WASHINGTON — Mitt Romney says he can cut both personal and corporate tax rates, making up for lost revenue by eliminating a raft of deductions. But he won’t reveal which tax deductions he wants to kill, including the fate of the very break that helped make him so wealthy.
President Obama, meanwhile, wants to raise taxes for the wealthiest Americans, extend the Bush-era cuts for families earning less than $250,000, and cut corporate rates. Obama, too, says he will make up for lost revenue by eliminating some deductions — but critics say he has been too vague about what corporate breaks would be jettisoned.
For all of the focus in the presidential campaign about tax cuts, the more important issue may be whether either candidate has a realistic plan to pay for them by eliminating an array of tax deductions, each of which has an army of defenders and lobbyists determined to retain them.
“Romney is incomplete on two halves,” failing to list specific deductions he would eliminate to pay for both corporate and personal taxes, said Roberton Williams, an analyst at the nonpartisan Tax Policy Center. “Obama is complete on one half,” providing specifics about limiting personal tax deductions, but does not give enough details on the corporate side, Williams said.
At issue are deductions and other breaks relied upon by individuals and businesses to lower or eliminate their taxes to the federal government. The tax code includes deductions for everything from home mortgage interest to child care to oil exploration. The issue has been magnified by Romney’s statement in a surreptitiously recorded video, made public earlier this week, that 47 percent of Americans pay no income taxes. In some cases, that is because they take advantage of existing tax credits or deductions pushed by both Democrats and Republicans.
Romney’s tax plan is the centerpiece of his agenda to spark an economic recovery. The former Massachusetts governor has proposed lowering personal rates by 20 percent, meaning the top rate would fall from 35 percent to 28 percent. The top corporate rate would also fall from 35 percent to 25 percent. Romney has said he would pay for the loss of revenue by “broadening the base,” which would be accomplished by eliminating deductions that would affect a wide swath of taxpayers.
But when Romney was asked recently on NBC’s “Meet the Press’’ to name a single deduction he would eliminate, he ducked the question. “I can tell you that people at the high end, high-income taxpayers, are going to have fewer deductions and exemptions,” Romney said, without providing an example.
John Taylor, a Stanford University professor who is one of Romney’s top economic advisers, said Romney’s plan purposefully doesn’t spell out which deductions would be eliminated because that will be subject to negotiation with Congress if Romney is elected president.
“He wants to leave it all on the table,” Taylor said. “That is the point. It is all there on the table for people to hammer out in the process. It seems to me no other way to do it at this point.”
Bruce Bartlett, a former deputy assistant Treasury secretary for economic policy in the Reagan administration, criticized Romney for saying he can pay for a reduction in tax rates by eliminating loopholes and deductions without putting “a solitary one of them on the table. ... That’s irresponsible. That is saying, ‘trust me.’ ”
“They know perfectly well that all the deductions are in the tax code for a reason; they have strong political support,” Bartlett said. “To come anywhere close to financing the huge tax cuts they are proposing, they can’t go after nickel and dime stuff. They have to go after big ones, mortgage interest. People love the mortgage interest deduction. I have scars to show the realtors, the home builders, will finance a huge lobbying campaign to hold onto it.”
Obama has seized on Romney’s lack of specifics as a key issue. His campaign recently began airing an ad that says Romney’s plan would raise taxes on the middle class by $2,000.
The Obama ad relies on a study by the Tax Policy Center that tried to explore ways that Romney’s plan could be paid for, with one hypothetical scenario suggesting taxes on middle-income could go up $2,000.
“It is impossible to say what the Romney plan would do because we do not have the details,” said Williams, a senior fellow at the center. “The kickback from the Romney campaign was, ‘You didn’t model our plan, you don’t know what our plan does.’ And we said, ‘Show us your plan,’ and they said, ‘We aren’t going to tell you.’ ”
Romney has said his plan would cut taxes on the middle class.
Obama, meanwhile, has proposed that the Bush-era tax rates remain in effect for all but the wealthiest Americans, households earning more than $250,000, raising the top rate from 35 percent to 39.6 percent. In addition, Obama has proposed that a cap be placed on deductions at a rate of 28 percent. In other words, instead of a person at the newly proposed top rate of 39.6 percent getting an equivalent percentage reduction on home mortgage interest, the value of that deduction would be capped at 28 percent. By proposing a broad cap on deductions, Obama hopes to avoid a fight over every one of them.
Obama has not been as specific about how he would offset the cost of cutting corporate rates from 35 percent to 28 percent (and to 25 percent for manufacturing.) Earlier this year, he issued a framework that presumes he can eliminate most industry-specific tax breaks, such as one for oil and gas production. Obama also has proposed taxing certain foreign profits of US companies, curtailing the ability of companies to depreciate some equipment, and reducing the deductibility of interest.
A labor-backed group, Citizens for Tax Justice, said the president had failed to provide adequate details about how he would pay for lowering corporate rates. Obama’s plan “fails to answer key questions,” the group said in a report, such as “exactly which tax loopholes would be closed.’’
Jason Furman, deputy director of the White House’s National Economic Council, said in an interview that Obama “has listed more than a dozen specific corporate loopholes he would close and has been very concrete about the other areas that he would structurally reform in the corporate tax system. He has chosen not to put down every last specific parameter because he wanted to strike a balance between being so vague that it wasn’t driving the debate forward, and so detailed and so specific that it would allow the proposal to be nibbled to death by lobbyists and interested parties.”
One of Obama’s most specific proposals has been to get rid of a tax break that helped make Romney rich.
Under a provision known as “carried interest,” partners in the private equity business — including those at Romney’s Bain Capital — have been allowed to pay a lower rate on most of their earnings. For example, while the top rate on salary is 35 percent, the one paid by private equity partners on most of their earnings is 15 percent, the top capital gains rate. The rationale is that the partners are collecting the equivalent of capital gains profits from their deals, not direct salary.
Obama has proposed eliminating the break, which his administration said would bring in $17 billion over 10 years.
In an interview with Fortune magazine last month, Romney was asked whether he favors eliminating the provision. His answer was elliptical. “What I’ve said in the past is that if something is a capital gain it should be treated as a capital gain,” Romney responded. “If something is ordinary income it should be treated as ordinary income.”
Taylor, Romney’s adviser, asked if he could clarify the candidate’s position, said the matter is one of many that will be determined later.
“The answer to the question is he wants to have everything on the table, and there’s no specificity about all the different items,” Taylor said.Michael Kranish can be reached at email@example.com. Follow him on Twitter @GlobeKranish