(Bloomberg News) Republican presidential nominee Mitt Romney's latest income tax cut proposal would be able to pay for itself by placing a cap on individual deductions, according to the Tax Foundation.
"When you add the new deduction cap, we find that the plan actually does come in on balance," Scott Hodge, president of the Washington-based group that favors a simpler tax code, said today at a Bloomberg Government breakfast.
Tax cuts proposed by Romney would create a $5 trillion hole in the U.S. budget, which the former Massachusetts governor says would be filled by limiting tax breaks and by assuming the cuts will spur economic growth. President Barack Obama says that assumption would result in a bigger budget deficit.
Overhauling the tax corporate tax code by lowering rates wouldn't hurt federal revenue, Hodge said. With the top rate now at 35 percent, Romney wants to cut it to 25 percent. Obama wants to reduce it to 28 percent, with a 25 percent rate for manufacturers.
"When it comes to business taxation, the United States has a Neiman Marcus tax system in a world of Wal-Mart tax systems," Hodge said. "We have every-day high prices every day and we offer a few white sales to get people in the door. But everyone else is competing on low tax rates."
The latest component of Romney's plan for individual income taxes would create a ceiling on deductions as part of a three- part set of limits on tax breaks, according to a campaign aide who spoke on condition of anonymity on Oct. 3 to provide details on the options. The aide said there would be a $17,000 cap on deductions and credits, while Romney suggested a ceiling of $25,000 during the Oct. 16 debate.
A second ceiling would apply to personal exemptions and a third cap would apply to the tax break for employer-provided health insurance.
One undecided issue is how to handle the fact that a $1,000 credit, which is a subtraction from a person's tax payment, is different from a $1,000 deduction, which is a subtraction from income.
The amount and details of the limits could be changed to meet Romney's targets for revenue and distribution of the tax burden. The aide said the three-cap idea is only one option being considered.