IT DOESN’T ADD up. Mitt Romney, the presumptive Republican presidential nominee, inadvertently added some detail Sunday night to his promise to lower individual income tax rates by 20 percent across the board. Overheard by reporters as he spoke to a group of donors, Mr. Romney gave for the first time a glimpse of how — or so he claims — he would accomplish this rate-lowering without losing revenue. “I’m going to probably eliminate, for high-income people, the second-home mortgage deduction,” Mr. Romney said. Deductions for state and local income and property taxes could be on the chopping block as well. “By virtue of doing that, we’ll get the same tax revenue, but we’ll have lower rates,” he explained.
That all sounds dandy, except that the nibbles Mr. Romney discusses taking out of tax deductions are nowhere near the bite that his rate-lowering would take out of the federal Treasury. Granted, Mr. Romney was not laying out his complete tax reform plan, but the overheard snippets suggest the inadequacy of his direction.
For example, the nonpartisan Tax Policy Center has estimated that Mr. Romney’s 20 percent cut in marginal tax rates would cost $150 billion — in 2015 alone. What would be gained from the good idea of eliminating the mortgage deduction for second homes? Tax experts peg the figure at $2 billion annually — but that is for all taxpayers. Limiting the benefit to higher-income households, those earning more than $250,000 a year, would reduce that to $1 billion. The same is true of the deduction for state and local taxes. The most recent figures from the congressional Joint Committee on Taxation peg the value of that deduction at $63 billion annually — again, for all taxpayers. Looking at taxpayers earning $200,000 and up, the deduction comes to less than $25 billion.
Those are 2010 figures, and the amounts would be higher in 2015, to make a true apples-to-apples comparison, but the fundamental point is indisputable, whether it involves Mr. Romney’s tax proposal or the similarly vague and even more costly ($4.6 trillion over 10 years) proposal from House Republicans. The kind of tax reform that would be necessary to accomplish the overall tax reductions without adding to the debt cannot feasibly be done by targeting upper-income taxpayers alone.
Tax preferences add up to a remarkable amount — some $12 trillion over 10 years for the major ones alone, according to the Congressional Budget Office. Yet the bulk of these, for items such as tax-free treatment of employer-sponsored health insurance, preferential tax treatment of pension and retirement savings, and mortgage interest, do not flow to the very wealthy. Going after tax expenditures, and using some of the resulting revenue to deal with the debt, is a good idea. Pretending that the only taxpayers to be inconvenienced by this approach would be the very wealthy is deeply misleading.