Posted by Bob Lord [cross posted at Daily Kos]
On the eve of the first debate, Mitt finally has suggested how he'll recoup the lost revenue from his 20% across the board rate cut. And the answer is (drum roll) a $17,000 deduction bucket. Each taxpayer would be given a bucket holding $17,000 in itemized deductions that could be filled with itemized deductions like the mortgage interest deduction or charitable contributions.
Josh Barro at Bloomberg thinks it's a swell idea
I disagree. I'd say it reeks of desparation, is insipid in its design, is discriminatory, and is dangerously bad policy.
The desparation is obvious. By all appearances, this is something the Romney camp just contrived in response to pressure to provide specifics regarding his tax plan. Well, doesn't that mean that their previous refusal to discuss specifics was due not to secrecy but to the utter lack of actual specifics when Mitt proposed his "tax plan" last Spring?
The insipid nature of the proposal is evident to tax geeks, who know that the concept is a trivially minor twist on the already existing standard deduction. All taxpayers may choose between taking the standard deduction, which currently is in the $12,000 range for a married couple, and itemizing their deductions. So, effectively, Mitt wants to create a narrow band, between $12,000 and $17,000, where taxpayers need to have itemized deductions in order to qualify for what really is just a higher standard deduction. Why not just raise the standard deduction and do away with the itemized deductions altogether? After all, the societal value of the itemized deductions is gone under Romney’s plan anyhow. Nobody is going to be incented to buy a house for the mortgage deduction if the most that deduction effectively can be is the $5000 difference between the standard deduction and Romney’s cap on itemized deductions. And consider the implications for enforcement. Is it practical for the IRS to audit taxpayers' itemized deductions when the most those deductions could translate into is a $1400 tax benefit (28% of the $5,000 differential between the standard deductions and Mitt's itemized deduction bucket limit)? What really is going on here is that Mitt is disguising a proposal to eliminate the mortgage deduction and the charitable deduction because making that proposal directly would contradict his and Ryan's earlier statements.
The proposal discriminates against the group of taxpayers roughly in the $100,000 to $300,000 range. Lower income taxpayers generally don't have itemized deductions sufficient for them to forego the standard deduction, so Mitt's bucket concept doesn't cost them any tax dollars, but they still get some benefit from the 20% rate reduction if they are paying tax. High income taxpayers might lose some itemized deductions, but the loss of itemized deductions is dwarfed by the benefit of the 20% across the board rate reduction. But those taxpayers in the middle, who generally pay healthy mortgage interest and state income and property tax, and often contribute generously to charity, would see most, or even all, of the benefit from the 20% rate cut under Mitt's bucket proposal. By the way, this is the group that already is bearing a disproportionate share of the income tax burden.
The proposal is discriminatory in another way that also is bad policy. It obviously is more favorable to taxpayers in lower tax states, because it diminishes the value to taxpayers of the deduction for state taxes. We already are in the midst of a crippling race to the bottom among states trying to outdo each other in lowering tax rates. This would exacerbate that problem, thereby wreaking even more havoc on state budgets. Yes, the states are doing this damage to themselves, but we don't need to increase the temptation for them to do so.
Oh, by the way, no way, no how could Mitt's bucket proposal make his tax plan revenue netral.