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Romney's tax plan to limit overall deductions

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October 02, 2012 – Comments (25) | RELATED TICKERS: NU , TS

He just recently floated the idea of limiting all tax deductions to $17,000.  While it would have little impact on the poor since they never itemize anyway, it takes a nice swipe at the middle class. That low a cap just puts the tax burden back onto the middle class.  This guy is out of touch.  He is now starting to force me to vote Obama now.

25 Comments – Post Your Own

#1) On October 02, 2012 at 11:12 PM, rd80 (98.66) wrote:

Seems like it would hit the upper income hardest.

In Romney's own case, he'd lose nearly all the six million in deductions he had for charitable giving.

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#2) On October 02, 2012 at 11:27 PM, somrh (85.96) wrote:

It would hit the higher income pretty hard but apparently tax deductions are much higher than that. See here (2008 figures).

The stats look at the average for those who itemize so it doesn't factor in everyone that just takes in the standard deduction. But the average deduction is quite high. For 15k-30k it's $21,490. For the 30k-50k it's $21,227.

So capping it at $17 would hurt those on the lower end of the income scale. Perhaps if it were raised a bit it would be better.

Personally I wouldn't mind eliminating the vast majority of the deductions and making them all "standard" (the standard could be higher of course). That would simplify a lot of the hassle. 

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#3) On October 03, 2012 at 1:15 AM, wolfman225 (70.76) wrote:

^In a radio interview today.  Romney said that he would be willing to look at limiting or eliminating some popular deductions as part of his overall tax restructuring plan.  He also said, however, that to meet his goal of making the changes revenue neutral and non- or low-impact on the middle class that he would be willing to look at adjusting things like the personal exemption to balance out potential deduction limitations, such as the mortgage interest deduction, for middle class taxpayers.

 My personal preference would be to scrap the entire tax system and move to a simple 2 or 3 tier flat tax, no deductions.  That would eliminate the ability of certain high earners to twist the spirit of the tax system around the technical wording.  We need to ensure that as large a percentage of Americans as possible pay at least a nominal amount in Federal Income Tax.  If they don't have any skin in the game, they won't be interested in "following the money" and requiring that gov't husband the country's resources and allocate them wisely and transparently.

 

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#4) On October 03, 2012 at 12:38 PM, awallejr (82.72) wrote:

Not really Russ.  Romney and his ilk are basically capped at the capital gains rate of 15%.  It just prevents him from lowering it even more, which would have been the case if he took the full deduction in 2011.  He purposefully didn't to avoid lying when he said he never paid less than 13%.  If he loses he will file an amended return and if he wins, well a small price to pay.

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#5) On October 03, 2012 at 12:46 PM, awallejr (82.72) wrote:

And Wolf, everyone already has "skin" in the game.  Income tax (for 2011) only accounted for 47.4% of the total federal revenue.  And all we ever hear by certain pundits is how "oh my God it is outrageous that many don't pay income tax!"  Except the Average Joe is the one paying towards that other 52.6%, and not even including all the tax charges (tollls, sales tax).  Whenever you hear someone only mention income tax, throw a tomato at him.

Probably the 4 largest deductions taken are 1) health costs, 2) real property taxes, 3) mortgage interest and 4) charitable contributions.

I would guess that the under $250,000 a year homeowner would get crushed by Romney's proposal.  Taxes alone in many suburbs could be $12,000 easily.

This is a game changer for me.  Not only will it hit a lot of middle class homeowners hard it will also hit the real estate market hard since the mortgage deduction is one of the main selling points.

This tells me that Romney has never had any real plan.  He just threw out a detail because of all the pressure to do so without even having given it considerable study. It is just another example of his callousness towards the Average Joe, a callousness that was reflected on that tape recording, and as reflected during his Bain days.

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#6) On October 03, 2012 at 1:18 PM, awallejr (82.72) wrote:

With further thought.  The problem has never been with those 4 deductions I mentioned with respect to the tax code.  Those 4 help  the homeowner, people suffering serious medical expenses and encouraging generosity to charity.

The things that need to be weeded out are all the other little gimmicks and shuffling done by basically wealthy people.  Things like carry forward interest treatment, even the generation skipping trust outcome which Romney himself used, or all the corporate shuffling and offshoring.

Those are the type of loopholes that need closing.  But nope, Romney wants to keep those, sure cap his deductions but lower his rate even more, all while he will be mainly capped at capital gains worse case, a rate lower than most people wind up paying.

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#7) On October 03, 2012 at 1:45 PM, rd80 (98.66) wrote:

Here's more on Romney's 17k idea.

Some key quotes:

" If this option became a part of the Romney economic plan, tax analysts say, it would hit the wealthiest taxpayers the hardest, "

" Of households that itemize, 90 percent are in the highest tax bracket, 35 percent. Of those in the 33 percent tax bracket, 71 percent itemize. By way of contrast, only 37 percent of those in the 15 percent bracket itemize their deductions."

" President Obama has proposed capping deductions in almost every budget he has introduced."

 

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#8) On October 03, 2012 at 1:52 PM, edwjm (99.87) wrote:

The proposal is outrageous.  The deductions should be kept without limit for Medical and Dental Expenses, Taxes you paid, Interest you paid, Casualty and Theft Losses, and Job Expenses.  Furthermore, those deductions should NOT have to be added back in for the Alternative Minimum Tax.  The deductions for Gifts to Charity, Certain Miscellaneous Deductios, and Other miscellaneous deductions should be eliminated.  The deductions for Gifts to Charity should be the first one to go, even though it will cause the greatest outcry.  My charitable giving should be my money, not part of my otherwise payable tax money.  Furthermore, only a small part of charitable giving actually goes for charitable purposes.   Much of it goes to churches and other religious organizations (despite the supposed separation of church and state), and much of that goes to religious or even political purposes to advance the church's agenda.  To add insult to injury, only giving to organizations, the least efficient charitable giving, qualifies.  Giving to deserving individuals, which is far more efficient, is NOT deductable.

As for the matter of "even the parasites get to vote," that is the difference between democracy and aristocracy.

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#9) On October 03, 2012 at 2:08 PM, awallejr (82.72) wrote:

Well Russ somrh gave a solid link showing the impact it would have on the under $250,000 crowd.  Yet didn't Romney say he wouldn't raise the taxes of the middle class?  A new record, breaking a campaign promise BEFORE taking office.

There is no reason to go after those 4 deductions since as I said it helps, the homeowner, gives relieve to those suffering seriouis medical expenses, and encourages charity giving. It will also hit the real estate market hard,  What is he thinking here?

The real knife cutting should be all those gimmicks to switch and hide assets.  To reduce cost basis, etc..  

But lets stop the nonsense.  All the Republicans have to do is pass the pending bill before them continuing the Bush tax cuts for under $250,000.  But they won't because the "Taylor" machine (Grover Norquist) has them in his pocket.

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#10) On October 03, 2012 at 7:57 PM, PQFoolish (< 20) wrote:

Wow....really??

Don't wrestle with a pig.....the pig is having fun.... You're just getting dirty.....(the biggest life lesson my grandpa taught me). 

I don't care what "party" you are with, we should all be on the same team working for solutions not fighting.  I respectfully ask that you take a deep breath and consider how different things would be if the Motley Fools model was used in government....no back biting, no under the table deals, just the people we elect taking everyones ideas and then breaking it down to the great ones.
 
Simply put, nothing comes easy ... Just because you don't like it doesn't mean it's wrong... You're entitled to your opinion as long as everyone else is also, arguing with a radical is pointless because they have been taught (with the results of their bad behavior) to argue louder, longer and make up anything.

Do away with the IRS and simply collect a tax exactly like sales tax (the system is already in place)....you make more... You spend more....You pay more...everyone is on an equal scale....and cut out crap agencies that cost more then their value and put the dollar back into a system that has benefit or hey here's an idea... How about letting US keep a little more...in the end, we would no longer have to pay hard earned money for outdated, unproductive results....oH, I here you say "we can't do that".....well every business has had to cut to the bone in hopes of staying afloat, and most didn't. What makes the government so special?   Everyone has seemed to have forgotten where the money comes from. The government has yet to make me money!

If they can't make their budget....by God get someone else to manage it! Just once, have it treated like its your money....what would you really do? My guess is it wouldn't be the same....and if it is, I dare you to prove it!

If everyone is equal....how scary...why should anyone work hard if all they have to do is wait for "the government to take care of me"? Who pays the government??? Not the people standing in line! 

Your income is YOUR income not a number that the government (or jealous/greedy) individuals should have the right to say that YOU are not entitled to keep and decide you no longer have the right to be be treated as an equal.  (keeping in mind everyone is paying the same, no loopholes)

It's ok to make a mistake....it's wrong to stay on the same path because it might be embarrassing to admit you are not perfect. I'm certainly not perfect....as I'm sure you could prove.

Sincerely tired (a middle income struggling family)

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#11) On October 03, 2012 at 8:17 PM, rd80 (98.66) wrote:

All the Republicans have to do is pass the pending bill before them continuing the Bush tax cuts for under $250,000.

We'll have to agree to disagree.  After all, all the Democrats have to do is compromise and continue the tax cuts for everyone.

Honestly, I think what's fair is if we need the revenue, everyone should kick in something - lower income less, higher income more - and that's exactly what letting the cuts expire for everyone would do.  If we don't need the revenue or want to consider it as stimulus (my preference), extend them for everyone.  

Shoot, if the politicians don't want the vote/position on their hands, flip a coin. Get this issue off the table so they can focus on what really needs to be done; scrap the current code and replace it with something a lot simpler. I'm far from the 1% and don't have all that complicated finances and my tax return last year was 22 pages - insane.

We definitely need to look at how cap gains and dividends are treated.  I think long term cap gains should get preferential treatment, but long term should be a lot longer than 12 months.  Extend the cap gains holding period to 5 years, eliminate carried interest and tax divs as income, but let companies deduct dividend payouts and I think you solve most of the Buffett, Romey, et. al. low tax rates.  This shouldn't be that hard, but both sides are hogtied by special interests and benefit from carving out loopholes.

 

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#12) On October 03, 2012 at 8:46 PM, ETFsRule (99.94) wrote:

wolfman225 (74.69) wrote:

^In a radio interview today. Romney said that he would be willing to look at limiting or eliminating some popular deductions as part of his overall tax restructuring plan. He also said, however, that to meet his goal of making the changes revenue neutral and non- or low-impact on the middle class that he would be willing to look at adjusting things like the personal exemption to balance out potential deduction limitations, such as the mortgage interest deduction, for middle class taxpayers."

If he wants his plan to be revenue-neutral, all he has to do is show us some arithmetic proving that his tax increases would be equal to the deductions that he wants to eliminate.

I can't wait to see the quantitative analysis that he gives us, instead of just saying that he is "willing to look at" various options.

But I won't hold my breath.

As for the $17k idea, I'm not opposed to it in principle, except for the fact that Romney doesn't really believe in it and would never actually do it. It's just an "option" that he is throwing out there.

Mr Moneybags has been campaigning all year, and now he suddenly comes up with this "tax the rich" idea, right before the election. Does he really think Americans are that stupid?

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#13) On October 03, 2012 at 9:01 PM, awallejr (82.72) wrote:

After all, all the Democrats have to do is compromise and continue the tax cuts for everyone.

Except that is not what Boehner said.  He said he believes in "common ground" not compromise.  So both parties agree to extend cuts for the under $250,000 crowd. What is there to compromise over?  Oh wait The Taylor machine wants his rich buddies to share too and is willing to hang up 93% of the country.

Since GDP is 70% spending and since the Average Joe is the largest percentage of those spenders, seems to make sense to m ake sure they get a little more in their pocket.  Anway debates about to start.

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#14) On October 03, 2012 at 9:32 PM, Frankydontfailme (27.20) wrote:

Romney wants to cut Big Bird.

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#15) On October 03, 2012 at 10:35 PM, awallejr (82.72) wrote:

Man why don't they hire me as an advisor.  I finally got a republican (Romney) to agree with me that the job creators are your startup small cap guys, not by lowering taxes for the rich.  So lower small cap taxes, give them credits, and create a loan pool.

I said the biggest problem with entitlements was the rising costs of health care.  I can attest to this from personal experience that whenever an issue arises I wind up going to a bunch of specialists doing tests without even bothering to engage in clinical analysis because they are afraid of lawsuits.  PUT A DAMN CAP ON MALPRACTICE AWARDS ALREADY.  Sorry for yelling but that really is the main reason why so much waste occurs. Doctors are afraid of lawsuits.

Now I did see Romney retreat from the 17,000 dollar number to maybe raise it to $50,000.  So basically he hasn't committed to any real specifics.

I do agree with Romney about "energy."  And I said he should push this point. And we should be pushing this.  This is the area where we can make jobs.  This is an area of national defense where we can wean ourselves off of middle east reliance.  On the other hand I think alternative energy is a must to develop as well.  So we push the conventional to wean us off the middle east while we encourage alternative development.

In the end Romney during the debate was aggressive but he was simply a "businessman" to me.  And businessmen believe in the efficiences of business. But he said "could not care less" which is a plus in my pet peeves eye.

I've seen the market double since Obama.  I made money under Obama and lost under Bush. Romney did an aggressive job.  But I don't trust him because he is that "businessman."

The debate was fiery but in the end, as was expected, it created more questions than answers.

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#16) On October 03, 2012 at 10:57 PM, rd80 (98.66) wrote:

Romney's campaign should send you a nice bonus check. :)

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#17) On October 03, 2012 at 10:57 PM, awallejr (82.72) wrote:

Man why don't they hire me as an advisor.  I finally got a republican (Romney) to agree with me that the job creators are your startup small cap guys, not by lowering taxes for the rich.  So lower small cap taxes, give them credits, and create a loan pool.

I said the biggest problem with entitlements was the rising costs of health care.  I can attest to this from personal experience that whenever an issue arises I wind up going to a bunch of specialists doing tests without even bothering to engage in clinical analysis because they are afraid of lawsuits.  PUT A DAMN CAP ON MALPRACTICE AWARDS ALREADY.  Sorry for yelling but that really is the main reason why so much waste occurs. Doctors are afraid of lawsuits.

Now I did see Romney retreat from the 17,000 dollar number to maybe raise it to $50,000.  So basically he hasn't committed to any real specifics.

I do agree with Romney about "energy."  And I said he should push this point. And we should be pushing this.  This is the area where we can make jobs.  This is an area of national defense where we can wean ourselves off of middle east reliance.  On the other hand I think alternative energy is a must to develop as well.  So we push the conventional to wean us off the middle east while we encourage alternative development.

In the end Romney during the debate was aggressive but he was simply a "businessman" to me.  And businessmen believe in the efficiences of business. But he said "could not care less" which is a plus in my pet peeves eye.

I've seen the market double since Obama.  I made money under Obama and lost under Bush. Romney did an aggressive job.  But I don't trust him because he is that "businessman."

The debate was fiery but in the end, as was expected, it created more questions than answers.

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#18) On October 03, 2012 at 11:24 PM, awallejr (82.72) wrote:

oops a double post somehow.  I have been having posting issues lately.  Sorry about that.

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#19) On October 04, 2012 at 12:35 AM, Melaschasm (65.13) wrote:

The super wealthy pay capital gains taxes.  The upper middle class and barely rich are hit hard by income taxes.  They are the ones who will suffer from a 17k cap on deductions, and are also the ones who will benefit from the reduced rates. 

A 17k cap on deductions will hurt the super wealthy, but they are still in the 15% bracket, so they can live without the deduction.  Assuming this cap is revenue neutral with the rate reduction, and the upper middle class and barely rich should benefit by about the amount that the super wealthy are harmed. 

While this announcement is coming late in the game, it is in keeping with the general principles that Romney has been talking about, and might possibly have been a consideration all along.  Even if this is just an election ploy, it is an opportunity for both sides to support some tax reform which would slightly balance the tax rules, compared to the current system.

As a general rule conservatives tend to favor rate reductions and the closing of tax loopholes.  Romney's maybe plan would be in keeping with the recomendation of various conservative and supply side economic types.  I do not expect liberals to support this idea, because it would actually raise taxes on the super wealthy, rather than the upper middle class an barely rich.

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#20) On October 04, 2012 at 12:48 AM, awallejr (82.72) wrote:

No Mela, his plan is in line with Grover Norquist.  He won't raise tax rates as long as his plan is revenue neutral because he signed Norquist's card. 

What we need is a republican Mr. Smith who goes to Washington and renounces the Taylor (Norquist) machine.  He has sold his "vote" along with many Republicans to an outsider lobbyist.  Personally I think it violates the law where a politician basically sells his vote, but that is never going to be prosecuted.

It is incumbent upon the individual voter in the end.  Defeat the "Taylor" machine because in the end the Average Joe suffers otherwise despite all the BS that gets floated.

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#21) On October 04, 2012 at 10:05 AM, wolfman225 (70.76) wrote:

ETFsRule--

"If he wants his plan to be revenue-neutral, all he has to do is show us some arithmetic proving that his tax increases would be equal to the deductions that he wants to eliminate."

It's not as simple as a dollar-for-dollar comparison.  Mr. Obama made the same mistake last night.  There's far more than "simple arithmetic" involved.  Many Liberals, Obama included, seem to see the American economic pie as a fixed amount, assuming that if someone gets more, someone else gets less.  They apply this thinking whenever they "analyze" Republican/Conservative economic theory.  They're arguing from a faulty premise.

The economy isn't static.  It's not a zero-sum equation.  It's a dynamic system that when in it's optimal state continually grows.  If it wasn't, there would be no need to calculate GDP.  It would be a flatline.  Whenever you attempt to calculate the effects of a specific economic policy this dynamism needs to be taken into account.  Even Mr. Obama's projections are based on his team's assumption of a certain growth rate, along with an assumed lowering of unemployment.

Mr. Romney made clear that his plan is to lower rates, reduce & eliminate some deductions (particularly on the higher income earners), simplify the tax code and help ease the burden of uncertainty on small businesses so they can finally begin to consider making new hires.  Also, he pointed out the common sense fact that more workers equals more taxpayers equals more and a more stable tax base providing revenue to the gov't.

Whether his assumptions of growth prove any better than Obama's remains to be seen, and can be a point of argument among economists, but to attack his proposals based on the argument that eliminating current deductions doesn't equal the supposed tax cuts is akin to attempting to apply simple A+B math to complex calculus.

 

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#22) On October 04, 2012 at 12:55 PM, ETFsRule (99.94) wrote:

^^^

"Whether his assumptions of growth prove any better than Obama's remains to be seen, and can be a point of argument among economists, but to attack his proposals based on the argument that eliminating current deductions doesn't equal the supposed tax cuts is akin to attempting to apply simple A+B math to complex calculus. "

His assumptions of growth are, of course, ridiculous. He depends on somehow restoring "confidence" to employers, causing them to hire more workers. The fact that the GOP resorts to these sorts of intangibles just displays their lack of substance.

As for the math, I was simplifying it because Romney has given us no specifics to work with. If you want to see some more complex analysis, then you are in luck because the CBO has already done it. The fact is, under Obama's budget we would gain almost 1.4 million jobs through 2014. Under Romney we would lose almost 2 million jobs over that time:

If some of Romney’s proposed individual income tax cuts were revenue-neutral (he has said that they would be, but has not specified what “base-broadening” adjustments he would make to the tax code to accomplish that), his plans would instead lead to employment losses of 608,000 in 2013 and roughly 1.3 million in 2014.

This is not a point of argument, because there are no economists in the world who disagree with it. At least, no real economists who actually use numbers and statistics in their analysis.

Sources:

http://www.cbpp.org/cms/?fa=view&id=3658

http://www.epi.org/publication/ib343-obama-romney-job-growth/

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#23) On October 04, 2012 at 4:46 PM, CluckChicken (27.20) wrote:

What I got out of the debate was....well basically nothing.  Obama didn't say anything new. Romney provided a single detail to his otherwise 'we'll figure out the details all later' for every plan. Romney's one detail is that he is going to some how help balance things by cutting the big spending on things like PBS, all 350 million of it.

 

I wasted 90 mins of my life. 

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#24) On October 05, 2012 at 12:24 AM, outoffocus (23.59) wrote:

I agree.  The tax code can be cut to 30 pages, maybe even less.  Simple fact is there is no political will to do so.  Politicians believe they can manipulate the people through the tax code.  Simplifying the tax code would mean giving up power.  What filthy politician in their right mind would want to give up power?

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#25) On October 05, 2012 at 2:52 AM, awallejr (82.72) wrote:

Well that is the reality.  Candidates can pretty much say anything but in the end the lobbyists rule.  ]

The IRS code will never be simplified.  Congress doesn't have the will to do so. But Romney's recent assault on real estate deductions isn't getting the criticism it deserves.  While I doubt Congress would pass Romney's "suggestion" nevertheless he is proposing things that could throw the real estate market back into recession. It really is a game changer and would undermine everything Bernanke has tried to do.

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