In a previous post, I noted that Governor Romney’s budget plan was essentially unscorable (as he himself stated ) because he was so vague on the tax expenditures he was going to eliminate. That fog of obfuscation lifted slightly yesterday, with Governor Romney’s not-for-public attribution comments to donors. From Sara Murray, in the WSJ:
PALM BEACH, Fla.—Mitt Romney, speaking at a private fundraising event on Sunday, offered the first details of deductions he would eliminate or limit in order to offset the income tax cut he has proposed for all taxpayers.
Mr. Romney, the presumptive Republican nominee for president, said he would eliminate or limit for high-earners the mortgage interest deduction for second homes, and likely would do the same for the state income tax deduction and state property tax deduction.
As Matthew O’Brien notes in the Atlantic, the numbers still don’t add up:
Which brings us back to Romney’s recent run-in with a hot mic. During a more candid moment at a fundraising event, reporters overheard Romney lay out at least two loopholes he would consider closing: the mortgage interest deduction on second homes for high-earners and state income and property tax deductions. Let’s consider these in turn.
The mortgage-deduction on second homes is about the lowest of low-hanging fruit when it comes to tax reform. Everybody agrees that the mortgage deduction on first homes, let alone second homes, is bad policy. For one, it incentivizes people to take on more debt. For another, it’s doubly regressive. Not only do the rich get bigger deductions due to their higher brackets, but they also have bigger mortgages to deduct. Getting rid of this loophole is a potential cash cow that would go a long way towards making our tax code saner. Unfortunately, Romney only wants to close it for a small sliver of a small sliver of buyers. According to Loren Adler of the Bipartisan Policy Center, Romney’s proposal would only raise about $15 billion over 10 years. In other words, about a third of the revenue the Buffett Rule would generate in a world where the Bush tax cuts for high-earners expire.
There is real money, though, in Romney’s proposed end to state and local deductions. According to Chuck Marr of the left-leaning Center on Budget and Policy Priorities, axing this loophole would yield roughly $860 billion in new revenue over a decade. That deserves serious plaudits. Of course, there’s a problem. Romney’s tax cuts are so deep that this only fills about 20 percent of the fiscal hole he creates.
The below chart compares how much Mitt Romney’s tax cuts cost versus how much his loophole-closing saves, on an annual basis. (Note: “Revenue Lost: Law” shows how much Romney’s tax cuts costs if the Bush tax cuts expire; “Revenue Lost: Policy” shows how much Romney’s tax cuts costs if the Bush tax cuts do not expire; “Revenue Gained: Romney” shows how much new revenue he generates from closing loopholes).
Just in case you were wondering who benefits from all the other deductions, exemptions and so forth in the current tax law, David Leonhardt in the NY Times provided the answer:
Source: D. Leonhardt, “Coming Soon: ‘Taxmageddon’,” NYTimes, 15 April 2012.
Still, if Governor Romney were to appeal to the Heritage Foundation, I’m confident he could get a “dynamic score” that would make everything add up; see the magic done on the Ryan plan here and here. (Where are you, Bill Beach?)
Update, 8am Pacific, 4/18: James Kwak at Baseline Scenario provides additional numbers demonstrating the failure of the Romney plan to “add up”, even with the release of these not-for-public consumption details.