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The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

Josh Barro on the Romney Cap on Itemized Deductions



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Josh Barro’s update to his recent post on the proposed (floated?) Romney cap on itemized deductions struck me as interesting:

An astute reader points out that I neglected the effect of graduated income tax rates in doing this calculation. A married couple with no kids making $150,000 a year would break even on Romney’s proposal if they currently take $35,728 in itemized deductions, not $43,600. With an income of $60,000 a year, the break-even would come if the couple currently takes deductions of $22,920.

How generous this makes Romney’s proposal depends crucially on how he treats health benefits. Currently, employer-provided health benefits are excluded from income and not even reported on the tax return. If Romney is not including that health exclusion under his $17,000 cap, then it will be rare for middle-income filers to see a tax increase. But many middle income families earn a large fraction of their income in health benefits and could see tax increases if he is including them.

This is something the Romney campaign should flesh out. Romney also did not address whether the $17,000 cap is adjusted for filing status. If married couples get a substantially higher allotment than singles, that could adjust for the health care issue.

I’m guessing that Romney is not including the health exclusion under the cap, which is part of why I agree with Josh: if this is the main vehicle for base-broadening, revenue neutrality will likely prove an elusive goal. We have seen various analyses of how the base might be broadened, but this cap on itemized deductions goes in a very different direction. 



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