Joint Tax Committee: Repealing Deductions Pays for 4% Tax Rate Cut (Not 20% Claimed by Romney)

The Joint Committee on Taxation yesterday released a report throwing water on the possibility of reducing tax rates by eliminating tax expenditures. The report assumes that Congress allows today's reduced rates to rise in January and concludes that the elimination of certain provisions (the AMT; limitations on itemized deductions and personal exemptions for certain taxpayers; itemized deductions; preferential rates for capital gains and dividends; interest exclusion on state and local bonds) would fund only a 4% decrease in all ordinary income tax rates (from 15% to 14.4%; 28% to 26.9%; 31% to 29.8%; 36% to 34.6%; and 39.6% to 38.0%). The
report did not consider the exclusion for employer-provided health care; earned income tax credit; child tax credit; and retirement and
pension provisions.

Alan Simpson, Erskine Bowles, Alice Rivlin and Pete Domenici released this statement in response:

A new study by the Joint Committee on Taxation (JCT) assumes a
less drastic reduction in tax expenditures and a different baseline that
allocates more savings to deficit reduction, and therefore is able to
achieve much less rate reduction. The fact that rates cannot be lowered
as much if large tax expenditures are left unaddressed and if most of
the savings from those that are eliminated are put towards deficit
reduction illustrates a tradeoff, but does not surprise anyone who has
worked with tax estimation.

The JCT study looks at only a subset of the tax expenditures we
reformed or eliminated, thereby leaving out a substantial amount of
savings that were included in our proposals. Most notably, the JCT study
does not address the employer health exclusion, the largest tax
expenditure in the code, as our plans would. In addition, the JCT study
assumes tax reform is revenue neutral relative to a "current law"
baseline — a baseline that includes the expiration of all parts of the
2001, 2003 and 2010 tax cuts, a position neither party is advocating.
This assumption effectively required the JCT to find $4.5 trillion of
deficit reduction through base broadening — far more than is included in
our plans or any other plan – and use only roughly $700 billion for
rate reduction.

JCT looked at one possible model for tax reform — although we do
not disagree with their analysis, it does not reflect the model
embodied by our plans. Nothing in the JCT analysis changes our belief
that it is possible for tax reform to reduce rates and produce
additional revenues if policymakers are willing to make the tough
choices to eliminate or scale back tax expenditures. There is no
question that reforming the tax code will require making hard and
careful choices. Policymakers should work diligently on a bipartisan
basis to identify the appropriate reforms to force our debt under
control and get our economy growing.