He would leave in place the Bush-era tax cuts for Americans earning less than that. Budget critics call that irresponsible, since it leaves in place the biggest hit to revenues — a loss of about $2 trillion over 10 years.
Romney would take the new revenues coming from closed loopholes and deductions and use them to partially offset the revenue lost from lowering income tax brackets. He promised to be revenue neutral, and a campaign aide explained that there isn’t a one-to-one match since some of the lost revenue would be replaced by revenues coming from economic growth sparked by lower tax rates.
The degree to which economic growth offsets lost revenue remains a fiercely debated topic among tax and budget analysts.
“Part of our plan is to create more growth, and historically, if you look at the relationship between tax revenues and economic growth, they are correlated,” said the Romney official, who demanded anonymity in order to freely discuss the tax plan.
In order for Romney’s plan to work, he’ll have to scale back itemized tax deductions, and these range from deductions of mortgage interest to state and local taxes to charitable giving. And wealthier Americans are keener to claim those deductions.
Although he refused to specify Wednesday night what tax breaks he would end, the Romney camp this week floated the idea of capping itemized deductions at $17,000. The Romney aide familiar with his thinking on tax policy cautioned that $17,000 was not a hard number, just an example.
“We’re not saying that’s the way we would go. The point wasn’t the particular numbers, but the idea of capping a particular dollar amount is one way you could go about achieving the governor’s tax-reform principles,” said the aide.
Based on IRS tax data from 2009, the Tax Policy Center estimates that the bottom 20 percent of American taxpayers averaged $12,217 in itemized deductions, the top 20 percent three times that, at $37,673.
If the $17,000 figure stuck, it’d mean the top 20 percent of wage earners would see their income subject to a taxation rise on average by $20,673, according to the IRS data. The tax rate on that taxable income, however, would fall by 20 percent under the Romney plan.
This is the second of the McClatchy News Service’s analyses of five major presidential campaign issues. A look at jobs was published Sunday, Sept. 30. The others will be on foreign policy, social issues and Medicare/Social Security.