The impact of Mitt Romney’s Tax Plan, in graphs

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.



16 Responses to “The impact of Mitt Romney’s Tax Plan, in graphs”

  1. And as usual, you only look at part of the plan when determining the deficit. You have to look at his entire plan, not just the tax portion of it, to determine if it will be deficit neutral or not.

    • As I noted in the post, “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.”

      When I see specifically what Romney would cut (or even dollar targets by area), I’ll be happy to take that into account. But right now, it’s just an unsubstantiated promise.

  2. So you are purposely distorting his plan. You accept the tax policy portion but reject the spending reductions, and expect to find a balance. SImply put, you are willfully distorting deficit numbers under a Romney plan.

    • There’s a difference between a plan and a promise. Romney has a tax plan, but only promises to cut spending. I’m evaluating Romney based on his plans, not his promises. You’re free to use a different standard if you like.

  3. Apparently you have not read Mitt’s fiscal plan. As you did with Newt, you take a slice of the plan, tax policy, and ignore the rest of the plan, and assume a massive deficit, which pure partisan distortion.

    • Mitt Romney’s plan lists two specific spending reductions. 1.) Cut non-security discretionary spending by 5 percent. That totals $24 billion. 2.) Reduce the federal workforce by 10 percent. That would be at most a $20 billion reduction.

      As I noted, he also claims to support a 20% of GDP spending cap, but offers no roadmap of how to get there. The two specific cuts noted above don’t even come close. Until I see more meat on the bones there, it’s just as phantom as Obama’s deficit reduction plans.

      • As I said, you haven’t read his plan. His covers entitlement reform and a complete restructuring of government spending. You should read it.

        • I have the PDF open on my desktop right now. There are scant specifics in it, John. Even Mitt Romney doesn’t give a deficit target based on his proposed 20% of GDP spending cap.

          In other areas of the document, Romney provides a number of specific regulatory changes, but the fiscal sections are heavy on promises but short on detail.

  4. There are many details all through his plan that aren’t in his overall document, but yet you seem to be able to deduce a phony deficit guesstimate from looking at only one aspect of his plan. It’s a common theme here. You look at tax simplification alone rather than the entire plan. You did this with several candidate’s tax plans, and it’s simply inaccurate to do so. If any one of these tax plans alone are implemented without accompanied reforms, yes we will have deficits. But not one of these candidates is advocating spending like we’ve seen from the current administration. So yes, even if each candidate left the tax coide as it is today, and did nothing about spending, guess what, we’ll have deficits. We know all know that. Revenue isn’t neaerly the problem that sppending is, so you can jab at tax policy all you wish, but ignoring the rest of any candidates plan is intentionally missleading. For as we all know, the most effective way to increase revenues is by fostering a growing economy, an idea that this administration waved bye-bye to a long time ago. Obama said himself, that he’d be a one-term President if he couldn’t fix this issue. And he’s right. It may be the only thing he’s been right about his entire term.

    • OK, let’s look at the numbers then. The third quarter GDP release shows a yearly rate of $15.176 trillion. 20% of that is $3.075 trillion.

      The federal government is scheduled to spend $3.729 trillion this year versus revenues of $2.627 trillion, a deficit of $1.101 trillion.

      Romney would cut spending back to $3.075 trillion, and if we take out the $600 billion in revenue we would have $2.027 trillion in revenues for a deficit of $1.048 trillion, or $53 billion less than the current budget deficit.

      • Oh, if only it were nearly that cut and dried. If the economy rebounds, we will far more revenue to deal with. If the rest of Romney’s economic plans are in place, the economy should rebound, which will certainly reduce any deficit. I’m not sure where you get 600 biliion in less revenue. I don’t see a part of his plan that reduces revenue. For example when capital gains were cut under GW Bush, revenues from capital gains actually increased.

  5. These links are preposterously misleading. SInce the CGT was set to 15% in 2003, the revenues derived grew each and every year. Right up until the market crash as teh housing bubble burst. Trillions in paper were lost, and as you can imagine, wether the rate would have been 15% or 20% or even higher, there was no way capital gains revenue would have been maintained. When CGT was lowered to 20%, we had steady increases in revenue, again, until the tech bubble burst in 2000. Many paper loses were realized, and revenues fell. The numbers don’t lie. Socialists do.

    • Of course , CGT revenue went up starting in 2003 — that’s when the economy really started recovering post-9/11. It’s woth noting, though, that the peak of CGT revenue in 2007 was less than the peak of CGT revenue in the previous economic cycle (2000), which would signal that CGT rate cuts don’t necessarily cause the sort of growth that you suggest it does.

      • But you see it’s that kind of action that helped us get out of that recession. Here’s the problem as I see it. We jump too far in one direction or another. If we had a simpler tax code, we could adjust capital gains, income taxes, etc with tweaks and goals, like a business might. Think of it this way. You’re watching TV and the volume is too low. Say 15% of max volume is too quiet and you can’t hear what people are saying. At 20%, you run the risk of waking the baby. So you turn it up a bit. Too loud, and you turn it down a bit. I like to see us always phasing in and out taxes changes, so there’s no harsh change over to the economy. Maybe, in real bad recession, you do turn the rate way down to make a big difference fast, and then every 6 months or so, you dial it back up a bit. Eventually you find a sweet spot where everyone is doing well, and revenues remain steadier. It’s the same with this current tax holiday. Sure we can extend it, but do it slowly, and allow people to adjust to thier impacts. DOn’t just slam them back to reality in a heart beat.

        • Capital gains tax cuts are historically bad stimulus (based on the low feedback rate as discussed in the Mankiw link below), so I don’t share your opinion that those particular provisions were instrumental in jumpstarting the recovery.

          Leaving that discussion aside, I do agree with your general point. We do need a simpler tax code, and having tax cuts phase in and out based on performance versus a set date makes sense. There’s no reason not to leave the current payroll tax cut in place until unemployment gets to a certain level (7 percent?) or phase it out gradually as unemployment drops. Not only does it make sense in terms of actually accomplishing the goal the policy was designed for, but it saves us these unproductive Congress vs. the President showdowns every few months or so.

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