Romney’s Tax Plan Really Does Favor the Rich
Despite evidence to the contrary, there is a lingering view that Mitt Romney’s tax plan would primarily help middle-income households and not favor the rich. Yet TPC’s analysis of the plan clearly showed that high-income households would win big and others would do less well. Poor families would actually lose, relative to the taxes they’re paying this year. What’s really going on?
Romney’s plan has five main components. In order of size, they are:
1. Permanently extend the Bush-era tax cuts. Romney would make the 2001-03 tax cuts and the AMT “patch” permanent for everyone, thus precluding the very large tax increases that would otherwise come at the end of this year. Most households would benefit but the largest tax savings would go to those with the highest incomes.
2. Cut the corporate tax rate from 35 percent to 25 percent. Using its assumption that owners of capital bear the full burden of the corporate tax, TPC found that more than half of the tax savings—roughly $100 billion in 2015 alone—would go to the 1 percent of households with the highest incomes. The assumption is controversial among economists, but even if workers or consumers bear part of the tax burden, high-income households would still enjoy a disproportionate share of the benefit of the lower tax rate.
3. Eliminate income tax on long-term capital gains and qualified dividends for households with income under $200,000. Nearly 80 percent of households already pay no tax on gains and dividends—either because they have no investment income or because they’re in the 15-percent tax bracket or below. This cut—about $40 billion in 2015—can only help the remaining 20 percent. Not surprisingly, the bulk of benefits go to high-income households. And, because the threshold would apply only to non-gains and non-dividend income, households in the top 1 percent would get nearly a tenth of the tax savings.
4. Repeal taxes imposed by the health reform legislation. The healthcare legislation raised the Medicare payroll tax by 0.9 percentage points for couples with income over $250,000 ($200,000 for single filers) and imposed a 3.8 percent tax on investment income for the same taxpayers. Repealing those taxes—worth nearly $40 billion in 2015—would help only the high-income households that would otherwise pay the tax. Not surprisingly, about 80 percent of the benefit would go to the top 1 percent.
5. Repeal the estate tax. Only the wealthiest households pay the estate tax so only they would benefit from repealing it—to the tune of roughly $15 billion in 2015.
One omission from Romney’s plan would raise taxes compared with what people pay this year: not extending the remaining tax cuts created by the 2009 stimulus bill and scheduled to expire at the end of 2012. Because those cuts were initially intended to be temporary, the Romney campaign argues that not extending them wouldn’t be a tax increase. The same logic could apply to the 2001-2003 tax cuts but I don’t hear anyone claiming that letting them lapse wouldn’t count as boosting taxes. In any case, not extending the 2009 tax cuts still in effect in 2012 means that Romney’s plan would, on average, raise taxes for households in the bottom two quintiles, relative to what they’re paying this year.
Mitt Romney’s tax plan would cut taxes, by about $180 billion in 2015 alone, relative to current tax policy. And, despite all arguments to the contrary, a disproportionate share of the savings would go to households with the highest incomes.