In October, we looked at the impact of Herman Cain’s 9-9-9 tax plan. In December, we did the same with Newt Gingrich. Now it’s time to look at the plan offered by Mitt Romney, the Republican frontrunner.
The Romney plan would permanently extend the 2001 and 2003 Bush tax cuts and continue to patch the Alternative Minimum Tax. Romney would eliminate the tax provisions of the Affordable Care Act, and allow tax cuts from the 2009 stimulus bill (expanded higher education credits, expansion of the earned income tax credit, and expanded child credit) to expire in 2012 as scheduled.
The Tax Policy Center has released an analysis of the Romney plan. Let’s have a look at some of the effects such a plan would have.
Compared to current law, no one would see an increase in their taxes, as the only tax increases in the package are ones that are already in there due to sunsetting provisions. 78% of Americans would see a tax cut versus current law. Versus current policy (which would assume that the Bush tax cuts and 2009 stimulus tax cuts remain in place), 42% of Americans would see a tax cut, and 13% (mostly families with incomes of $50,000 or less) would see an increase in their taxes.
Next, let’s look at the effects on distribution as compared to current law.
As the plan is designed, the effective tax rate for all income levels is lower than current law. The Romney plan is more moderate than the Gingrich or Cain plans, but it still does give higher benefits (in terms of rate reduction) at the upper end of the income scale. Millionaires can expect a rate reduction of over 9%, while middle-class households will get a 2-3% rate reduction.
Let’s look at the impact the rate changes would have on after-tax income.
The above graph looks at the percent change in after-tax income. The Romney plan would provide more after-tax income to the wealthiest Americans. The average millionaire would see an increase in their after-tax income of 14.5%, while the middle quintile of taxpayers would see an increase of 3.0%.
As you can expect — with most Americans getting a tax cut, and no one getting a tax increase (when compared to current law) — the Romney plan would add significantly to the national deficit — an estimated $600 billion per year in 2015, $180 billion when compared to the current policy baseline. Significant spending cuts would be required to balance the budget under such a scenario. Additionally, Romney has pledged to cap spending at 20% of GDP. However, Romney has not detailed specific spending cuts of the amount required to bring the budget to that figure.