Whoever is elected in November is likely to enact big changes in the tax code. Mitt Romney promises a 20 percent cut in rates. Barack Obama wants a 30 percent minimum rate on millionaires, limits on deductions, and a return to Clinton-era tax rates for high earners. And Bowles-Simpson could be adopted by either.
Now that all the candidates have released their 2011 tax returns, it’s possible to calculate what these policies mean for them. I did the taxes for Romney, Obama, and an average household (two adults, one child, making the median household income of $49,445) under Obama’s plan, Romney’s plan (both the paid for and not paid for versions, using the Tax Policy Center’s estimates), and Bowles-Simpson. Here’s how they stack up:
Both candidates pay the most under Obama’s plan. For the average American, conversely, Obama’s plan doesn’t change anything at all. Bowles-Simpson raises taxes on the median American and Romney but not on Obama; most of the increase on the median American comes from unwinding the exclusion on health insurance, which takes place over 20 years. The fact that Bowles-Simpson taxes capital gains as normal income, and that Obama’s plan treats carried interest and dividends as ordinary income, hits Romney’s wallet particularly hard.
Everyone does best under Romney’s unpaid-for plan, while the paid-for version actually raises taxes considerably for Romney himself. The reason is that it eliminates the charitable, state tax and mortgage interest deductions, which dramatically reduce Romney’s tax burden.
One last thing – in every one of these scenarios, Romney pays less in taxes than Obama does, though under Bowles-Simpson it’s close. This is in spite of the fact that Obama made about $1.7 million in 2011 and Romney made $13.7 million. It’s a good example of how the federal income tax is not particularly progressive within the top one percent, even if people in that bracket usually pay higher rates than an average American.
Correction: the original version of the above chart miscalculated the Romney paid-for and Bowles-Simpson burdens for the average American.