signs of winter's approach, although the cold winds are already blowing, but for barrel bombs.
updated 8:21 AM EST, Mon November 17, 2014
We're stuck in a kind of Middle East Bermuda Triangle where messy outcomes are more likely than neat solutions, says Aaron David Miller.
updated 7:16 AM EST, Mon November 17, 2014
In the midst of the fight against Islamist rebels seeking to turn the clock back, a Kurdish region in Syria has approved a law ordering equality for women. Take that, ISIS!
updated 11:07 PM EST, Sun November 16, 2014
Ruben Navarrette says President Obama would be justified in acting on his own to limit deportations
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT