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There’s a $1 Trillion Hole in Romney’s Budget Math

October 18, 2012

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In last week’s vice-presidential debate, Republican Paul Ryan defended the fiscal prudence of lowering top marginal income tax rates by arguing that it would be accompanied by “forego[ing] about $1.1 trillion in loopholes and deductions . . . deny[ing] those loopholes and deductions to higher-income taxpayers.” The $1.1 trillion he refers to is actually an amalgam of specific “tax expenditures” – benefits distributed through reductions in taxes otherwise owed – identified by the Joint Committee on Taxation.  We break out the largest 10 of these graphically in the figure above. The full list is available here:

The red bars indicate items that Romney and Ryan had previously promised not to touch: exclusion of employer contributions for health care, deductions for mortgage interest, reduced tax rates on dividends and long-term capital gains, and deductions for charitable giving.  These four items constitute a massive 30% of the $1.1 trillion.  Therefore the Ryan pledge to cut loopholes and deductions cannot, mathematically, be worth more than $770 billion.

And note some of the other big-ticket “loopholes and deductions” on the list.  Social security and other retirement income constitute three of the top ten items, together making up 13% of the total, and the earned income credit, which benefits the poor, represents another 5% of the total.  Would Romney and Ryan eliminate those deductions?  We’ll speculate here: no.  A quick skim of the remainder shows that few of these items constitute “loopholes” in the public’s mind – they are items few imagine could or should be taxed.

In short, Romney and Ryan cannot, logically, keep the pledge to cut $1.1 trillion in tax shields for the rich, because (1) they have already ruled out eliminating the biggest of such shields, and (2) much of the $1.1 trillion is actually derived from tax expenditures targeted at lower and middle income taxpayers – not tax shields for the rich.  This almost surely means that only a small fraction of the $1.1 trillion is actually in play.

Sensitive to the charge that his numbers are not adding up, Romney proposed at Tuesday night’s presidential debate capping deductions at $25,000.  This would raise $1.3 trillion in revenues over the next ten years, according to the Tax Policy Center.  But that figure is only slightly above what Ryan said they would raise each year.  A $1 trillion a year hole remains in their budget math.

Transcript: The 2012 Vice Presidential Debate

Pew: Subsidyscope Tax Expenditure Database

Romney: Tax Plan

Ryan: Sept. 30 Appearance on Fox News Sunday