Does Romney’s Tax Plan Get The Money From Mortgage Interest Deduction?

Dave Johnson

The Romney strategy of offering few or no details about anything lets him be everything to everyone, while denying anything that could be a problem. So we are all left to guess. It’s the case with his tax returns — and its the case with his tax plan. Romney says his tax plan cuts taxes by eliminating deductions, but — no details — he won’t tell us what deductions and loopholes he will eliminate. The Republican platform committee has just dropped a frightening clue that the mortgage interest deduction is on the chopping block.

Romney’s Taxes

Mitt Romney flat-out refuses to release more than the partial returns he was forced to release during the primaries. He released a preliminary 2011 return, and a partial 2010 return. (The 2010 returns were missing the required FBAR form with details of the foreign bank accounts.) From those returns — the ones prepared when he knew he would be running for President — we learned that he has an “unemployment” income of $450,000 a week, Swiss and Cayman Islands bank accounts, secret companies in Bermuda, and quite possibly was caught illegally hiding money and had to take advantage of a “tax amnesty” program that lets rich people avoid being prosecuted for doing that.

In any event, there is something that is so bad in Romney’s taxes that he is willing to let us all speculate on what he is hiding, which means whatever it is could be even worse than anything we can come up with.

Romney’s Tax Plan

The same is the case with Romney’s tax plan. He offered vague guidelines, and is keeping the details to himself. This, like his tax returns, means that the actual details might be so bad that people would turn on him if they knew.

The basics: Romney’s plan says it will lower tax rates for everybody and will be “revenue neutral,” making up the difference by eliminating deductions and loopholes. He would eliminate the estate tax — taxes on the income of kids of the super-wealthy. He would keep taxes on capital gains really, really low — the income that the super-wealthy make because they are super-wealthy. He would cut taxes on the corporations that are fronts for the super-wealthy by a third.

“Revenue neutral” means that after all of his changes — lowering tax rates for wealthy people and corporations and making up for it by cutting deductions and loopholes — the tax system brings in the same amount of money that it brought in before the changes. So… what’s the math on this?

The Tax Policy Center took Romney at his word and did the math. Their study, ON THE DISTRIBUTIONAL EFFECTS OF BASE-BROADENING INCOME TAX REFORM, concluded that the result will be a big tax cut for the very rich and a tax increase for the rest of us. Think Progress has details of why.

But the Romney plan doesn’t really have any details of which deductions he would eliminate to make up the money that goes to his big tax cut for the very wealthy. So, reading tea leaves is what we’re left with.

The Home Mortgage Deduction

For Romney’s tax plan to work, with its promise to be “revenue neutral,” he has to find big money somewhere to make up for the rate cuts. The mortgage interest deduction is big money, and today there is a tea leaf for us to read. Bloomberg: Republican Platform Won’t Protect Mortgage Tax Deduction,

Republican platform drafters refused to put their party on record for preserving the mortgage- interest deduction, giving Mitt Romney more flexibility to promote his plan to lower tax rates paid by corporations and the wealthiest Americans without increasing the federal debt.

… Romney, the presumptive Republican presidential nominee, has proposed lowering corporate and individual income-tax rates and eliminating some tax breaks, without specifying which ones. A Romney campaign adviser, former Senator Jim Talent of Missouri, urged delegates to reject the mortgage-interest plank to avoid muddying the call for a simpler tax system.

There are reasons that the home mortgage interest deduction is a problem. It “distorts” the housing market, causing housing prices to be higher than they would be without it. It gives a bigger tax break to people who make more money, and for buying more expensive houses. It encourages too much borrowing. So it is a policy problem. But it is also today’s reality that millions upon millions of people depend on it and on the market distortion it brings with it. Even phasing it out slowly would have terrible consequences.

So, is the home mortgage interest deduction on Romney’s chopping block? It is hard to imagine the Romney tax plan adding up without this.

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