What is Mitt Romney’s Tax Plan?
With the presidential campaign finally reaching a soggy finish, TaxVox is taking a final pre-election look at the tax policies of Barack Obama and Mitt Romney. Last week, we described Obama’s tax policy platform. Here is a rundown of Mitt Romney’s tax agenda.
The elevator speech: Romney favors multiple tax cuts for individuals and would reduce corporate income tax rates. By themselves, his specified tax cuts would reduce federal revenues by trillions of dollars over the next decade. However, Romney says he would avoid adding to the deficit through faster economic growth and unspecified reductions in current tax preferences. Romney would not use new taxes to help lower the deficit.
2001-2010 Tax Cuts: Romney would make all of the 2001-2008 tax cuts permanent. He’d allow some of the 2009-2010 tax cuts to expire as scheduled in January.
Additional tax cuts: He’d cut tax rates on ordinary income by 20 percent across the board. For instance, he’d reduce the top rate (35 percent following extension of the 2001 tax cut) to 28 percent. He’d repeal the estate tax and the Alternative Minimum Tax. He’d also repeal the 2010 Affordable Care Act’s tax increases.
Taxes on investment income: Romney would repeal the 2010 health law’s 3.8 percent tax on investment income for high-income households. He’d make capital gains, dividends, and interest tax free for households making $200,000 or less, and tax capital gains and dividends at the current 15 percent rate for those making more than $200,000.
The payroll tax: Romney would allow the 2010 payroll tax cut to expire in January. He’d repeal the additional 0.9 percent Medicare tax on high-income workers that is due to take effect next year. Like the new tax on investment income, this extra Medicare levy is a product of the 2010 Affordable Care Act.
Tax preferences: Romney promises to finance his across-the-board rate cuts and his repeal of the AMT and estate taxes by limiting tax preferences, such as deductions, credits, and exclusions. However, he has not said how he would do this. He has suggested a dollar limit on deductions as one possible option.
Refundable credits: He’d retain refundable credits such as the Earned Income Tax Credit and the Child Tax Credit though in a much less generous form than today.
The corporate income tax: Romney would cut the corporate rate from 35 percent to 25 percent and extend the research and experimentation credit and full expensing of capital investment. He’d also propose further corporate rate reductions that would be funded by unspecified business tax increases.
International taxes: He’d replace the existing tax regime for multinationals with a territorial system in which U.S. firms would owe no domestic tax on overseas profits while foreign firms would pay U.S. tax on U.S. income.
Taxes and the Deficit: The Tax Policy Center estimates the tax cuts Romney has proposed would reduce federal tax revenues by $456 billion in 2015 relative to a current policy baseline (that is, after most of the 2001-2010 tax cuts are extended). He vows to pay for these cuts with offsetting reductions in tax preferences but has not said how. Romney would use only spending cuts and economic growth to achieve long-term deficit reduction. He would not raise taxes by any amount to slow the flow of red ink.
If you want to know more, take a look at the Tax Policy Center’s side-by-side description of the Romney and Obama tax proposals, as well at TPC’s more in-depth analyses of the Obama, Romney, and Ryan plans.