Two days before the first presidential debate, Mitt Romney unveiled a new, specific policy idea--one that would help him counter the claim that he would raise taxes on the middle class.
His idea, floated first during an interview with a Denver Fox News affiliate, was to cap the amount of itemized deductions that households and individuals could take. This would help pay for the across-the-board reduction in rates Romney has proposed.
The Romney camp thought about the capped deduction idea in three buckets, one of his campaign advisers explained: one for itemized deductions; one for personal exemptions; and one for the tax treatment of health care tax breaks.
Households could pick which tax breaks they wanted to take advantage of (from the mortgage-interest deduction to charitable donations), but the total value they could take would be capped at a dollar amount not-yet-determined by the campaign. Higher-income people would be able to claim a smaller amount. (The campaign has floated various caps of $17,000, $25,000, or $50,000.)
“The beauty of the idea is that you don’t have to eliminate deductions,” one campaign adviser said.
The problem with Romney’s latest tax idea is that even he isn’t willing to fully commit to it. No one knows for sure how much money it will raise, based on these squishy details. This makes it impossible to rule out who would win or lose under his tax plan, despite his repeated assertion that high-income people’s taxes would not go down and that middle-income people would not suffer.
The Tax Policy Center’s Roberton Williams says that the center doesn’t have enough details to score the way this idea would help or hurt the middle class, or to gauge whether it’s enough to pay for the $5 trillion rate cut Romney wants. (He has proposed cutting tax rates across the board by 20 percent and would also permanently extend all of the Bush-era tax cuts.)
The Romney campaign has said that it won’t do away with tax breaks for the middle class, such as the mortgage-interest deduction, so basically this takes voters back to square one on the Romney tax math.
Does it work, and would it not blow a huge hole in the deficit as is the expectation with the ongoing extension of the 2001 and 2003 tax cuts?
Nobody quite knows, and Romney is not committing to any particular plan. Even after handing policy-starved reporters the new details about the capped-deduction idea, the Romney campaign was quick to point out that this was just one policy idea that Romney was considering (“an illustrative example,” as one spokesman put it).
That’s the ultimate statement of: Trust us (along with a lot of faith in the Republican theory that lower tax rates lead to economic growth which adds to government revenues).
The capped-deduction idea, for the moment, gave the campaign the illusion of specificity, with none of the meat of details. Instead, the real point of the idea was political.
It gave Romney ammunition and cover in the first televised debate—just as millions of Americans finally tuned into the race—to try to cast himself as a more moderate figure on taxes and to assure people that he would not raise taxes on the middle class.
“I'm not looking to cut massive taxes and to reduce the revenues going to the government,” Romney said during the debate. “My No. 1 one principal is, there will be no tax cut that adds to the deficit. I want to underline that: no tax cut that adds to the deficit. But I do want to reduce the burden being paid by middle-income Americans.”
That’s an idea that Romney says he would pay for by capping deductions, or eliminating some of them to pay for lower rates: a mathematical move that the Obama campaign has questioned, given Romney’s lack of specifics.
Capping the dollar value of deductions is one way to hit high-income people, because Romney said during the debate that he would not let rates for high-income people drastically fall. (It remains to be seen if capping deductions offers enough revenue to pay for a 20 percent tax cut.)
Wealthy people overwhelmingly benefit from these types of tax breaks. Eighty percent of the value of itemized deductions goes to the top 20 percent of taxpayers, Williams says, and 25 percent of the value of the breaks goes to the top 2 percent.
“It’s a way of avoiding raising taxes on middle=-income households,”he says. “My guess is that most middle-income households don’t get above that $17,000 deduction.”
The tax messages coming out of the Romney campaign and Boston have been vague all along. One minute, Romney is saying that he’s not proposing a $5 trillion tax cut (which the plan on his website outlines as an across-the-board marginal tax rate reduction of 20 percent). The next minute, he’s bashing the 47 percent of people who pay no federal income tax at a private fundraiser (even though, the majority of those people do pay payroll taxes).
This makes it difficult, if not impossible, for American voters to wade through the tax muddle.
Romney stuck to his script on Wednesday night—no new taxes for middle-income people—with the tenacity of a boxer in the early, energetic rounds of a fight. But, the math isn’t there to prove anything, or give Americans any assurances.
The new proposal of capped itemized deductions helped Romney pitch his plan to middle-class voters on Wednesday. That’s a political message, not a policy prescription.
The question now is whether the campaign can maintain this position through November.