Bloomberg: Obama's Export Target Isn't 'On Track': Reality Check

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By Bloomberg News - Oct 17, 2012 3:30 PM ET

President Barack Obama and Republican nominee Mitt Romney made competing assertions during their debate last night in Hempstead, New York. How did they square with the facts?

Obama’s Tax Math

The Claim: Limiting deductions for wealthy individuals will “pay for about 4 percent reduction in tax rates,” Obama said.

The Background: Romney has proposed cutting income-tax rates by 20 percent and curtailing deductions and other tax breaks to keep government revenue from falling. Obama has maintained that Romney’s math can’t add up. A report by the nonpartisan Joint Committee on Taxation that became public last week analyzed how much tax rates could be reduced if itemized deductions were eliminated.

The Facts: Obama takes the study’s results out of context. The study found that eliminating itemized deductions in the tax code -- for taxpayers at all income levels -- would generate enough money to pay for a 4 percent rate cut. By saying that 4 percent is for wealthy taxpayers’ deductions, he misstates the study’s findings.

The context and the caveats of the study are important, and Obama omitted them. Under what committee described as an “experiment,” much of the base broadening in the analysis covers costs that Romney assumes in his starting point.

For example, ending deductions generates about $2.5 trillion over the next decade. In the experiment, $851 billion is devoted to reducing rates by 4 percent and taxing capital gains as ordinary income. Another $986 billion is devoted to repealing the alternative minimum tax.

Within that AMT repeal estimate, however, is the cost of preventing the tax from its scheduled expansion. Neither party wants the AMT to spread and neither party wants to pay for preventing that expansion.

That means some of the money in the study that doesn’t go toward rate reduction is available to Romney for lower rates. The 4 percent figure cited by Obama understates how much rate reduction could be achieved by ending itemized deductions.
Romney’s Tax Math

The Claim: “The math doesn’t add up,” Obama said of Romney’s tax plans.

The Counterclaim: “Of course they add up,” Romney said.

The Background: Romney has proposed about $5 trillion in tax cuts: a 20 percent reduction in income-tax rates, eliminating the estate tax and alternative minimum tax, and cutting the corporate tax rate to 25 percent from 35 percent. He has said he would prevent the tax burden from falling on the middle class, continue tax breaks for savings and investments, and stop the deficit from growing.

The Facts: Romney hasn’t shown how his tax plan adds up, because he hasn’t provided a detailed proposal.

Coming up with a plan that would meet all of Romney’s tests may be mathematically possible. The nonpartisan Tax Policy Center found in August that there aren’t enough tax breaks among high earners to pay for their tax cuts. Romney allies said that the study kept several tax breaks off the table, including the exclusion for municipal bond interest and the earnings within life insurance policies. If you consider those items and assume that economic growth generated by the plan would pay for part of the cuts, it’s mathematically possible to design a plan that would meet Romney’s tests.

Regardless of whether it’s possible, Romney hasn’t proposed it. The Tax Policy Center study assumed that Romney would eliminate breaks such as the charitable deduction and mortgage interest deduction for everyone making more than $200,000 a year. It also assumed that Romney could make those breaks disappear as soon as a household’s income reached $200,000, with no phasing out. The closest Romney has come is a suggestion of a cap on deductions, which would fall short of generating the revenue needed.
Top Income Taxes

The Claim: Romney said that under his plan to overhaul the tax code, “the top 5 percent of taxpayers will continue to pay 60 percent of the income tax the nation collects.”

The Background: Who pays how much to fund the U.S. government and its programs has emerged as a central issue in the campaign. In September, a videotape was made public of Romney telling a private meeting of his financial backers in May that 47 percent of Americans paid no federal income tax, considered themselves “victims” and were dependent upon government for their livelihoods. The president has proposed raising taxes on higher-income Americans, including establishing a minimum tax liability for those making more than $1 million annually.

The Facts: Romney is essentially correct in his calculation of how much the wealthy pay in income taxes. The top 5 percent of taxpayers -- those with adjusted gross income of at least $154,643 -- earned 31.7 percent of the nation’s income in 2009 and paid 58.7 percent of federal individual income taxes, according to the Tax Foundation, a nonpartisan group that studied the most recent available Internal Revenue Service data. The facts are different when all taxes are taken into account. Including state and local levies, which fall more heavily on lower-income earners, the top 5 percent in 2011 earned 35.3 percent of the nation’s income and paid 37.1 percent of all taxes, according to a study by Citizens for Tax Justice.

Within that AMT repeal estimate, however, is the cost of preventing the tax from its scheduled expansion. Neither party wants the AMT to spread and neither party wants to pay for preventing that expansion.

That means some of the money in the study that doesn’t go toward rate reduction is available to Romney for lower rates. The 4 percent figure cited by Obama understates how much rate reduction could be achieved by ending itemized deductions.