Both candidates (and, indeed many lawmakers in both parties) agree that tax reform is a key component of fixing the nation’s debt.
In general, both candidates have proposals to “broaden the base and lower the rates,” meaning lowering marginal tax rates in exchange for wiping out tax breaks. But how each achieves a simpler tax code – and what that tax code actually looks like – marks a sharp distinction.
Romney would cut every tax bracket by 20 percent, dropping the top rate from 35 percent to 28 percent and the lowest rate to eight from ten. He would keep tax rates on interest, dividends, and capital gains the same for taxpayers with more than $200,000 in income and eliminate them for those with less. He would eliminate the estate tax and the Alternative Minimum Tax (AMT).
For corporations, he would knock the top tax rate down to 25 percent from 35 percent and transition the US to a territorial tax system where companies are only taxed on earnings generated inside the country.
All of Romney’s plan would be “revenue neutral,” meaning that it would not raise the amount of money the government raises through taxes. He also pledges to preserve “the principle of fairness” when revamping the tax system. He has not laid out any specifics about what tax credits he would eliminate or which classes of Americans would see the greatest or smallest tax benefits.
Obama, on the other hand, would raise $1.5 trillion through his tax reform proposal. He would allow the Bush tax cuts to expire for household income over $250,000 (worth just under $1 trillion in new revenue over a decade) as well as instituting a proposal known as the “Buffett Rule,” stipulating that no American earning over $1 million should pay less in than 30 percent of their income in taxes (garnering a further $150 billion over the next 10 years).
The balance comes from preventing Americans with incomes over $250,000 per year from lowering their tax rate below 28 percent through itemized deductions (nearly $600 billion) and a handful of other, smaller provisions such as ending preferential treatment for corporate jets.
Obama has not said exactly how much he would reduce tax rates, what tax preferences he would eliminate, and who would benefit the most from those changes. But, Obama, like Romney, he has set out general principles – such as protecting the middle class – from tax hikes.