Report Published October 17, 2012 Updated October 17, 2012

The New Romney Tax Plan: Does it add up?

By:

David Brown

Governor Romney’s tax plan contains nearly $5 trillion in specific tax cuts over ten years. The Governor has also said his plan will not add to the deficit. To date he has only proposed one specific policy to make up the lost revenue—capping itemized deductions. However, our analysis finds that this proposal falls well short of making the Romney tax plan revenue-neutral.

Romney first suggested a $17,000 cap two weeks ago. Last week he said the cap would only be $25,000 or $50,000. We ran the numbers on all three versions and found that the cap only generates, at most, less than one-fourth of the revenue needed to be revenue-neutral.

Specifically, the $17,000 cap would generate $1.0 trillion over 10 years, the $25,000 cap would generate $730 billion, and the $50,000 cap would generate $390 billion.¹

What does this mean? Romney’s most recent proposal, for a $25,000 or $50,000 cap, would bring in only one-sixth to one-tenth the revenue needed. Each version of the Romney plan falls well short of the promise he made to keep his tax plan revenue-neutral. Based on our calculations, Governor Romney needs to find up to $4 trillion in additional revenue to make his numbers work.

Endnotes

Estimates of the size of the Romney tax cut vary. The Tax Policy Center estimates a $456 billion loss in 2015. See Samuel Brown, William Gale, and Adam Looney, “On the Distributional Effects of Base-Broadening Income Tax Reform,” report, August 1, 2012. Available at: http://www.taxpolicycenter.org/publications/url.cfm?ID=1001628.

Third Way 10-year revenue estimates are based on 2015 estimates, multiplied by 10 years. Calculations are based on Tax Policy Center data. Calculations assume that recouped taxable income, for each quintile of taxpayers, would be taxed at 80% of that quintile’s average marginal tax rate. See: “Distribution of Itemized Deductions by Cash Income Percentile, 2011,” Table, Tax Policy Center, October 3, 2012. Available at: http://taxpolicycenter.org/numbers/displayatab.cfm?DocID=3549. Also see “Average Effective Marginal Income Tax Rates, Distribution by Cash Income Percentile, 2011,” Table, Tax Policy Center, October 30, 2009. Available at: http://taxpolicycenter.org/numbers/displayatab.cfm?DocID=2503&topic2ID=150&topic3ID=160&DocTypeID=2.