It's Math, Stupid
Why Can't Romney's Tax Cuts Deliver as Promised?
On taxes, Mitt Romney is trapped and victimized by Republican party orthodoxy. Listen to him:
I want middle-income taxpayers to have lower taxes is because middle-income taxpayers have been buried over the past four years. You’ve seen, as middle-income people in this country, incomes go down $4,300 a family, even as gasoline prices have gone up $2,000. Health insurance premiums, up $2,500. Food prices up. Utility prices up.
The middle-income families in America have been crushed over the last four years. So I want to get some relief to middle-income families. That’s part — that’s part one.
Now, how about deductions? ‘Cause I’m going to bring rates down across the board for everybody, but I’m going to limit deductions and exemptions and credits, particularly for people at the high end, because I am not going to have people at the high end pay less than they’re paying now.
The top 5 percent of taxpayers will continue to pay 60 percent of the income tax the nation collects. So that’ll stay the same.Middle-income people are going to get a tax break.
It is very unlikely to be true that middle-income people will get a tax break in a Romney administration. 80% of Americans pay more in payroll taxes than income taxes. The payroll tax holiday is scheduled to expire at the end of this year, adding 2 points of tax to the liabilities of every worker who earns like than $110,000. That's unlikely to be offset by any plausible income tax cut.
Meanwhile, bear in mind that the top 5% of taxpayers starts at about $154,000 adjusted gross income.
People earning that kind of money benefit heavily from deductions. People earning more than $500,000 a year have much more to gain from a tax-rate cut. So the promise to keep the tax load on the top 5% constant points to an outcome that would see the tax burden shift within the top 5% from the richest members of the group to the least rich. I don't think that will actually happen. I think the Romney tax proposals will be substantially revised if he is elected, assuming they even see the light of day at all. But as described, the future holds: for middle-income people, the end of the payroll tax holiday and not much of an income tax cut; for people earning over $500,000, a big tax cut, getting bigger the more you earn; and serious question marks over the obligations of people in the $150,000-$300,000 range.