Impact of Romney, Obama tax ideas tough to figure

Associated Press Modified: October 13, 2012 at 2:45 am •  Published: October 13, 2012
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WASHINGTON (AP) — Good luck figuring out whether Republican presidential candidate Mitt Romney would cut or raise your taxes if he's elected president. President Barack Obama promises tax reform, too, but precious little detail.

Unlike Romney, Obama wants to make sure any tax reform produces a big new chunk of revenue to address the deficit. Yet it's difficult to do that and not hit the middle class. It's Romney's far more ambitious tax plan, however, that has become front and center in the presidential campaign.

Romney promises a 20 percent cut in tax rates, but he won't say which deductions he'll kill to pay for it. He promises a wholesale rewrite of the tax code that would cut income tax rates across the board, taking the top rate from 35 percent to 28 percent.

Romney's plan offers the dessert of sweeping tax cuts but not the vegetables of how he would pay for it. He and running mate Paul Ryan — his House GOP budget plan promises an even lower top tax rate of 25 percent — say they'll curb tax breaks and rely on fresh revenue from economic growth to recoup the cost.

Obama would instead raise that top rate to 39.6 percent, making clear he's still wedded to the idea that individuals with incomes above $200,000 and couples earning above $250,000 should pay more. It's never gotten anywhere on Capitol Hill, even when Democrats had sweeping House and Senate majorities in Obama's first two years in office.

Romney says he will eliminate taxes on inherited wealth and abolish taxes on capital gains and investment income for couples making less than $200,000 a year. He also would do away with the alternative minimum tax.

All of this, the Republican vows, will not reduce the share of taxes paid by wealthier people — nor raise taxes on the middle class or poor.

"I'm not going to raise taxes on anyone," he promised in his first debate with Obama.

Critics of Romney's plan say it simply doesn't add up. They say the estimated cost of the cuts — the $5 trillion over a decade figure tossed about on the campaign trail and in Obama's television ads — can't be recouped without slashing deductions and other tax breaks that chiefly benefit the middle- and upper middle-class.

Such popular — and entrenched — tax breaks include the deductions for home mortgage interest, charitable giving, and state and local taxes and the exclusion for employer-paid health insurance.

"You can't do all those things," said Roberton Williams of the Tax Policy Center, a Washington-based think tank. "The rich get such savings from the rate cuts that there just aren't enough tax breaks that benefit them that taking them away would recoup the full lost revenue from the rate cuts."

Such critics were given a boost on Friday when the nonpartisan tax analyst for Congress released a study that says eliminating all itemized deductions would pay for just a 4 percent cut in tax rates — far below Romney's 20 percent target.

Republicans pointed out that the Joint Committee on Taxation analysis was simply a sketchy outline of tax reform concepts and that there are very big differences between the panel's assumptions and the Romney plan. For starters, the congressional study started from a narrower set of tax breaks from which to finance the rate cuts.