Why Romney’s Tax Plan Is Mathematically Impossible
The first are tax expenditures that go to the working poor. These are focused on refundable credits, where almost 60 percent of them go to the bottom 40 percent of Americans. These tax expenditures are meant to help boost wages at the struggling bottom end, notably the Earned Income Tax Credit, which is a credit for low-income workers. The Tax Policy Center analysis shows EITC “on the table” to be cut under Romney, and it is telling that the Repbulican leaders haven’t said whether they want to cut the credit and seem to be dropping hints that they may go after those working-class “lucky duckies.”
The second set go to the middle class and upper-middle class, meaning people whose work requires at least some college education, often defined by longer-term employment or middle management positions. These expenditures largely represent itemized deductions and tax exclusions. As seen in the chart, over 50 percent go to taxpayers between the 80th and 99th percentile of income. These underpin the mainstays of middle-class existence: health care provided by employers and a home mortgage, both subsidized through tax deductibility.
Finally the third set go to the top one percent, focused on special treatment for capital and dividend income, which are taxed at a lower rate than wages. As those forms of incomes are predominately earned by the top one percent, the tax benefits mostly benefit that group. The top 0.1 percent earn more than half of this expenditure, with the top one percent taking home a total of 75 percent of the benefit. People working in elite financial positions often claim that their income derives from money rather than labor to qualify for this exemption.
Tax policy helps sustain each of these groups. Making low-wage work pay more, keeping the middle class in long-term employment relationships and making sure they are property-owning members of their communities, and increasing the financialization of the economy and the explosive wealth of the top one percent all are boosted by the government’s system of taxation.
With this framework in mind, what’s wrong with Romney’s plan? What the plan seeks is to reduce taxes on each group and make up the difference by reducing the tax expenditures received by each group. But remember that Romney doesn’t want to touch the tax expenditures in the third set — those aimed at savings, capital gains, and dividends, which go overwhelmingly to the top one percent. So he wants to lower taxes on the one percent, but he has to make the lost revenue up by cutting a set of tax expenditures that largely benefit either the working poor or the middle class.