Conservatives say Romney U.S. tax plan math can work

Wed Sep 26, 2012 3:28am IST

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By Kim Dixon

WASHINGTON, Sept 25 (Reuters) - Conservatives on Tuesday challenged a study that said Mitt Romney's tax plans would hurt the middle class and help the rich, arguing it was predicated on faulty assumptions and that the math of his plan can work.

The nonpartisan Tax Policy Center last month caused a stir with an analysis they said showed Republican presidential candidate Romney's 20 percent across-the-board individual tax cut proposal requires steeper taxes on the middle class and would be a boon to the rich.

Romney famously called the analysis "garbage," and his campaign attacked one of the report's authors who had worked in the administration of President Barack Obama, whom Romney faces in the Nov. 6 election.

Echoing criticism from other conservatives, the Heritage Foundation, a conservative think tank in Washington, on Tuesday released its own analysis. Its researchers concluded that by omitting several big revenue raisers, the Tax Policy Center's conclusion is flawed.

"The authors argue their analysis is definitive, but in fact their choices in framing their analysis ... determined their conclusion," Heritage economist Curtis Dubay said.

The Tax Policy Center ran the numbers on Romney's ideas, using assumptions on Romney's support of incentives for savings and investments.

The Heritage Foundation report includes ending tax breaks for capital gains earned at death, interest on insurance savings and municipal bond interest, all for high-earners. The Tax Policy Center report had initially excluded consideration of the breaks for insurance and bond interest, but later added them back after criticism.

Conservatives say the Tax Policy Center drew erroneous conclusions about Romney's intentions from his generalized statements.

Romney has not specified his plans on the three issues, and his campaign advisers say the cuts are not off the table. The Obama campaign has been using the Tax Policy Center analysis to accuse Romney of secretly planning tax hikes for the middle class.

"Today's report by the Heritage Foundation is yet another confirmation that the analysis the president's campaign is basing their claims upon is flawed and completely untrue," Romney economic adviser Pierce Scranton said.

BREAKS FOR SAVINGS AND INVESTMENT

William Gale, one of the authors of the Tax Policy Center report, said he did not dispute the Heritage findings but said they were adding back in tax breaks that Romney has indicated in general ways that he would protect.

"Yes, if you go after those three taxes on savings and if you raise taxes on capital gains and dividends you can get the money to pay for this," Gale, an economist, said.

The Heritage report does not include raising taxes on capital gains and dividends, because Romney proposes to eliminate the current 15 percent tax on capital gains and dividends for those earning less than $200,000 a year.

Romney's tax proposal says one of its goals is to "further reduce taxes on savings and investment."

But he does not specifically address the tax treatment of capital gains taxes at death, municipal bond or interest on insurance policies.

"He certainly hasn't ruled 'in' any of these things," Gale said.

Conservatives say there will be wiggle room when Romney attempts a full-blown tax code revamp if he is elected, as it would require working with Congress and compromise.

"He is a politician trying to get elected," said Will McBride of the Tax Foundation, which backs lower business taxes and free markets. "He has been steadfastly vague about this."

ADDING TAX BREAKS BACK INTO THE MIX

Ending the tax break on capital gains paid at death could raise $194 billion for the government over a five-year period, according to the congressional Joint Tax Committee. Ending it for high income earners only could raise $19 billion for one year, Heritage estimated.

Eliminating the tax break for interest on life insurance savings and municipal bond interest for high income earners would raise about $45 billion, Heritage said.

The Tax Policy Center, which is run by a former economic adviser to Republican president George W. Bush but includes many Democrats, made the latter changes in an updated analysis of its original report after criticism.

Adding back in those three tax breaks, the Heritage analysis still comes up about $22 billion short to avoid raising taxes on the lower and middle income groups.

Dubay and other conservatives say there are still more ways to close that gap, including phasing out personal exemptions and capping itemized deductions for the rich.

Romney has also said he would not raise taxes on the middle class and that the wealthy will pay the same share of federal taxes that they do now under his overhaul. In addition, he says he would not bloat the federal deficit.

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