A Closer Look at the Romney Tax Plan

English: Governor Mitt Romney of MA

Mitt Romney

Facing unexpectedly strong competition in his drive for the GOP presidential nomination, Governor Mitt Romney recently released the 2.0 version of his tax reform plan.  Among the highlights:

  • A permanent extension of the Bush tax cuts on income, dividends and capital gains, currently set to expire in 2013;
  • Repeal of the Alternative Minimum Tax;
  • An additional 20 percent reduction in income tax rates;
  • A reduction in the corporate tax rate from 35 percent to 25 percent;
  • A permanent extension of the R&D tax credit;
  • Allow certain tax provisions in the 2009 stimulus act to expire, including the American Opportunity tax credit for higher education, the expanded refund-ability of the child credit, and the expansion of the earned income tax credit.

Predictably, reaction to the plan has run the gamut – from praise by the supply-side Wall Street Journal editorial page (“now we’re getting somewhere”) to scorn by Brookings (“an abomination … back to voodoo economics”).

One aspect of the plan that’s sure to heat up as we head toward November:  How is Romney going to pay for the plan?  An analysis by the Tax Policy Center suggests the plan will increase the deficit by $500 billion in 2015 when all its provisions take effect and a total of at least $3.4 trillion over the next decade. The Romney campaign counters that the plan will be “fully paid for through a combination of economic growth, base broadening, and spending restraint.”