This post was updated on October 4, 2012.
With another day, Romney has provided two more descriptions of his tax plan. Since this entry was originally posted, the Romney campaign told one news outlet that his $17,000 cap does not apply to tax benefits for employer health premiums, while telling another that he would create a separate cap on that same tax benefit and limit credits like those that help families pay for child care and college. And then in last night’s debate, Governor Romney suggested that—instead of setting the cap at $17,000, it would be $25,000 or $50,000 or “make up number.”
Governor Romney deserves some credit: he is now admitting that middle-class tax increases on housing, health care, child care and charitable deductions are on the table. And as the table below shows, millions of middle-class families still receive more than $17,000 in deductions even once the health care exclusion is taken out.
The bigger story is that, regardless of the twists and turns, Governor Romney has never been able to explain how he will pay for his $5 trillion in tax cuts without raising middle-class taxes. In fact, his new ideas suggest a plan even more generous to high-income taxpayers than the Tax Policy Center assumed—because it only caps certain deductions rather than eliminating a broader set of deductions and exclusions entirely—and would thus require even larger tax increases on the middle class than previously understood.
Here’s the problem: Many families deduct much more than $17,000 now. In fact, health premiums alone cost $15,745 this year, according to the Kaiser Family Foundation. So if a family started there, Romney’s plan would instantly wipe out nearly all other deductions—including mortgages, charitable contributions, and state and local taxes.
The result would be higher taxes for many families. Consider these two examples:
$3,000 tax increase on a family of four making $125,000: This family has an employer health plan worth $16,000, pays $2,333 a month in mortgage interest, and contributes $3,000 a year to charity and pay $6,000 a year in state and local taxes. Despite benefiting from lower tax rates under the Romney plan, nearly all of their deductions outside health insurance would be wiped out—leaving the family with a $3,000 tax increase.
$400 tax increase for a family of three with an income of $85,000: The family has an employer health plan worth $16,000, makes monthly mortgage interest payments of $1,250, contributes $5,000 to charity, and pays $6,000 in state and local taxes. They lose all but $1,000 of their deductions, resulting in a $400 tax increase even after Romney’s lower tax rates are included.
These examples are hypothetical, but hardly uncommon. Millions of middle-class families claim tens of thousands of dollars in tax deductions and would face higher taxes under Romney’s plan. And of course, any attempt to limit that impact would simply mean that Romney would be farther away from paying for his tax cuts.
We still don’t know if or how Romney will pay for his tax plan. But regardless of whether he would raise taxes, slash spending, or run up the debt, the middle class will pay one way or the other.