Repealing all itemized deductions in the U.S. tax code would pay for only a 4 percent cut in income tax rates, according to the official nonpartisan scorekeeper for Congress. The study casts doubt on Republicans’ ability to deliver on the promise of financing lower income-tax rates with base broadening.
The analysis by the Joint Committee on Taxation shows the arithmetical difficulty of an approach that assumes long-favored tax breaks such as the deductions for mortgage interest and charitable contributions could be repealed instantly and completely. Republican presidential nominee Mitt Romney proposes a 20 percent income-tax cut and says he would pay for it by limiting tax deductions, credits and exemptions.
The estimate also assumes that the George W. Bush-era tax cuts are allowed to expire Dec. 31, that the alternative minimum tax is repealed and that capital gains and dividends are taxed as ordinary income.
The estimates are in an Oct. 11 letter from the Joint Committee on Taxation to Senators Max Baucus of Montana and Orrin Hatch of Utah, the Democratic chairman and top Republican on the Senate Finance Committee. The letter was obtained by Bloomberg News.
Thomas Barthold, chief of staff for the Joint Committee on Taxation, described the estimate as an “experiment” that his staff conducted and said it doesn’t represent all of the possible broadening of the tax base.
Under this approach, many tax breaks wouldn’t be affected, including the exclusion of employer-sponsored health insurance, the earned income tax credit and the child tax credit.
“There are a significant number of other identified individual income tax expenditures or other possible base- broadening policies that I did not include in this experiment,” Barthold wrote.
The report also includes a set of tables that estimate how the combination of tax-policy changes, including taxing capital gains as ordinary income rather than at preferential rates, would affect taxpayers in different income levels.
In 2015, taxpayers making between $75,000 and $100,000 a year would see their federal taxes reduced by 0.8 percent. Taxpayers making more than $1 million would pay 5.7 percent more than they would otherwise.
© Copyright 2023 Bloomberg News. All rights reserved.