Republican presidential candidate Mitt Romney is heading into the New Hampshire primary faced with a study that says his tax plan would add $600 billion to the federal deficit in 2015.
A study released yesterday by the nonpartisan Tax Policy Center in Washington compared the revenue (USCBTAXR) that Romney's tax-code changes would generate with the revenue the U.S. is expected to collect under current law, which assumes that several income tax cuts will expire as scheduled at the end of 2012.
Though the Tax Policy Center said Romney's tax plan would “reduce federal tax revenues substantially,” the budget hit isn't as severe as some of his competitors. The same group previously said former U.S. House Speaker Newt Gingrich's tax plan would increase the deficit by $1.3 trillion and that Texas Governor Rick Perry's proposal would boost the shortfall by $995 billion.
Romney's proposal “does more changing around the edges than wholesale getting rid of things,” said Roberton Williams, a senior fellow at the Tax Policy Center. “He would, for instance, maintain the tax on capital income for high income folks, which brings in a lot of money.”
Romney, a former Massachusetts governor, is hoping to solidify his front-runner status in the Republican race with a victory in New Hampshire's Jan. 10 primary after winning the Iowa caucuses by eight votes on Jan. 3. Former U.S. Senator Rick Santorum of Pennsylvania finished just behind Romney in Iowa.
Andrea Saul, a Romney campaign spokeswoman, said in an e- mail yesterday seeking comment on the center's report that he has proposed “dramatic spending cuts to reduce the deficit and pro-growth tax policies that permanently extend the Bush tax cuts, dramatically cut the corporate tax rate to create jobs and deliver real tax relief to middle-income taxpayers.”
Romney's economic plan calls on Congress to immediately lower the top corporate tax rate to 25 percent from 35 percent. He has said he would be open to additional rate cuts if they are accompanied by measures that would broaden the income base.
He would move the U.S. to a so-called territorial system of taxation, in which the government taxes only domestically generated corporate income. Republican leaders in Congress have shown interest in this concept. House Ways and Means Chairman Dave Camp, a Michigan Republican, introduced a proposal in October that would shield 95 percent of profits earned offshore from taxation in the U.S.
For individuals, Romney would lower the maximum tax rate over time, though he hasn't specified a rate target. He would eliminate the estate tax and make permanent the current 15 percent rate on dividends and capital gains. Taxpayers with an adjusted gross income of less than $200,000 wouldn't pay any taxes on capital gains or dividends.
Romney's tax plan, unlike those of some of his Republican opponents, isn't an attempt to escape the confines of the U.S. tax code. It doesn't give taxpayers the choice of sticking with the current tax system or paying a flat tax instead, as Gingrich and Perry have proposed. There isn't a national sales tax like the one businessman Herman Cain outlined before his ended his campaign in early December amid allegations of sexual indiscretion.
“My administration will make America the best place in the world for entrepreneurs, inventors and job creators,” Romney said at a campaign event in Davenport, Iowa, on Dec. 27. “I'll lower and simplify taxes, especially for middle-income Americans.”
The study doesn't take into account a $1.2 trillion reduction in federal spending scheduled to take effect in 2013. Those savings won't prevent Romney's proposal from increasing the deficit, Williams said.
He said the $600 billion revenue reduction under Romney's proposal would happen in 2015 while the $1.2 trillion spending cut would be spread out over a decade.
“This goes in the wrong direction,” Williams said. “It still worsens the deficit situation.”