While that may be true in theory, the document argues, it would be difficult in practice — particularly if policymakers adhered to White House demands to keep the middle class from harm and preserve tax breaks for charitable giving.
“Some have suggested that limits on high-income tax expenditures could substitute for rate increases and that it would be possible to raise $1 trillion or more while keeping the top income tax rate at 35 percent,” the document says. “But a careful look at the math of these types of caps and limits shows that, once one takes into account the reality of their impact on middle-class families and on charitable donations, plausible limits raise only a fraction of the $1 trillion or more some have suggested.”
For example, the document looks at a $25,000 cap on itemized deductions, recently offered as a potential compromise by the bipartisan Committee for a Responsible Federal Budget. Such a cap, if applied to people all income levels, would raise taxes by an average of $2,400 on about 17 million households with income under $250,000 a year — the White House definition of middle class.
Limiting the cap to those with incomes over $250,000 would raise about $800 billion over the next decade — similar to the $850 billion the White House estimates would be generated by letting the George W. Bush-era tax rates expire for high earners.
But implementing the cap at $251,000 would create an unacceptable “cliff,” the document argues. So policymakers would have to draft a “realistic phase-in” that would implement the cap gradually on higher earnings. That would reduce the potential revenue to about $650 billion, the document argues.
Exempting charitable deductions would knock revenues back even further, to around $450 billion over the next decade, the estimates suggest — barely one-fourth of the $1.6 trillion in revenue Obama has said would be needed as part of a far-reaching “grand bargain.”
“Plausible tax expenditure limitations that protect middle-class families and incentives to give to charity would raise far less revenue from the well-off than is needed for a major budget agreement,” the document concludes. “A budget framework that raises only these amounts from high-income tax deductions while committing to no rate increases on high-income Americans would inevitably force any tax reform designed to further reduce the deficit to raise taxes on middle-class families simply to preserve lower rates for the most fortunate.”