Posted by Bob Lord
At a debate last spring, the candidates were asked what one word best described them. Romney's response? "Resolute."
In a few respects, it's been hard to argue with that. He's been resolute in his refusal to release more of his tax returns. He's been resolute in his distortion of Obama's record. And he's certainly been resolute in his refusal to provide any specifics of his tax plan.
On the refusal to provide specifics, Ryan is no less resolute than Mitt. Indeed, Ryan never has shared much by way of specifics in his "Path to Prosperity." And today, Ryan maintained resolute on sharing specifics of the Romney tax plan. He told Chris Wallace that "it would take too long to go through all the math." But, he assured Wallace, the plan would "drop taxpayers' bills by 20%, without costing a dime, due to closed loopholes." And he told Wallace that you can cut rates by 20% by closing loopholes and still have preferences for the middle class, including those for home purchases, charitable deductions and health care.
Finally, to leave the audience utterly baffled, Ryan stated: "What we’re saying is people are going to get lower tax rates and therefore they will not send as much money to Washington.”
Hmmmm? It was just a few days ago that ole Mitt was frank with a middle class audience, telling them they should not expect a reduction in their tax bill, because there would be a trade off between the lower rates under his plan and the elimination of tax preferences.
When you think about it, the specifics no longer are the most pressing question about the Romney plan. I'd settle for an explanation of the glaring contradictions. We've been told that the plan will be revenue neutral based on the elimination of loopholes. We've been told that rates would be reduced by 20% across the board. We've been told that Romney would maintain the low rates for capital gains and dividends, extend those rates to all investment income, and add an exemption from tax for all investment income of taxpayers whose income is less than $200,000 per year. Ryan, by the way, would exempt all investment income from taxation.
We've been told by Romney that the middle class shouldn't expect a reduction in their tax bills, but by Ryan that they will be sending less money to Washington. And now we've been told that at least for the middle class, the popular middle class tax preferences will be preserved, including the most treasured preference, the mortgage interest deduction.
Of course, there's one reality we've not been told by Ryan or Romney, but been reminded of by the Tax Policy Center. The further you get up the income scale for individuals, the less significant so-called tax preferences become and, therefore, the less likely it is that the elimination of "loopholes" will offset the revenue loss from lower rates. Take, for example, the mortgage interest deduction. It maxes out under current law at One Million Dollars of mortgage debt, which roughly translates into $50,000 per year of deductible mortgage interest. If you make $250,000 per year, a $50,000 deduction is a huge, huge tax preference, translating into about a seven percentage point reduction in your effective tax rate. But if you make $5 Million per year? Not so much. It reduces your effective tax rate by one-third of one percentage point.
So, putting aside the specifics, the contradictions abound. The plan will be revenue neutral, or so they say. But middle class taxpayers will be sending less to Washington. The reality is that if the tax rates of the wealthy are reduced by 20%, elimination of the so-called loopholes can't offset the revenue loss. Thus, the wealthy will be sending less to Washington too. If the wealthy are sending less to Washington and the middle class are sending less to Washington, how do we achieve revenue neutrality?