Yesterday Rush Limbaugh went semi-postal on the man he will be loyally supporting later this year should be become Republican presidential nominee, Mitt Romney. Mitt’s sin? Suggesting in the rollout of his new sorta-kinda “plan” on taxes that he’d make sure the top 1% of earners didn’t benefit from a downward shift in the tax burden. For Rush, that sounded like “Occupy” rhetoric!
But he needn’t have worried that Mitt was really proposing to do anything other than giving the people at the top lower taxes than they owe now, despite his vague promises to scale back deductions to offset lower rates for the very wealthy.
As James Kwak explains today at The Atlantic, a complete offset ain’t happening, as a matter of simple math:
Under current law, which includes the Bush tax cuts, the top 1% in 2011 paid an effective income tax rate of 20.3 percent of their total cash income. Repealing the alternative minimum tax (a Romney proposal) would reduce their effective rate by at least 0.4 percentage points.* A 20 percent cut in income tax rates would knock another 4 percentage points off their tax rate. Repealing the estate tax is worth another 0.3 percentage points of cash income, for a total tax cut of 4.7 percentage points. That works out to a 6.8 percent increase in after-tax income.
What about eliminating exclusions and deductions? There just aren’t enough of them to balance those tax cuts. According to Burman, Geissler, and Toder (2008), eliminating every tax expenditure other than the tax preferences for investment income (which Romney specifically wants to keep) would reduce after-tax income for the top 1% by 6.2 percent. Because Romney would lower tax rates by 20 percent, killing all those tax expenditures — state and local tax deduction, mortgage interest deduction, employer health plan exclusion, deduction for charitable contributions, everything — would only reduce after-tax income for the top 1% by 5 percent.
That’s a lot of numbers. The bottom line is that if, like Mitt Romney, you want to cut tax rates by 20 percent, eliminate the estate tax, and eliminate the AMT, it is arithmetically impossible for the top 1% to pay anything close to their current effective tax rate.
Keep in mind that Romney is by no means promising to kill off all of those big tax expenditures for the wealthy–just some of them. So Rush can relax. His taxes would definitely go down, and nobody would confuse President Romney of secret sympathy for Occupy.