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Romney's tax plan: Big benefits for the wealthy, higher deficits

Mitt Romney鈥檚 tax plan would cut taxes for millions of households but bestow most of its benefits on those with the highest incomes. At the same time, it would significantly cut corporate taxes and add hundreds of billions of dollars to the deficit.

A new Tax Policy Center analysis finds that Mitt Romney鈥檚 tax plan would cut taxes for millions of聽households but bestow most of its benefits on those with the highest incomes. At the same time, it would significantly cut corporate taxes and add hundreds of billions of dollars to the deficit.

Compared to current law (assuming the Bush/Obama tax cuts expire as scheduled at the end of this year), Romney would cut taxes by $600 billion in 2015 alone. Relative to a world where those tax cuts remained in place, he would add about $180 billion to the deficit in that year.

In many ways, Romney鈥檚 tax plank is a fairly mainstream Republican offering. No major tax reform. Certainly no 9-9-9-like proposal to replace the current revenue system聽with a consumption levy. And while Romney is proposing huge tax cuts, they are more modest than those of his rivals. Newt Gingrich鈥檚 tax package, for instance, would add $1 trillion to the deficit in 2015.听 Still, a $600 billion tax cut is worthy of note.

For individuals, Romney starts by making permanent both the聽2001 and 2003聽tax cuts and the 鈥減atch鈥� that protects millions of middle- and upper middle-income households from the Alternative Minimum Tax.听

At the same time, he鈥檇聽end President Obama鈥檚 2009 stimulus tax reductions, including Obama鈥檚 more generous versions of the child tax credit and earned income credit鈥攂oth aimed at helping low-income working families. He鈥檇 also repeal the tax increases included in the 2010 health reform law.

But Romney doesn鈥檛 stop there. He鈥檇 make capital gains, dividends, and interest income聽tax-free for those making less than $200,000聽 and repeal the estate tax (though he鈥檇 retain the gift tax).

He鈥檇 cut the corporate rate from 35 percent to 25 percent, make the research and experimentation tax credit permanent, and temporarily allow firms to continue to write-off the full cost of capital investment as soon as they acquire the property. Multinationals would get a temporary tax holiday for overseas profits they bring back to the U.S.

Compared to current law, about 44 percent of those making between $10,000 and $20,000 would get a tax cut that would average about $274. No one in that income group would pay more, but more than half would see no change in their tax bill.

Nearly all middle-income households would get a tax reduction. Among those making $50,000 to $75,000, the average tax cut would be about $1,800.

But much of the largess goes to those with the highest-incomes. Households making more than $1 million would get an average tax cut of almost $300,000, largely because, as owners of capital,聽they鈥檇 receive the bulk of the benefit of Romney鈥檚 very generous corporate tax reductions.听While聽those making $1 million-plus pay about 20 percent of聽all federal taxes,聽they鈥檇 receive more than 28 percent of Romney鈥檚 tax cuts.

The story is a bit different if you start by assuming the Bush/Obama聽tax cuts are聽made permanent. Compared to that already-generous law, the average tax cut for all households shrinks from $3,500 to about $1,000 and a sizable number of low-income families would see their taxes go up.听

For instance, about 15 percent of those in the $10,000 to $20,000 income group would get an average tax cut of about $140, but 20 percent would get hit with an average tax increase of $1,000, mostly聽because Romney would bring back the less generous versions of those refundable child and earned income聽credits.

About one-third of those in $40,000 to $50,000 group would get a tax cut that would average about $400, but about one-six would face a tax increase of nearly twice as much.

Almost everyone who makes more than $1 million聽would get a tax cut averaging roughly $150,000. As a group, they鈥檇聽receive nearly half the benefit of Romney鈥檚 tax plan.听

Romney says he鈥檇聽rewrite the entire tax code鈥搒omeday. But he doesn鈥檛 say how or when. Until he does, a Romney Administration鈥檚 revenue agenda would look a lot like President George W. Bush鈥檚, just more so.听