After we analyzed a part of it two weeks ago, Governor Mitt Romney's tax plan is back in the news, with a proposed deduction cap as the subject of a new Tax Policy Center study. He had mentioned a $25,000 dollar cap on deductions as a possibility in his tax plan during the debate Tuesday night and has previously proposed a $17,000 cap.
Today, CRFB released a paper on individual income tax reform, showing how comprehensive reforms could lower both deficits and tax rates. The paper explains why a recent Joint Committee on Taxation experiment showing a top rate of 38 percent is not comparable to the Simpson-Bowles plan, the Domenici-Rivlin plan, or any other tax reform plan out there.
Today, a report from the Joint Committee on Taxation was released that some claim to show the near-impossibility of deficit-reducing, rate-reducing tax reform. The JCT report shows an exercise in which the elimination of itemized deductions allows for a top rate of only 38 percent. Comparisons between this report and the various tax reform plans out there are highly misleading.
Over the past few years, bipartisan agreement has begun to form around approaches to tax reform that take a broad approach to reducing or eliminating many tax expenditures and using those savings to both reduce tax rates and the deficit. Proposals from the Domenici-Rivlin Task Force and the Simpson-Bowles Commission were able to bridge the gap between both sides of the aisle on tax reform by following this approach. While everyone may have their own ideal way to solve our fiscal challenges, it's also important to consider what can actually generate bipartisan support and become law.
The use of dynamic scoring is one of the most contested issues in the budget world. We highlighted the pros and cons of using it and the issues associated with incorporating it into the budget process in a paper earlier this year.
Over at TaxVox, Roberton Williams writes about what will happen to tax rates under the fiscal cliff. Many economists believe that marginal tax rates (the tax rate on the next dollar earned) matter more than average tax rates (total taxes paid as a percent of income) in terms of the effect on economic growth.
Update: Clint Stretch at Capital Gains and Games sketches out possibilities for base broadening in Gov. Romney's plan.
UPDATE: Tax Policy Center also has a video in which TPC director Donald Marron walks through their findings.