Romney tax plan: Is it 'mathematically impossible' or not?
One study said Mitt Romney's tax-reform numbers don't add up. Another says they do. The reality: It depends a lot on the assumptions made about how deeply Romney is willing to cut tax breaks for the rich, including incentives for investment.
Mitt Romney's tax plan is a centerpiece of his vision for economic recovery and jobs. But it has also become the center of a big controversy as he runs for president.Skip to next paragraph
Subscribe Today to the Monitor
The Tax Policy Center, long viewed as a nonpartisan referee, has issued a report saying Mr. Romney's numbers don't add up. Now the conservative Heritage Foundation has become the latest Romney ally to try to refute that criticism.
At its core, this debate is about whether Romney's goals are "mathematically impossible" to achieve, unless middle- or lower-income households are asked to provide more tax revenue.
By extension, it is also about whether Romney's tax reform would make the tax code less progressive, favoring the rich.
RECOMMENDED: Obama vs. Romney 101: 5 ways they differ on taxes
The political stakes are high. The former Massachusetts governor is struggling against opposition efforts to define him as a plutocrat who would put the interests of the wealthy above those of ordinary Americans. A key theme of the Romney campaign this week is to project to voters that he cares about them.
"Middle-income people will probably see a little [tax] break, because there'll be no tax on their savings," Romney told "60 Minutes," when asked about his plan.
Here's a look at how the two sides in this skirmish over Romney's tax plan disagree – and how there's actually more agreement between them than you might expect.
The tussle centers around a Tax Policy Center analysis, published Aug. 1, that said Romney's stated tax-reform goals can't all be achieved simultaneously. The report cited five Romney objectives: cutting income-tax rates by 20 percent, being "revenue neutral" for the government, repealing the estate tax, repealing the Alternative Minimum Tax, and preserving and enhancing incentives for saving and investment.
The first two goals alone present a sizable challenge. After all, how do you slash tax rates while preserving the same amount of federal revenue over the long haul? The answer is by "broadening the base," or expanding the pool of US income that is subject to taxatation. This means eliminating or reducing the deductions available to taxpayers. The result is that more income is taxed, but at lower rates.
The Tax Policy Center calculated that even if all tax breaks they assumed to be available under Romney's criteria were wiped out for high-income earners, it wouldn't be enough to keep Romney's plan revenue neutral. Middle- or lower-income households would need to kick an extra $86 billion a year to meet the target. How? Deductions and other tax breaks would have to be reduced by an amount outweighing their 20-percent tax-rate cut.