Mitt Romney shares a laugh with New England Patriots owner Robert Kraft… (Winslow Townson / Associated…)
Presumptive GOP presidential nominee Mitt Romney kicked around a few tax-reform ideas while speaking to major donors in Florida on Sunday, the Wall Street Journal reported Monday. One suggestion hit the audience where it really hurt: wiping out the deduction for interest paid on some home mortgages.
That would be mortgages on a high-income person's second home -- for example, the cabin in Lake Tahoe or the pied-a-terre in Manhattan.
Ouch. That's likely to raise a few billion dollars for the Treasury, right?
The operative word there is "few," and that's the problem. Romney has proposed to cut tax rates, permanently and across the board, by 20%. That would cost the federal government $480 billion a year more than the Bush tax cuts cost, or $900 billion more than tax rates of the Bill Clinton years.
Romney has said that part of the cost would be offset through faster economic growth. The rest would come by eliminating selected tax breaks, deductions and loopholes. He hasn't disclosed which of those might be on the chopping block, however. Tackling any of them is politically dicey because it means forcing some taxpayers to fork over more of their dough. But the fewer people who are affected, the smaller the impact on the budget.
Consider the tax break for interest on second-home mortgages. Various analyses estimate that the overall home mortgage deduction costs the federal government between $80 billion and $105 billion a year. Some $29 billion of that subsidy flowed to taxpayers earning more than $200,000 a year, according to the latest estimates by the Joint Committee on Taxation. The Census Bureau reports that only about 3% of all housing units in the U.S. are vacation homes, so it seems unlikely that eliminating the deduction for second-home mortgage interest will raise much more than a few billion.
Again, that's just an idea that Romney floated, not a specific proposal. The Journal cited two other, more substantial suggestions that Romney tossed out at the fundraiser: barring high-income taxpayers from claiming deductions for property taxes and state income taxes. For those with incomes over $200,000, the deductions for property taxes and state and local taxes were worth $4.9 billion and $19.4 billion, respectively, in 2010, according to the Joint Committee on Taxation.
Those amounts, while significant, don't come close to paying for a 20% cut in tax rates. Nothing would, as long as the focus is on the tax expenditures collected by high-income households. The total amount of tax expenditures is in the $1 trillion range, with the vast majority in the form of breaks for individuals. Many of these are so entrenched, societally useful or popular, a recent Congressional Research Service report states, that it may be hard to raise "more than $100 billion to $150 billion" by winnowing them.
The idea of paring tax expenditures is supported by policymakers on both sides of the political spectrum, including President Obama and House Budget Committee Chairman Paul D. Ryan (R-Wis.), and by those in the chattering class, such as The Times' editorial board. Nevertheless, raising revenue on the scale Romney has suggested would be a very, very tough thing to do. And it's simply not possible without hitting the subsidies for the politically sacrosanct middle class.