Romney's new tax cuts are a deficit nightmare
Last week, Mitt Romney proposed anew taxthat would, among other things, reduce individual tax rates by 20 percent across the board and repeal the Alternative Minimum Tax. To get a rough sense of what those two tax cuts would cost, the Tax Policy Center the numbers. The result: They would be really, really expensive.
TPC found that repealing the AMT and cutting rates by 20 percent would increase the deficit by more than $3 trillion over the next 10 years, even after the 2001/2003/2010 tax cuts are extended.
Romney says the rate cuts and AMT repeal would be paid for by faster economic growth, changes in taxpayer behavior, and reductions in individual tax credits, exemptions, and deductions. This being the middle of a campaign, Team Romney won鈥檛 say what tax breaks he鈥檇 eliminate. Nor will it say how much growth it expects the tax cuts will generate. And while aides insist his overall plan including the unspecified offsets would raise roughly as much money as the existing system, even this gets complicated because Romney has created a new baseline against which he鈥檇 measure these changes.
Keep in mind that TPC did not try to estimate revenues for Romney 2.0. There are other tax cuts in that plan, but we took two of the biggest and projected what would happen. As a result, TPC has come up with a conservative estimate of how big a hole Romney would听have to fill if he intends to pay for these tax cuts.
To start, TPC took a world where the 2001/2003/2010 rate cuts are already made permanent and theis temporarily patched.听 Then, modeler Dan Baneman figured what would happen if the AMT is abolished entirely. Next, he looked at what happens if 听today鈥檚 rates of 10-15-25-28-33-35 are each cut by 20 percent so they become 8-12-20 etc. up to a top rate of 28 percent.
TPC did figure people would change their behavior in the wake of rate cuts this big, and incorporated those responses in the estimate. 听But TPC did not take into account any economic growth the rate reductions might generate.
I suspect they would boost growth, but nobody has a credible way to measure by how much. And despite the fervent wishes of tax cutters everywhere, there is simply no evidence that tax cuts ever generate enough growth to pay for themselves.
The bottom line: Leaving aside any broad economic benefits, the AMT repeal would increase the shortfall by $670 billion while the rate cuts would add about $2.7 trillion to the deficit. That鈥檚 more than $3 trillion over 10 years. In 2022 alone鈥攖he last year TPC estimated鈥攖he twin changes would add $450 billion to the deficit.
Romney has taken to campaigning under one of those digital debt clocks that shows the flow of red ink increasing by the second. But if he can鈥檛 find about $3 trillion to offset this exceedingly generous tax cut, that clock will be running a lot faster on his watch than it does today.
