Analysis of Romney’s Tax Plan With and Without a $25,000 Cap on Itemized Deductions
Note: Earlier we published an a paper on the economic and budget effects of Romney's tax plan, with and without his proposed $17,000 cap on itemized deductions. In the second debate between the presidential candidates, Governor Romney floated a proposal to limit itemized deductions to $25,000. We modeled this new deduction cap and here are the results.
Difference in GDP, Incomes, and Federal Budget Totals Under Romney Tax Plan With and Without the Suggested $25,000 Cap on Itemized Deductions(Dollar amounts in billions except as noted. Calculated at 2008 levels of income.) |
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Changes in: | With $25,000 Cap | Without Cap | Difference |
GDP | 7.1% | 7.4% | -0.3% |
Private business GDP | 7.5% | 7.8% | -0.3% |
Capital stock | 17.8% | 18.6% | -0.8% |
Wage rate | 4.6% | 4.7% | -0.2% |
Hours worked | 2.8% | 3.0% | -0.2% |
Federal revenue | -$39 | -$137 | $98 |
Federal expenditure | $33 | $34 | -$1 |
Federal deficit (- is larger def.) | -$72 | -$171 | $99 |
Static revenue | -$234 | -$338 | $104 |
Dynamic revenue | -$39 | -$137 | $98 |
% Rev. reflow | -83% | 59% | -143% |
GDP | $1,021 | $1,067 | -$46 |
$GDP/$tax rev. vs. baseline* | $25.87 | $7.77 | -$0.47 |
*In dollars. Positive numbers indicate that the government would lose revenue with these tax cuts, but that economic output (GDP) and people's pretax incomes would rise by the nearly $26 or $ 8 for each dollar of revenue lost. The negative number in the difference column indicates the smaller tax cut would cost the public $0.47 in lost income in addition to each $1 in tax saved by the government from the smaller tax cut under the itemized deduction cap compared to no cap. |
Comparison of Changes in After-tax Incomes Under Romney Tax Plan With and Without the Suggested $25,000 Cap on Itemized Deductions |
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Average Change in Dollars per Tax Return* | Average Percentage Change per Tax Return* | ||||||||||
With $25,000 Limit | Without $25,000 Limit | With $25,000 Limit | Without $25,000 Limit | ||||||||
After-Tax AGI | After-Tax AGI | After-Tax AGI | After-Tax AGI | ||||||||
AGI Class | Static | Dynamic | Static | Dynamic | Static | Dynamic | Static | Dynamic | |||
< 0 | 131 | -6,541 | 131 | -6,845 | -0.15% | 7.40% | -0.15% | 7.74% | |||
0 – 5,000 | 0 | 182 | 0 | 190 | 0.02% | 6.64% | 0.02% | 6.94% | |||
5,000 – 10,000 | 7 | 527 | 7 | 551 | 0.09% | 6.56% | 0.09% | 6.84% | |||
10,000 – 20,000 | 54 | 1,064 | 54 | 1,110 | 0.35% | 6.82% | 0.35% | 7.11% | |||
20,000 – 30,000 | 174 | 1,822 | 174 | 1,897 | 0.71% | 7.40% | 0.71% | 7.70% | |||
30,000 – 40,000 | 339 | 2,615 | 349 | 2,730 | 1.02% | 7.86% | 1.05% | 8.20% | |||
40,000 – 50,000 | 508 | 3,371 | 531 | 3,526 | 1.20% | 7.97% | 1.26% | 8.34% | |||
50,000 – 75,000 | 786 | 4,717 | 855 | 4,969 | 1.37% | 8.20% | 1.49% | 8.64% | |||
75,000 – 100,000 | 1,114 | 6,624 | 1,277 | 7,045 | 1.38% | 8.21% | 1.58% | 8.73% | |||
100,000 – 150,000 | 1,889 | 9,366 | 2,471 | 10,310 | 1.72% | 8.51% | 2.25% | 9.37% | |||
150,000 – 200,000 | 4,216 | 14,071 | 6,267 | 16,644 | 2.86% | 9.55% | 4.25% | 11.30% | |||
200,000 – 250,000 | 6,913 | 19,108 | 10,583 | 23,586 | 3.72% | 10.29% | 5.70% | 12.70% | |||
250,000 – 500,000 | 10,635 | 28,751 | 18,734 | 37,784 | 3.94% | 10.66% | 6.94% | 14.00% | |||
500,000 – 1,000,000 | 14,201 | 51,090 | 33,119 | 71,765 | 2.70% | 9.71% | 6.29% | 13.64% | |||
> 1,000,000 | 26,456 | 213,876 | 121,859 | 318,331 | 1.03% | 8.35% | 4.76% | 12.42% | |||
TOTAL FOR ALL | 826 | 4,211 | 1,375 | 4,923 | 1.66% | 8.48% | 2.77% | 9.91% | |||
*Change in after-tax income: Static column is initial change in tax. Dynamic column adds change in income and income tax due to economic expansion. All dollars figures are in 2008 dollars, all changes are calculated relative to a 2008 GDP baseline. |
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