In a desperate (and cynical) attempt to buy last minute votes at the presidential debates last night, presidential hopeful Mitt Romney proposed an across the board income tax cut of 20% for everyone. To sweeten the deal, he said he would balance the cuts by eliminating deductions and loopholes so there would be no net loss in federal revenues.
What could be fairer or more generous?
20% might seem like a lot, and it is if you are rich. Even after the loopholes are closed, it is estimated that the average wealthy American will still save $250,000 per year under Romney’s plan. Thus, Romney’s tax plan will give wealthy Americans a gift worth more than quadruple the yearly income of most Americans.
For most of us, however, Romney’s tax cut would provide little relief and, for many of us, it will actually translate into higher taxes, not lower. This is because his plan includes ending all deductions over $17,000. For working class or middle class homeowners in California, who have mortgages of $300,000 or more, the state income tax and mortgage interest deductions, alone, come to more than $17,000. Thus, many moderate income residents would have to pay more in taxes, even with the 25% tax cut, because they will lose so many of the deductions they had previously used to lower their tax liability.
Another problem with the Romney plan is that it is not possible to entirely balance out the cost of the tax cuts by closing loopholes and deductions. Without any offsets, it is estimated that it would add another $5 trillion to the federal deficit over the next 10 years and this is in addition to the $5 trillion the Bush tax cuts are currently adding. Since the Romney plan would be layered on top of the Bush tax cuts, which will also continue for the next ten years, the total bill under Romney’s plan would be far more than $5 trillion, even with the offsets. Obama’s plan, which is essentially just an extension of the Bush tax cuts just for middle-income Americans, would increase the deficit by $4 trillion over this same time period.