Tax Policy Center Fights Back
Alright…at this point, I’m spending more time on the Tax Policy Center’s website than I am onJustinBieberMusic.com ESPN.com,and that’s a little unsettling.
Last week, we posted about a Tax Policy Center study that crunched the numbers on Mitt Romney’s tax proposals and determined that meeting his dueling goals of 1) cutting tax rates by 20% across the board, and 2) eliminating deductions in a manner that generates enough additional tax to make the proposal revenue neutral, was not possible without shifting $86 billion of tax burden from those making more than $200,000 to those earning less than that threshold.
The study immediately came under attack, by Romney and others. Romney dismissed the study as “garbage in, garbage out,” blissfully ignoring the fact that the assumptions made by the Center were necessary only because Romney has refused to provide details regarding what deductions would be on the chopping block.
Then, on Monday, this opinion piece was published on the Wall Street Journal’s website taking aim squarely at the study. Foremost among the complaints were two deductions the Center left out of its base broadening computation: the exclusion for interest income on municipal bonds, and the exclusion for the inside build-up on life insurance vehicles. The Center had not considered the impact removing these preferences would have on the potential revenue to be earned from Romney’s proposal because it had concluded that he would not disrupt these tax preferences because they provide incentive for saving and investment.
In response to the criticism, yesterday the Tax Policy Center published a FAQ addressing the various concerns voiced about the initial study. Most importantly, the Center re-ran the numbers with the assumption that Romney could and would eliminate the two preferences discussed above: the tax-free treatment of municipal bonds and the exclusion for the inside build-up on life insurance vehicles.
Eliminating the two exclusions from income — which predominately benefit high-income taxpayers — would raise an additional $45 billion from those earning more than $200,000, and $4 billion from those earning under that threshold. This $45 billion additional tax on the “high-income” group would reduce the shifting of the tax burden to those making less than $200,000 from $86 billion — as proposed in the original study — to $41 billion.
In summary, even with more aggressive base broadening, the study indicates that Romney’s plan would benefit taxpayers earning more than $200,000 by $41 billion, with those earning less than $200,000 picking up the tab.
Now we just sit back and await the inevitable response from both the Republican and Democratic side. President Obama is sure to point to the study as further evidence that Romney’s tax proposals aim to benefit the wealthy. The question is: what will Romney say?
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