Ah, now we're getting somewhere. ABC News reports that Mitt Romney told Denver's Fox affiliate that "one option" he was considering to pay for his tax plan was to give everyone up to $17,000 in deductions, but no more than that. "You could use your charitable deduction, your home mortgage deduction, or others – your health-care deduction," Romney said. "And you can fill that bucket, if you will, that $17,000 bucket that way. And higher income people might have a lower number."
This leaves a lot of unanswered questions. For instance, which deductions are covered in the $17,000 cap? Is it only the deductions he mentioned? Is it all itemized deductions? Is the state and local tax deduction in there? Is it really going to include the exclusion for employer-based health care? Is the cap in addition to, or instead of, the standard deduction? Do individual taxpayers have a lower cap than families?
Even if you assume the plan will be maximally stringent, it doesn't look like this would raise enough money to pay for Romney's tax cuts. Remember that to make the numbers work, Romney would have to fully eliminate all itemized deductions -- and a few deductions beyond that -- for wealthy taxpayers. This doesn't go anywhere near that far. William Gale, of the Tax Policy Center, says the net revenue would likely be in the $1-$2 trillion range, while Romney's rate cuts are in the $5 trillion range, though he cautions that that's just a guess based on Romney's description of the idea.
It's also very difficult to see how Romney achieves his goal to keep the plan distributionally neutral using this policy. Remember that when the Tax Policy Center looked at Romney's rate cuts, they went "top-down," meaning they eliminated every dollar of deductions for people making more than $200,000 before eliminating any dollar of deductions for people making less than $200,000 -- and they still couldn't make the policy as progressive as the current system. This idea, while it hits the rich harder than it hits the poor, is not nearly so progressive, which means it does imply a net tax increase on those making less than $200,000 and a net tax cut on those making more than $200,000.
But this does give us some insight into how Romney is thinking about tax reform. Rather than picking fights over individual tax breaks, he's looking to put a cap on total deductions. It's reminiscent of Martin Feldstein's "2% plan" and of Richard Thaler's "28% plan."
That's a promising approach. The question now is whether we get more details from the Romney campaign, or whether they're just trying to throw something out there so they have something vaguely plausible sounding to say when pressed for tax specifics during the first presidential debate. I asked the Romney campaign for more details and spokeswoman Andrea Saul sent this back:
Governor Romney's tax reform plan will jumpstart economic growth, cut the tax burden on the middle-class, and lower tax rates across-the-board. He will pursue revenue and distributional-neutrality in reforming the tax code. There are a range of policy options, Gov. Romney referenced one illustrative example, to achieve these goals.