Now that Mitt Romney has named Paul Ryan (R-WI) as his Vice Presidential pick, the Presidential Debate is in full swing. Most of the debate is about entitlements. However, there is also quite a bit going on with respect to tax reform.
Here are some of the high points that are being argued over:
Of course there is the annual debate about overhauling the tax code. Both candidates talk about reducing tax rates, but cutting tax rates is the easy part. The real work comes in trying to figure out how to broaden the tax base to offset the lower tax rates. So which tax breaks get cut?
1). Mortgage interest and donations to charities.
Romney has said he will not touch these write offs for lower and middle income folks. However, he said he is willing to consider limiting the ability of upper income people to deduct these items. He has not stated the income level that he considers to be the upper income bracket.
President Obama supports a similar idea. He is pushing for cutting the value of itemized deductions for high income earners. His proposal would limit the value of all schedule A deductions at a rate far below the top tax rate, in that way the tax benefit of these right off would be trimmed only for taxpayers who are in the highest income tax brackets.
2). Tax Exemption for interest on Municipal Bonds.
Romney’s people has said this investment incentive is something they would elimination as a part of their defense against President Obama’s charge, that Romney’s income tax proposal provides a big tax cut for upper income brackets while raising taxes on lower income taxpayers. The President also wants to limit municipal bonds. As stated above, the President is proposing to limit the value of itemized deductions, buried in that proposal is in effect a provision that would impose a surtax on interest received on municipal bonds.
3). Income tax exclusion for employer provided health insurance.
The new health reform law did not affect this break. However, it did impose a 40% excise tax on high value health plans. Romney has said he would consider limiting the full excursion for upper income folks. The surtax proposed by President Obama to limit itemized deductions would affect this as well.
None of these cutbacks are anywhere near enactment. The real battle will take place in late 2013 and perhaps stretch into 2014.
Both candidates however, are talking about tax reform that would limit some of the tax breaks used by the wealthy.