Romney, President Obama leave much unsaid on plans for eliminating tax deductions
Presidential candidates vow to cut deductions
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Romney has said his plan would cut taxes on the middle class.
Obama, meanwhile, has proposed that the Bush-era tax rates remain in effect for all but the wealthiest Americans, households earning more than $250,000, raising the top rate from 35 percent to 39.6 percent. In addition, Obama has proposed that a cap be placed on deductions at a rate of 28 percent. In other words, instead of a person at the newly proposed top rate of 39.6 percent getting an equivalent percentage reduction on home mortgage interest, the value of that deduction would be capped at 28 percent. By proposing a broad cap on deductions, Obama hopes to avoid a fight over every one of them.
Obama has not been as specific about how he would offset the cost of cutting corporate rates from 35 percent to 28 percent (and to 25 percent for manufacturing.) Earlier this year, he issued a framework that presumes he can eliminate most industry-specific tax breaks, such as one for oil and gas production. Obama also has proposed taxing certain foreign profits of US companies, curtailing the ability of companies to depreciate some equipment, and reducing the deductibility of interest.
A labor-backed group, Citizens for Tax Justice, said the president had failed to provide adequate details about how he would pay for lowering corporate rates. Obama’s plan “fails to answer key questions,” the group said in a report, such as “exactly which tax loopholes would be closed.’’
Jason Furman, deputy director of the White House’s National Economic Council, said in an interview that Obama “has listed more than a dozen specific corporate loopholes he would close and has been very concrete about the other areas that he would structurally reform in the corporate tax system. He has chosen not to put down every last specific parameter because he wanted to strike a balance between being so vague that it wasn’t driving the debate forward, and so detailed and so specific that it would allow the proposal to be nibbled to death by lobbyists and interested parties.”
One of Obama’s most specific proposals has been to get rid of a tax break that helped make Romney rich.
Under a provision known as “carried interest,” partners in the private equity business — including those at Romney’s Bain Capital — have been allowed to pay a lower rate on most of their earnings. For example, while the top rate on salary is 35 percent, the one paid by private equity partners on most of their earnings is 15 percent, the top capital gains rate. The rationale is that the partners are collecting the equivalent of capital gains profits from their deals, not direct salary.
Obama has proposed eliminating the break, which his administration said would bring in $17 billion over 10 years.
In an interview with Fortune magazine last month, Romney was asked whether he favors eliminating the provision. His answer was elliptical. “What I’ve said in the past is that if something is a capital gain it should be treated as a capital gain,” Romney responded. “If something is ordinary income it should be treated as ordinary income.”
Taylor, Romney’s adviser, asked if he could clarify the candidate’s position, said the matter is one of many that will be determined later.
“The answer to the question is he wants to have everything on the table, and there’s no specificity about all the different items,” Taylor said.