When we talk about the federal budget, we usually rely on the government’s official definition of “spending” which is to say the amount of money that’s run through federal agencies.
But, in reality, the federal government spends a lot more than that. Using a broader definition of spending, which includes hundreds of billions in dollars of tax subsidies, my Tax Policy Center colleagues Donald Marron and Eric Toder have concluded that government spends 30 percent more than it admits.
Just take a look at the above chart.
It shows three measures of spending in 2007 (Donald and Eric picked 2007 so they wouldn’t get tangled in the stimulus, financial market and auto bailouts, and all of the other temporary outlays that government made in response to the 2008-2009 financial meltdown).
The column on the left shows how much spending shows up on government’s official books. The one in the middle includes what Donald and Eric call Spending-like Tax Preferences (SLTP): Tax subsidies that substitute for spending. Often, Congress dropped these initiatives into the tax code solely to hide the fact that they are spending.
Take the mortgage interest deduction. Instead of giving homeowners a tax subsidy, Congress could just as easily have had the Federal Housing Administration or some other agency write every homeowner a check to lower their monthly mortgage payments. Now, it may be more efficient to run this subsidy through the tax code. But a tax deduction is no less a subsidy than that check.
This is policy that fails what the lawyers like to call the duck test: If it looks like spending and quacks like spending, it is spending– even it resides in the Internal Revenue Code.
The last column adds another $230 billion in user fees and premiums (which government bean-counters like to call negative spending or offsetting receipts). By adding them back, the study shows the gross cost of programs such as Medicare, not just the part that is unfunded by those fees and premiums.
Add it all up and, in 2007, the government didn’t spend $2.7 trillion–the number that appears in the federal budget—it really spent the equivalent of $3.5 trillion.
Keep in mind that Eric and Donald didn’t include all tax expenditures in their calculations. They left out provisions such as low tax rates on capital gains, the step-up in basis for gains at death, 401(k)s, and accelerated depreciation of plant and equipment, none of which are quite equivalent to spending. That made their calculation of spending smaller than it might have been.
But they included many other well-known tax preferences, such as the exclusion for employer-sponsored health insurance, and deductions for mortgage interest, most state and local taxes, and most charitable gifts, as well as the Earned Income Tax Credit (the government already does treat the refundable portion of such credits as spending).
This study is important for two reasons:
First, it provides a much more transparent look at how big government actually is.
Second, it creates an interesting perspective when you look at plans to cut tax rates while scaling back these tax preferences. Looked at through Donald and Eric’s prism, trimming many of those subsidies is not raising taxes at all, but cutting spending. And maybe, just maybe, framing them that way may make those cuts possible.
No surprise here, but the tax cuts in Paul Ryan’s 2013 budget plan would result in huge benefits for high-income people and very modest—or no— benefits for low income working households, according to a new analysis by the Tax Policy Center.
TPC looked only at the tax reductions in Ryan’s plan, which also included offsetting–but unidentified–cuts in tax credits, exclusions, and deductions. TPC found that in 2015, relative to today’s tax system, those making $1 million or more would enjoy an average tax cut of $265,000 and see their after-tax income increase by 12.5 percent. By contrast, half of those making between $20,000 and $30,000 would get no tax cut at all. On average, people in that income group would get a tax reduction of $129. Ryan would raise their after-tax income by 0.5 percent.
Nearly all middle-income households (those making between $50,000 and $75,000) would see their taxes fall, by an average of roughly $1,000. Ryan would increase their after-tax income by about 2 percent.
Ryan would extend all of the 2001/2003 tax cuts, and then consolidate individual rates to just two—10 and 25 percent. In addition, he’d repeal the Alternative Minimum Tax, reduce the corporate rate from 35 percent to 25 percent, and kill the tax provisions of the 2010 health reform law.
Earlier this week, TPC projected the tax cuts in Ryan’s budget would add $4.6 trillion to the federal deficit over the next decade, even after extending the 2001/2003 tax cuts, which would add another $5.4 trillion to the deficit.
Ryan argues that eliminating or scaling back deductions, credits, and exclusions ought to be part of the GOP fiscal plan. But he won’t say how.
Cuts in those tax preferences could make a big difference in determining who wins and who loses from the tax portion of his budget. But until House Republicans describe which they’d cut, there is no way to estimate what those base-broadeners would mean.
In truth, unless Republicans raise taxes on capital gains and dividends, it is hard to imagine the highest income households getting anything other than a windfall from this budget. Other tax preferences, such as the mortgage interest deduction, are just not that valuable to them.
And since no high-profile Republicans want to raise taxes on gains and dividends (and many would cut investment taxes even further) this budget would likely result in a huge tax cut for those who need it least. That’s not a great way to start an exercise whose stated goal is to eliminate the budget deficit.
Paul Ryan may not have intended it, but his 2013 budget is the strongest argument I’ve seen for why any serious fiscal plan must include new revenues. It’s far more convincing than partisan Democratic complaints.
Ryan says he wants to balance the budget only by cutting spending. But he proved with hard, relatively specific numbers (on the spending side, at least) that he can’t get there from here. And if you take the second page from the Republican hymnal and add huge tax cuts to the mix, you may find yourself headed off in just the wrong fiscal direction.
Ryan’s fiscal math work only works with rapid, historic changes in government—something Congress doesn’t do well and the public struggles to accept (health reform anyone?). It would force Republicans to make one career-killing vote after another. Tea-partiers might rejoice, but there is stuff in this budget that is political death for senators and any House members running in swing districts.
Let’s look a few:
Medicare. Ryan’s budget includes a version of the premium support plan he designed with Democratic Senator Ron Wyden (D-OR). But while a system where seniors get subsidies to buy health insurance on the private market might make economic sense, it is wildly unpopular. Some surveys show 70 percent of those asked favor the current system.
According to the Congressional Budget Office, Ryan would dramatically cut federal spending for new enrollees over time. It figures that by 2050 the federal share of Medicare costs would be 42 percent lower under the Ryan plan than under CBO’s best guess of the future path of Medicare spending. In that year, CBO expects the feds would spend $19,100 in 2011 dollars on a typical 67-year-old. But it would spend only $11,100 under the Ryan plan. That suggests seniors would pay a lot more even if medical care becomes more efficient.
Medicaid: Compared to 2011, Ryan would cut other federal health spending (for Medicaid, the children’s health insurance program, and subsidies under the 2010 health law) in half from 2011 levels by 2050 (measured as a share of Gross Domestic Product). Compared to CBO’s best guess of the path of spending, that’s a 75 percent cut.
Everything else: Ryan would reduce spending for the rest of the federal government from 12.5 percent of GDP in 2011 to 3.75 percent by 2050. CBO estimates spending for these programs has never been lower than 8 percent at any time since World War II. Defense spending is 4.6 percent of GDP today and CBO notes it has never fallen below 3 percent during that period.
This implies Ryan and the GOP would either have to support unprecedented cuts in the Pentagon budget or leave almost no money for everything else the federal government does—highways, air traffic control, national parks, food safety, farm subsidies, and the like. Tough to imagine.
And for all of that, it still would take Ryan two decades to balance the budget.
Then, there are taxes. As TPC showed in its analysis of the tax provisions of the Ryan budget, he has dug for himself a fiscal hole of Grand Canyon proportions. He’d cut taxes by $4.6 trillion over 10 years, on top of the $5.4 trillion in revenue the government loses after he permanently extends the 2001/2003 tax cuts. To pay for those tax cuts, he’d either have to slash big, politically popular tax preferences such as the mortgage interest deduction or find even more spending to cut.
So the lesson from Ryan budget is clear: It is not possible in any political universe most of us reognize to cut spending like this budget implies. Of course, Ryan is a smart guy who knows this very well. So maybe he intended to send this message after all.
Republicans like to say President Obama is a chronic, unrepentant tax-raiser. Obama himself used to say he was a tax-cutter but now touts himself as a fiscally responsible steward of the budget who would raise taxes—but only on the rich.
Who is right? The Tax Policy Center has just completed its analysis of tax proposals in Obama’s 2013 budget and found they both are. This is no surprise to budget geeks, but important for ordinary people to keep in mind, especially as we head into a season of both budget and campaign madness.
When Obama quietly sent his budget to Congress last month, he started off like the proverbial economist: He assumed the core of his plan was already going to happen. Almost all of the 2001-2010 tax cuts would be made permanent, the alternative minimum tax would be indexed from its 2011 level, and the estate tax would remain at its 2009 level. By itself, that baseline would add $4.5 trillion to the deficit over the next ten years, a pretty deep hole to dig if you want to show your deficit-cutting chops.
From there, the president proposes targeted tax cuts aimed at job creation and helping low-income families combined with substantial tax hikes for the rich and corporations. By the administration’s calculations, more than $2.1 trillion of tax hikes would offset roughly $400 billion of cuts and net about $1.7 trillion in additional revenues. That’s the bottom line Obama wants to hype, but the gain comes only after he gives away $4.5 trillion to get to his baseline.
Compared to the current law baseline, though, where almost all of the temporary tax cuts expire as scheduled at the end of this year, the president’s tax proposals would lose $2.8 trillion over the decade.
And relative to a current policy baseline—essentially this year’s tax rules with the temporary tax cuts still in place—the proposed budget would increase taxes by about $2.1 trillion by 2022. Because current policy would collect somewhat less tax than Obama’s baseline, the net revenue gain would actually be somewhat larger than the $1.7 trillion the budget claims.
By the current policy measure, Obama would raise taxes for about a third of households in 2015 and cut them for about one in six. For most of those who would pay more tax, the increase would be small, mostly just their share of higher business taxes. But almost all of the rich would end up paying a lot more: 98 percent of those in the top 1 percent would face tax increases averaging almost $110,000, primarily because Obama would let the Bush-era tax cuts expire for them.
Much of their tax hike would occur because Obama would raise their top rates to 36 percent and 39.6 percent. But nearly a third results from higher rates on capital gains and dividends and limiting tax savings from itemized deductions and other tax preferences to 28 percent.
However you measure it, Obama budget stands in stark contrast to the fiscal plan proposed yesterday by House Budget Committee Chair Paul Ryan (R-WI). Ryan would cut both individual and corporate tax rates well below today’s levels. He promises to make up the $4.6 trillion of the resulting lost revenue (over ten years, relative to the current policy baseline) by eliminating tax breaks. But he won’t say which ones.
Without the missing revenue raisers, Ryan’s fiscal plan lacks credibility. Obama’s budget lacks imagination and courage. It offers little that’s new and fails to address the country’s long-run fiscal challenges. But at least the president offers a complete package that doesn’t dig a deeper hole than the one we are already in.
I am weary of mystery meat. The latest serving was dished out yesterday by House Budget Committee Chairman Paul Ryan (R-WI), who released a fiscal plan that airily promises both trillions of dollars in tax cuts and a nearly balanced budget within a decade, but never says how he’d get there.
Ryan isn’t saying that his budget implies cuts of $4.6 trillion in popular tax deductions, credits, and exclusions over 10 years, according to new estimates by the Tax Policy Center. And that ignores the $5.4 trillion in revenue lost from permanently extending the 2001/2003 tax cuts.
Ryan proposes big, specific spending reductions such as cutting Medicaid in half and slashing other federal spending (except for Social Security, Medicare, and Medicaid) by nearly 75 percent from current levels by 2050. But his budget still can’t add up without eliminating or sharply scaling back those popular tax preferences. Which ones, it seems, remain a state secret.
Ryan rolled out a 2013 budget that promises to replace the current individual rate structure with just two rates– 10 percent and 25 percent. He’d repeal the Alternative Minimum Tax and abolish the tax increases included in the 2010 health law. For business, he’d lower the corporate tax rate from 35 percent to 25 percent and shift to a territorial tax system, where multinationals would owe no U.S. tax on foreign earnings.
All of this would reduce tax revenues by trillions of dollars over 10 years. The Tax Policy Center estimates that a similar corporate rate cut, AMT repeal, and a two-rate individual system would reduce revenues by about $4.5 trillion through 2022, even after accounting for the $5.4 trillion cost of extending the 2001/2003 tax cuts. In 2022 alone, a Ryan-like plan would reduce revenues by about $600 billion.
To put it another way, TPC figures such a tax package would generate revenues of about 15.8 percent of Gross Domestic Product in 2022. His budget aims to collect about 18.7 percent. That means he’d have to find about $700 billion in new revenues by cutting tax preferences.
Keep in mind that TPC did not model the actual Ryan plan, since it is not specific enough to estimate. Instead, we looked at a plan with the elements of his proposal.
But the rough numbers are stark. And Ryan, who knows better, studiously avoids naming names when it comes to eliminating tax preferences. Oh, his budget includes a convincing and articulate explanation about what’s wrong with a tax system with high rates and a narrow base. He just doesn’t say what he’d do about it.
There is a disquieting echo here of President Obama, who so recently did such a great job explaining what’s wrong with our corporate tax system. The president happily proposed a politically popular cut in corporate rates to 28 percent, but identified offsetting tax increases that would cover only a fraction of the cost.
All of the major GOP presidential candidates have played the same black box game—promising huge rate cuts without ever saying how they’d pay for them.
Ryan asserts there is “an emerging bipartisan consensus for tax reform that lowers rates, broadens the tax base, and promotes growth and job creation.” Actually, he’s wrong. There is an emerging bipartisan consensus to embrace lower rates without ever saying how to pay for them.
Why do we bother with government trust funds? As the Senate’s just-passed highway bill proved yet again, Congress is turning these funds into little more than accounting shams.
In theory, it makes sense to establish special accounts where designated revenues are set aside for a specific purpose. But in practice, Washington is grossly abusing the idea.
There is a lot of money at stake here. The national debt this year will reach almost $16 trillion. Of that, the government owes nearly $5 trillion to itself. That’s because Congress spends trust fund dollars on the rest of government and replaces the money with IOUs. But, as with the highway fund, the game works the other way too: The trust funds live on general revenues instead of designated taxes.
With that in mind, let’s take a quick tour of The Big Three funds:
The highway trust fund. The federal government was supposed to fund its share of highway and transit costs with six excise taxes (let’s call them the gas tax, but there are other levies as well).
The scheme worked—for a while. But while Congress has more than doubled federal highway spending over 20 years, it hasn’t increased the 18.4 cents per gallon gas tax since 1993. And cars have become more fuel efficient.
So, guess what? Trust fund balances that were once stable have now gone into the red. To fill that fiscal pothole, Congress has had to shift almost $35 billion from the general fund since 2008.
The other day, Senator Bob Corker (R-TN) correctly noted the highway bill the Senate was about to pass would make this problem worse. He opposes raising the gas tax so suggested Congress could either spend less on highways or cut other programs to offset the cost.
But he misses the point. The more we pay for highways with general revenues or by cutting other spending, the more transportation looks like any other government program. Why have a trust fund?
Medicare: Money flies from Medicare to the general fund and back at dizzying speed.
The Medicare payroll tax finances only part of one piece of Medicare—the hospital insurance program (Part A). In 2010, Part A collected only about $180 billion in payroll tax–$70 billion less than it spent. That’s why it will run out of money in a bit more than a decade.
The rest of Medicare, which paid out about $275 billion in 2010, gets no money from payroll taxes. While it collected about $62 billion in premiums, more than 40 percent of total Medicare dollars come from income taxes and other general revenues.
Thanks to the 2010 health reform law, what’s loosely called the Medicare tax will rise significantly for some high-income people starting next year. But only a 0.9 percent rate increase on wages will go to the Part A trust fund. Medicare will never see the rest (a new 3.8 percent tax on investment income). Rather, it will go to the general fund to help “pay for” health reform.
Social Security. You know the story here. Social Security uses current payroll tax revenues to pay current benefits. There is no real link between the size of the trust fund and what government owes current and future retirees.
The system now pays out more each year than it collects in taxes. And the immensely popular payroll tax cut on the books for 2011 and 2012 reduced income to the program by more than $200 billion. Congress has filled this hole by shifting other tax dollars to the retirement system. Now it must cut spending, borrow, or raise other taxes to cover this transfer. Some trust fund.the government in
Don’t get me wrong. There is real value to trust funds. But if we are going to have them, we should take them seriously.
Congress originally enacted the alternative minimum tax (AMT) to make sure that high-income folks would pay at least a minimum amount of income tax. Sound familiar? It seems awfully similar the “Buffett rule,” the principle that those with incomes above $1 million should pay at least 30 percent of their income in taxes.
As currently constructed, the AMT adds enormous complexity to the tax code and increasingly burdens middle-class families. So it seems natural to ask: why not just replace the AMT with a version of the Buffett rule?
To help answer that question, the Tax Policy Center estimated what it would cost to scrap the AMT and enact the Fair Share Tax, a recent legislative proposal that would impose a 30 percent minimum tax on individuals earning more than $1 million. (The tax would phase in so its full force wouldn’t hit taxpayers as soon as their income topped $1 million.)
We found that the Fair Share version of the Buffett rule wouldn’t come close to paying for AMT repeal. Scrapping the AMT would lose a whopping $1.2 trillion relative to current law between now and 2022. The Fair Share Tax would only recover about $100 billion of that revenue, for a net loss of $1.1 trillion.
What would it mean relative to current policy – a more realistic baseline under which the AMT would be permanently patched and the 2001/2003/2010 tax rates extended? The AMT fix would reduce revenue by $550 billion over the decade while lower rates would boost the amount the Fair Share tax would bring in by about $150 billion. The net: the swap would still lose $400 billion over 10 years.
Why does the AMT generate so much more revenue than the Fair Share tax? The biggest reason is that the AMT simply hits a much bigger chunk of taxpayers. By design, the Fair Share tax wouldn’t affect anyone making less than $1 million. Yet 96 percent of AMT taxpayers have incomes under $1 million, accounting for 77 percent of all AMT revenue. The Fair Share tax would need to start at a much lower income level to make up the lost revenue from the AMT.
The AMT may be a mess, but it would be awfully costly to replace.
In the face of growing income inequality and big budget deficits, some political leaders and commentators are showing a growing interest in raising taxes on the rich. But the ideas on the table would have very different results.
The Tax Policy Center has looked at several plans, including the 28 percent limit on the tax savings from itemized deductions that President Obama has proposed and a minimum 30 percent tax rate on households earning over $1 million. Obama has endorsed this “Buffett rule,” although he has not proposed a specific version. TPC also analyzed a 21 percent effective minimum tax that would phase in for couples with income over $250,000 ($200,000 for singles). This EMT is similar to the Buffett rule, but would apply a lower minimum tax rate beginning at a lower income level. Both the Buffett rule and the EMT would be imposed on top of the current alternative minimum tax.
Relative to TPC’s current policy baseline, which assumes the 2001-2010 tax cuts and the AMT patch are extended, the version of the Buffett rule proposed by Sen. Sheldon Whitehouse (D-RI) and Rep. Tammy Baldwin (D-WI) would raise taxes on about 185,000 households by an average of $215,000 in 2013. The EMT would hit about twice as many households but raise their taxes by less than half as much on average.
Overall, the limit on itemized deductions would reduce after-tax income by an average of 0.2%, the EMT by 0.3%, and the Buffett rule by 0.5%. But as the chart shows, the three plans would affect different taxpayers in very different ways. The 28 percent cap would start to bite for the highest-income 10 percent of households and would grow modestly with incomes. The EMT would hit only the top 5 percent but would increase taxes much more at the very top, reducing after-tax income by 2.4% for the top 0.1 percent. The Buffett tax wouldn’t hit anyone outside the top 1 percent but would strike those high-income households with a vengeance, slashing after-tax incomes for the top 0.1 percent by an average of 5.4%.
The big reason why the Buffett rule would hammer the highest-income households is that it would dramatically raise their effective marginal rates on capital gains. That would encourage them to delay taking profits to avoid those higher rates. Some might even spread realizations over multiple years or not realize some gains at all. The result: a much reduced revenue pickup.
This change in behavior is also a problem for economic efficiency. When investors change the timing of their asset transactions to reduce their taxes, they are no longer allocating their capital in the best possible way. But the narrowing of the differential between capital gains and ordinary income also has the beneficial effect of reducing incentives to convert ordinary income to capital gain.
The 21 percent EMT rate would produce much less distortion in the decision to realize capital gains than the Buffett rule’s 30 percent rate, but would still retain a substantial capital gains/ordinary income differential. And the 28 percent limitation on itemized deductions would distort behavior the least (and would reduce some existing distortions) since it would effectively broaden the tax base rather than increasing marginal rates.
None of these piecemeal approaches is as good as broad tax reform. But in the meantime, it’s worth remembering that all taxes on the rich are not created equal.
GOP presidential candidates are blasting President Obama for not lowering the price of gasoline. Rep. Steve Scalise (R-LA) doesn’t stop there. He claims Obama is deliberately driving prices to $4 a gallon.
He’s not. But he should.
In an election year, Obama may be the last guy who wants gas prices to rise. However, if we want to reduce our need for foreign oil, slow climate change (yes, Virginia, the planet is warming), and encourage development of new energy technology, we ought to be raising taxes on fossil fuels. A lot.
I know that this sounds like elitist left-wing heresy. But in the dim past (2008), GOP presidential candidate John McCain embraced the system known as cap-and-trade, which was effectively a tax on carbon-based fuels. Greg Mankiw, a former top economic aide to President George W. Bush and now an adviser to Mitt Romney, says its reasonable to boost the 18.4 cent a gallon tax to $2. As Mankiw recently wrote, “by taxing bad things more, we could tax good things less.”
Newt Gingrich used to support cap-and-trade. So did both presidents Bush. As governor of Massachusetts, Mitt Romney initially backed the idea though he eventually abandoned it.
Carbon taxes, in any form, have become exceedingly politically incorrect. But they were a good idea when McCain and Gingrich supported them. And they still are.
Sensible energy policy goes beyond just taxing fossil fuels. It also means dumping competing subsidies for oil and gas on one hand and alternative energy on the other. As it is, these tax preferences reflect a policy chasing its own tail: Congress first subsidizes fossil fuels. Then, in an effort to make alternatives cost competitive, it subsidizes windmills, solar panels, and the like. When all is said and done, the relative cost may not change very much but the deficit does. And not in a good way.
Ditching all these tax subsidies would have two other advantages.
It would allow government to eliminate mandates and other regulations that would be unnecessary in a well-functioning energy marketplace. For instance, there would be no need for complex, costly, and easily manipulated fuel economy standards. The high price of gasoline alone would encourage many consumers to buy fuel efficient cars instead of gas-guzzlers.
As Ted Gayer, co-director of the Brookings Institution’s economic studies program, notes, higher prices for fossil fuels also would get government out of the business of providing grants and other direct assistance to favored industries or businesses. The Solyndra mess is strong evidence of what goes wrong when government tries to pick winners and losers.
The left often complains that carbon taxes are regressive. And so they are. But a well-designed tax (or cap and trade program) can generate enough revenue so some could be used to assist low income households.
Interestingly, carbon taxes enjoy the support of nearly all mainstream economists, regardless of ideology. But most Americans, who seemingly love their cars more than their spouses, are unconvinced. For them, fuel, like healthcare, ought to be plentiful and cheap.
As Gayer writes, the next administration will have a chance to consider a carbon tax, perhaps in the context of broad-based tax reform.
He might be right. But, first, politicians of both parties are going to have to stop their pandering.
Mitt Romney has proposed massive new tax cuts and promised to balance the federal budget. How will he achieve these seemingly contradictory goals?
For now, he isn’t saying. And, in fact, his campaign has been sending out vague and somewhat conflicting signals about where the money would come from to finance his rate cuts and other tax reductions.
When Romney rolled out his latest revenue plan on Feb. 22, senior aides were asked how he’d pay for these substantial tax reductions (TPC estimates they’d add $900 billion to the deficit in 2015 alone—about $400 billion from extending the 2001/2003 tax law and another $500 billion in new rate reductions and other tax cuts). Their response: Tax cuts would be funded by offsetting tax increases combined with stronger economic growth and changes in behavior driven by the tax reductions themselves.
The aides did not identify which taxes Romney would raise or estimate the economic effects of his plan. But they were clear that his tax reductions would be funded inside the revenue system. And, at least by their calculation, Romney’s new initiative would not be a net tax cut at all. It would be a classic tax reform—lowering rates while eliminating tax preferences. But it would result in no net change in tax revenues (at least as Romney measures it).
But then that story began to shift. On March 1, The Wall Street Journal’s John McKinnon wrote this: “Governor Romney’s tax cuts will not increase the deficit,” Romney spokeswoman Andrea Saul said in a statement. ‘They will be fully paid for through a combination of economic growth, base broadening, and spending restraint. Any analysis that claims otherwise is incomplete.’”
Note the addition of spending restraint as an added source of funds. In this formulation, Romney may indeed be promising a net tax cut—partially financed with (unidentified) spending reductions. Saul’s comments appeared in several other news stories on that day.
However, there is yet another complication: She did not say whether she was talking about all Romney’s tax reductions or only those in addition to extending the 2001/2003 law. The campaign could clarify this but so far has not.
On March 7, the story changed again. When asked in a CNBC interview how he’d fund his tax plan Romney said he’d “limit deductions and exemptions to pay for most of that. Growth would pay for the rest.” Romney said nothing about more spending cuts.
Then, Romney went further. He said that curbs in credits and deductions would exempt middle-income households who would continue to receive the benefits of tax breaks such as the deductions for mortgage interest and charitable contributions. Any cuts in tax preferences, he said, would be “primarily limited” to those with high incomes.
That sounds an awful lot like President Obama, who has proposed capping the value of tax preferences to 28 percent and vowed to never raise taxes on those making $200,000 or less.
Romney has further constrained his own options by promising to cut the capital gains rate to zero for those making less than $200,000 while freezing it at 15 percent for high-income households.
If Romney is promising to curb hundreds of billions of dollars annually in tax preferences while leaving popular middle-class deductions and credits unscathed, he has set a hugely challenging goal for himself. And he owes us an explanation of how he is going to do it—before the election.