Romney tax plan: How rich could pay the 'same' and still pay less
Romney promises to make the rich keep paying a constant percentage of all US income taxes. That's very different from asking them to pay a constant share of their earnings.
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Ms. Rogers says that when President Bush cut taxes, the share of income taxes paid by the rich went up, but that doesn't mean the tax code had become more progressive. "The rich were paying a larger share of a much smaller pie," she says. Even so, the rich "enjoyed the largest relative (not just absolute) decline in tax burdens" she says, so progressivity actually fell, when tax burdens are measured by income level.Skip to next paragraph
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Romney's proposed tax reform is very different from what occurred under Bush. Romney calls for continuing the Bush tax policies, and then cutting tax rates by an additional 20 percent. Unlike Bush, he pledges to offset the revenue loss from lower rates by closing or capping deductions and other loopholes.
Still, some critics of Romney predict that he would not be able to cut enough deductions and tax breaks for high income individuals to fully pay for the tax rate cut. The result might be big tax cuts for the high-income individuals, and a failure to keep his pledge to hold federal revenue constant over the next decade, compared with current policies.
In addition to his income-tax changes, Romney proposes ending the estate tax, another change that would heavily benefit the rich.
Others tax-policy analysts say that Romney could, potentially, meet his budget-defict objectives and still offer effective tax cuts to the rich and middle class. The key to this outcome would be if his tax reform, by lowering rates, had strong positive impacts on economic growth.
"We bring down rates to get more people working," Romney said in the first presidential debate, referring to the expectation that lower rates heighten incentives for people to work and for businesses to invest.
If the growth effects were strong enough, the addition to gross domestic product (GDP) would mean more income for households, and hence more tax revenue. It would help to pay for his tax-rate cuts. And potentially, it might mean that middle class families became better off, even as the tax reform also helped the rich.
The contrast between Romney and President Obama can be heard in the phrases they use.
Where Romney talks about the share of taxes paid by the rich, Mr. Obama speaks of their tax liability. Obama's proposed Buffett rule calls on millionaires to pay at least 30 percent of their income in federal tax.
Obama also says Romney is offering some $5 trillion in new tax cuts. Romney says the total isn't $5 trillion, because he plans to offset the cost by curbing tax breaks. He hasn't spelled out the details, including which tax breaks would be limited to maintain the share of taxes paid by the rich.
A final point: Saying the top 5 percent pay about 60 percent of all income taxes is different from saying that's their share of personal taxes. US families also owe payroll taxes, state income tax, sales taxes, and property taxes, for instance. When all taxes are factored together, the share paid by the rich is much lower.