Romney calls for tax cuts on savings

NORTH CONWAY, N.H. - Mitt Romney rolled out one of the most detailed tax cut plans yet among the major presidential candidates yesterday, proposing to eliminate taxes on income from interest, dividends, and capital gains for the vast majority of Americans.

In several appearances in New Hampshire, Romney said his proposal, which would give the tax break to those earning less than $200,000 a year, would be a boon to the middle class.

"You can save your money for a down payment on a house, for a car, for a boat, for college for your kids, whatever the heck you want," he told about 75 people gathered at a coffee shop yesterday morning. "Government shouldn't be telling you they're going to tax you on your savings."

But $200,000 a year is nearly five times the nation's median household income of about $44,300 a year. Critics pointed out that while many families would benefit, the vast majority of the total dollar savings would go to the wealthy, who own the most stocks, have the biggest bank accounts, and reap the most capital gains from real estate and other investments.

"For people earning below $100,000, cutting the tax rate on interest, dividends, and capital gains means almost nothing," said Robert S. McIntyre, director of Citizens for Tax Justice. "For those people earning between $100,000 and $200,000, you might be talking several hundred dollars in tax savings. Then, the question is, does he really have a plan that cuts off exactly at $200,000? That would be nuts - the person who makes $200,001 would be kind of angry."

The $200,000 limit applies to adjusted gross income, which includes salaries and investment income. So many wealthy people like Romney, a multimillionaire, whose investment income would take them over the limit, would not qualify for the benefit.

Eric Fehrnstrom, a spokesman for Romney, said the plan would not benefit the wealthiest Americans and pointed out that 95 percent of American households earn less than $200,000.

The campaign did not provide an average savings under the plan, but said that based on 2005 tax returns, more than 56 million taxpayers would benefit from eliminating the tax on interest, 28 million from ending the tax on dividends, and 23 million from killing the tax on capital gains. About 134 million individual returns were filed that year.

"It is a powerful incentive to save, and it's a generous benefit aimed at the middle class," he said.

Richard Holmes, 59, of Lebanon, N.H., a semiretired contract coordinator for a utility company, said the plan could help him when he retires and relies on his savings, as well as Social Security. But he said he also liked the principle of the idea.

"I think it makes a lot of sense," said Holmes, who heard Romney speak at his town's senior center yesterday afternoon. "You shouldn't have to pay taxes on money you've already paid taxes on."

Rob Pelton, a 29-year-old engineer also from Lebanon, said he liked the idea - even though he and his wife, Juliann, 25, would probably not benefit from it since they have not saved much money.

"But I can anticipate that as the years go by there will become a more and more significant tax burden that we have to deal with, and that would make that a valuable suggestion," he said.

Romney's campaign said the plan would cost about $32 billion a year, which would be paid for through economic growth and by limiting growth in nondefense discretionary spending to the inflation rate minus 1 percentage point. The campaign did not say how much revenue would come from each of these sources.

The proposal, Romney said, would not only ease the burden of trying to save for most families, it would also contribute to economic growth.

"As we're saving our money and investing in the bank or investing in stocks, we're going to help encourage the creation of new businesses and grow the businesses that already exist," he said, which means "growing additional jobs."

His campaign said the tax cut plan would also help homeowners struggling with mortgage payments, and also aid people trying to buy houses by boosting savings they could use for down payments, particularly now that the credit crunch has made it more difficult to obtain mortgages.

J.D. Foster, a senior fellow at the Heritage Foundation, a conservative Washington think tank that generally supports tax cuts, said average Americans, who typically do not have significant income from dividends, interest, and capital gains, would not save an enormous amount of money. That's why the plan costs relatively little, he said.

"If you want to save huge amounts, it has to cost large amounts in terms of federal receipts," he said.

Still, Foster said, the tax cut could provide substantial savings to some, including the elderly, many of whom depend on their nest eggs. "If you're trying to encourage low- and middle-income families to save more, you have to" stop taxing the income on their savings, he said.

Romney and other Republicans also vow to eliminate the estate tax on inheritances and make permanent the tax cuts pushed through by President Bush scheduled to expire at the end of 2010. Those cuts, which started in 2003, included lowering the top tax rate on capital gains from 20 percent to 15 percent. Under Romney's plan, those earning more than $200,000 would still pay the 15 percent rate on capital gains.

Some Republicans, including former governor Mike Huckabee of Arkansas, advocate far more sweeping changes, such as a flat income tax rate or eliminating income taxes and replacing them with a national sales tax.

Democrats generally want to let the Bush tax cuts expire for the wealthiest Americans. Some want to repeal some of the cuts sooner to help fund domestic priorities such as universal healthcare.

Former senator John Edwards, for instance, wants to raise the capital gains rates on families making more than $250,000 a year from 15 percent to 28 percent and tax dividends at nearly 40 percent. He proposes exempting the first $250 in investment income from taxes, which he says would mostly benefit the middle class.

His campaign spokeswoman, Colleen Murray, said yesterday that Romney's plan would continue Bush's legacy of tax cuts benefiting the well-to-do. "Americans can't afford another four years of Bush-Romney tax policies that take care of the super rich and leave middle-class families behind," she said in a statement.

Lisa Wangsness can be reached at lwangsness@globe.com.