My colleague Lori Montgomery has a great piece this morning on a new study from the Tax Policy Center on Mitt Romney's tax reform plan. Actually, it's more of a framework than a plan, as Romney does not specify which tax breaks he would cut to finance his proposed 20 percent across-the-board cut in rates.
Without those break rollbacks, the plan would reduce revenue by $360 billion in 2015 alone, a cut as large as the most expensive years of the 2001 Bush tax cuts. So the Tax Policy Center assumed that Romney would roll back breaks on high-income taxpayers first to pay for the rate cuts. But even then, the cuts help high earners disproportionately. The average millionaire would get an $87,000 tax break, and the lower 95 percent of the income distribution would see taxes go up an average of $500.
Romney can take some solace in knowing his allies in Congress have proposed a plan that shifts the burden from high-income to middle-income taxpayers even more dramatically. A new paper by Chuck Marr and Chye-Ching Huang at the Center for Budget and Policy Priorities looks at the distributive impact of the Pathway to Job Creation Through a Simpler, Fairer Tax Code Act of 2012, the proposal introduced by Senate Minority Leader Mitch McConnell (R-Ky.) and House Ways and Means chairman David Camp (R-Mich.), and included in the 2013 House Republican budget, that would set a framework for tax reform. The bill, echoing Rep. Paul Ryan's (R-Wi.) budget, would set tax rates of 10 percent and 25 percent -- down from 10, 15, 25, 28, 33, and 35 percent currently - for personal income, reduce the top corporate tax rate from 35 percent to 25 percent while exempting foreign profits and eliminate the Alternative Minimum Tax.
The bill does not have a plan for making up the revenue lost from these proposals, which comes to about $4.37 trillion over 10 years, according to the Tax Policy Center. It specifies that the plan is to be financed by cutting tax breaks, but given that deductions and small credits cost (pdf) $446 billion a year, you'd have to eliminate those entirely, or cut into investment and work-related tax credits like the Earned Income Tax Credit, to finance the rate cuts fully. If the TPC's analysis of the Romney plan is any indication, this approach could end up hurting lower-income people disproportionately.
As it is, the Camp-McConnell approach helps the lower income percentile slightly (the lowest 20 percent of the income distribution gets a 0.6 percent cut, as a share of income) and high earners a whole lot more (the top 0.1 percent gets a 22.7 percent cut):