Mitt Romney, the now all but certain Republican nominee in this year’s presidential race, presented not one, but two, comprehensive tax plans this campaign season. Romney’s original plan was released in September, 2011, and the implications for who would pay lower taxes (the rich, and especially the very rich), and in a few cases higher taxes (poor people with income up to about $30,000, in comparison to what they would pay if the Bush tax cuts were extended), was discussed in a blog posting on January 7. It was noted there that while the rich would see very large cuts in their taxes (leading to an increased federal deficit of $600 billion per year by 2015), Romney’s tax proposals were in fact the least extreme of those of his competitors in the Republican primaries (see the analysis at the postings on December 26, 2011, and on January 25, 2012, in addition to the January 7 post).
Faced with these competing proposals for even deeper cuts in taxes, Romney felt compelled to announce a revised tax plan on February 22, which was even more right-wing than the one he had proposed the preceding September. This was consistent with Romney’s history of changing positions based on what is politically opportune at the moment. For completeness, it is of interest to add this second Romney plan to the analysis of the other tax proposals, including his own earlier one, to see how they compare.
The average tax rates under Romney #2 that would be paid by households at various income categories has therefore been added to the standard graph above. As with the earlier blogs, this presents graphically the careful calculations done by the Tax Policy Center, using their tax microsimulation model (based on actual tax return data) to determine the taxes that would then be due for households of various income categories as a result of what was being proposed. While the diagram has now become fairly cluttered, hopefully it is still clear enough to follow. I wanted to present the two Romney plans in the context of both each other and of the other Republican plans.
Compared to the other Republican plans, Romney’s new proposal would still generally leave taxes higher than the others would for most households (Cain is an exception, with his hugely regressive tax proposals, and Perry would have left taxes higher than Romney for those making up to $200,000 but would have cut them by even more for the very rich). But compared to his earlier proposal, Romney would now cut taxes by even more, especially on the rich and very rich. Compared to current law (under which the Bush tax cuts are scheduled to expire in 2013), Romney would now provide those making more than a $1 million per year in income an average reduction in their taxes of $390,000 each year, vs. a reduction of “only” about $290,000 in his earlier proposals.
The Romney #2 proposals lead to greater benefits for the very rich not simply because with their higher income they pay more in taxes, but also because he now focuses his proposed tax reductions even more heavily on the rich. Whereas in Romney #1, those making more than $1 million each year would see their taxes reduced by 26%, under Romney #2 he would reduce the taxes of his wealthy colleagues making over $1 million by 35%. In contrast, poor households with total household income in the range of $40 to $50,000 would see a tax reduction of 13% under Romney #1 and only 19% under Romney #2. There is no rationale for why the super rich should see not simply a larger absolute reduction in the taxes they would need to pay, but also a greater proportional reduction in their taxes.
And if one is worried, as the Republican candidates say they are, about the fiscal deficit, then one must not ignore that these major tax cuts will lead to a huge increase in the deficit. The Tax Policy Center estimates that if implemented, the Romney # 2 plan would reduce fiscal revenues by $900 billion in 2015. This is 50% more than the loss of an estimated $600 billion under Romney #1. And of the $900 billion lower revenues, well over half ($505 billion) would be a transfer to those making more than $200,000 per year, and over a quarter ($236 billion) would be a transfer to households making over $1 million per year.
Romney insists he will not cut defense expenditures. Indeed, he says he will increase defense spending over what Obama would. But total non-defense discretionary government expenditures in 2015 are only projected to be $572 billion in 2015 according to the baseline projections of the neutral Congressional Budget Office (January 31, 2012, report). Even if all such government expenditures were cut to zero, the deficit would still rise under Romney #2 by $330 billion. The only alternative would be to cut Social Security, Medicare, Medicaid, and other such programs, which primarily benefit the poor and middle class. If so, Romney is proposing to cut such programs in order to benefit primarily the rich and super-rich.
To be fair, Romney does say he would also propose to close some tax “loopholes”, but he refuses to say which he would propose to close or reduce, and by how much. He has said openly it would not be politically expedient to be clear on this before the election. But he has said that he would keep certain of the more common tax deductions, such as the exclusion for home mortgages for primary homes, and would actually increase certain of these tax expenditures, by cutting further the already low taxes on capital gains and dividends, and by extending further certain corporate tax breaks (such as on overseas income). If one does this, it is impossible to raise anything close to $900 billion a year by cutting or reducing other tax expenditures.
Romney has presented himself as the serious, businessman, candidate. Yet he chose to revise his initial tax plan and propose an even more radical plan focused on tax cuts for the rich as part of his (ultimately successful) campaign to secure the Republican nomination for the presidency. While consistent with Romney’s history of adopting positions based on what is politically expedient at the moment, a plan that would increase deficits by $900 billion a year by 2015 cannot be seen as serious.