When presumptive Republican presidential nominee Mitt Romney unveiled his new tax plan in February, he insisted the plan would be deficit neutral even though it provides a 20 percent across-the-board tax cut. By ending tax deductions and closing loopholes for wealthy Americans, Romney said, he would make up for the drain on federal revenues such a massive cut would produce.
Until last week, Romney hadn’t revealed any of the loopholes he planned to close. But at a Sunday fundraiser in Florida, reporters overheard Romney name three deductions he might end — the deduction for mortgage interest on vacation homes and deductions for both state and local taxes. Ending those deductions would raise about $40 billion, meaning Romney has a long way to go to make his plan deficit neutral, as the New York Times David Leonhardt reports:
Yet $40 billion still pales compared with the size of future deficits or, for that matter, the additional tax cuts that Mr. Romney has proposed. Those cuts would cost the government more than $400 billion a year relative to current policy, according to the Tax Policy Center. Relative to current law – which includes a series of tax increases that take effect on Jan. 1 – the Romney tax cuts would cost close to $900 billion a year.
To put it another way, if Mr. Romney eliminated the deductions he mentioned, he would need to come up with at least 10 times as much loophole-closing — and maybe 20 or 30 times as much — to keep his tax plan from adding to the deficit.
The Romney plan may, in fact, have to find even more revenue than Leonhardt and the Tax Policy Center estimate to end up deficit neutral. The TPC analysis assumes a reduction in the Alternative Minimum Tax but Romney’s plan abolishes it completely. His plan would ultimately cost $10.7 trillion over the next decade, four times the cost of the budget-busting Bush tax cuts, making for a “mathematical disaster” that doesn’t come close to adding up.
Thus far, it’s clear that Romney has a plan to give the wealthy another massive tax cut. What he doesn’t have, however, is a plan to pay for it.