Tax Reform: No Silver Bullet
Campaigning in Ohio, President Obama cited a new Tax Policy Center report as evidence that Mitt Romney’s plans for tax reform will hurt working class and middle class families, while giving wealthy Americans a whopping tax cut.
What Obama did not mention is how that study also shoots more holes in the popular mythology that some sort of comprehensive “tax reform” will offer the White House and Congress an easy path out of the country’s debt and deficit problems.
The tax reform plans offered by Romney, House Republicans, the president’s Bowles-Simpson commission and other bipartisan groups would make huge cuts in individual income tax rates, while aiming to bring in an equal or greater amount of revenue by doing away with wasteful tax breaks and deductions.
Neither Romney nor the House Republicans have proposed just which tax breaks they would eliminate - other than to say that they would keep preferential tax rates on investment income like capital gains and dividends.
That leaves the mortgage interest deduction, the deduction for state and local income taxes, the break for charitable gifts and other popular tax expenditures as the targets for tax reformers. Those are the ones that Bowles-Simpson singled out for study.
The last vaunted round of tax reform, which took place in 1986, kept these big tax expenditures in the code because they were so popular, and instead eliminated a variety of business tax breaks and shelters to pay for lower rates. Any money to be found on the business side in 2013 is already spoken for, however, in order to reduce the corporate income tax rate - another bipartisan objective.
With these assumptions, the Tax Policy Center analysts crunched the numbers. In order to meet a goal of “revenue neutrality” they had to cut 100 percent of the popular tax deductions like the mortgage interest break, the deduction for giving to charity, the tax break for employer-provided health insurance and the like for Americans earning more than $200,000 a year, and 58 percent of the tax breaks for those earning less than $200,000 a year.