In Wednesday night's debate, President Obama said Mitt Romney's tax plan would cut government revenues by $5 trillion. Romney said that wasn't true and that he wouldn't propose any tax cut that would add to the deficit. Audie Cornish talks with John Ydstie about an exchange that left many people scratching their heads.
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Among the most animated exchanges last night was a disagreement between the candidates on the cost of Mitt Romney's tax proposal. Romney forcefully defended his plan, saying, among other things, that it would not add to the deficit. He also offered a few more details to a plan that has been relatively short on details up to this point. We've asked NPR's John Ydstie to walk us through what we do and don't know about Romney's broader tax policy. Welcome, John.
JOHN YDSTIE, BYLINE: Hi, Audie.
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So let's start with the big point of contention last night - President Obama saying that Romney's tax plan would add $5 trillion to the deficit.
PRESIDENT BARACK OBAMA: Governor Romney's proposal that he has been promoting for 18 months calls for a $5 trillion tax cut.
CORNISH: Governor Romney responded this way.
MITT ROMNEY: I'm not looking for a $5 trillion tax cut. What I've said is I won't put in place a tax cut that adds to the deficit. That's part one. So there's no economist can say, Mitt Romney's tax plan adds 5 trillion if I say I will not add to the deficit with my tax plan.
CORNISH: So who's right?
YDSTIE: Well, here's where that $5 trillion number come from, Audie. The Tax Policy Center, a Washington research group took a look at Governor Romney's tax proposal earlier this year. It concluded that Mr. Romney's proposal, which reduces tax rates by 20 percent, would cost the budget about $5 trillion over 10 years. Now, that's the cost before taking into account the elimination of deductions and the closing of loopholes, which is how Mr. Romney says he would offset that $5 trillion cost.
But while Romney has said he'd do this, he hasn't said which loopholes and deductions would go away.
CORNISH: So, Governor Romney says he won't increase the deficit with his tax cut, but at the same time, I guess you're saying that he hasn't told us how he'd pay for it.
YDSTIE: That's right. Now, even though the governor hasn't given us details, the analysts at the Tax Policy Center, which include experts who've worked for both Democrats and Republicans, decided to see if there were enough deductions available to offset the $5 trillion cost. And what they concluded was that the plan would not be revenue neutral. It would, in fact, raise the deficit, unless taxes were increased by around $2,000 for middle class families.
Now, Governor Romney has taken issue with this Tax Policy Center study. He says it's partisan and inaccurate and here's what he said in last night's debate.
ROMNEY: There's six other studies that looked at the study you described and say it's completely wrong.
YDSTIE: In fact, those six studies were cited by some Romney economic advisors in a letter they wrote criticizing the Tax Policy Center's work, but I have to say, a close look at those studies shows they don't really support the specifics of the governor's proposal.
CORNISH: John, earlier this week, Governor Romney provided another possible route to raising money to pay for his cut in personal tax rates, putting a cap on deductions instead of eliminating them.
YDSTIE: That's right. He said he might consider putting a $17,000 cap on deductions. Now, a cap could shrink the value of mortgage interest deductions, charitable contributions and some health care expenses for a lot of taxpayers. Then, in the debate last night, Governor Romney suggested the cap might be much higher, 25,000 to $50,000.
CORNISH: But would this cap on deductions raise enough money to keep Governor Romney's tax proposal from actually increasing the deficit?
YDSTIE: Well, if the cap were at $17,000, which would be pretty restrictive, it could raise a lot of money but still no enough to cover the whole $5 trillion cost of Governor Romney's 20 percent rate cut. Another tax research group, the Tax Foundation, criticized Governor Romney's idea for capping deductions, saying it goes against the basic idea of tax reform, that is making the income tax code more simple, which is something Romney says would boost growth.
The tax foundation says the cap on deductions would hit the rich hardest and harm economic growth.
CORNISH: John, thank you for explaining it to us.
YDSTIE: You're welcome, Audie.
CORNISH: NPR's John Ydstie. Transcript provided by NPR, Copyright NPR.