In response, Romney put forward a new tax plan in recent days suggesting that he might not raise taxes by eliminating specific deductions that are too popular to touch, but rather by capping all of a taxpayer’s deductions by some amount. At first he put forward the hypothetical figure of $17,000 per taxpayer, but at the presidential debate on Tuesday he raised that number to $25,000.
In short, a taxpayer would add up all his deductions for charity, mortgage interest, state and local taxes, medical expenses and whatever else he or she is entitled to and if the amount is over whatever figure Romney has decided upon then the amount above that would not be deductible.
Taxpayers thinking they will get a tax cut from the Romney plan would be advised to check their tax returns first. According to data released earlier this year, taxpayers who declared between $50,000 and $100,000 of income in 2009, claimed, on average, $7,269 for medical expenses, $6,247 for taxes, $10,133 for interest and $2,775 for charitable contributions. That sums to $26,424 – well above both figures Romney has put forward.
This is from Bruce Bartlett, “The Last Word on Romney’s Tax Plan: It Doesn’t Work,” which appeared today.
Bruce’s bottom line may be right, but there’s something fishy about these numbers. Start with the fact that the median income for the whole country is at or around the bottom end of this bracket. That means that there are fewer people at, say, $90,000 than at, say, $60,000. So the average in this $50K to $100K bracket is likely to be no higher than $75K and most likely lower. Is it really plausible that the average taxpayer deduction is over $26K?
It gets fishier. Look at the medical deduction. To take that, you must have out-of-pocket medical expenses that exceed 7.5% of your adjusted gross income and you can take only the portion that exceeds that 7.5%. Most people in this income bracket will, therefore, get a big fat zero for the medical deduction. It’s highly implausible that the average is over $7,000. With all the zeros, I would expect the average to be under $2,000 and probably well under.
So I checked Bruce’s data. The link is not to the IRS Statistics of Income, as I would have expected Bruce Bartlett, a tax expert, to use. No, they’re from a Reuters’ news story. I’ve contacted Bruce about this but haven’t heard back.
READER COMMENTS
Pat
Oct 19 2012 at 12:22pm
That 7269 medical expense number immediately jumped out at me too. There is no way that’s right.
Mercer
Oct 19 2012 at 12:44pm
“It’s highly implausible that the average is over $7,000. With all the zeros, I would expect the average to be under $2,000 ”
It is probably the mean of people who took the deduction. Most people do not take any deduction but some do and they can have high expenses. I know elderly couples who take more with a combination of long term care premiums, medicare-gap premiums, dental and prescriptions.
Ian
Oct 19 2012 at 12:53pm
I show similar numbers here:
http://kfmr.com/financial-fitness/special-edition-2010-11/average-itemized-deductions-2010
I don’t think Bruce’s numbers are out of line with the best available data (which may be estimates, at this point in time).
cmprostreet
Oct 19 2012 at 1:02pm
“It is probably the mean of people who took the deduction.”
I think it’s this as well, but this still evidences some problems:
If for each deduction he’s taking the average of taxpayers who took that specific deduction, then he’s summing averages that come from different samples in a way that is guaranteed to bias the “average total deduction” considerably higher.
If his concern is for the average taxpayer, he shouldn’t even be limiting the sample to taxpayers who itemize, and throwing in all the instances of the standard deduction would bring his estimates down.
Lastly, I don’t see any control for family size in these calculations whereas I’d expect the maximum deduction under the proposed plan to be at least somewhat dependent on family size (though the direction of this effect is ambiguous).
I’m in no way saying the math on the Romney proposal works out- my guess is it comes close but falls short without some changes. However, given Bartlett’s statement that 26,424 is “well above” 25,000 I’m not inclined to give Bartlett much leeway on his own numbers. I would find it quite amusing if Bartlett’s numbers were off by more than those he’s criticizing.
F. Lynx Pardinus
Oct 19 2012 at 1:03pm
Like Mercer, I’m guessing it’s a median vs. mean issue. I’ve had several elderly relatives (I know because I occasionally help them out with financial issues) who have had low income (so the 7.5% bar is low) and whose medical expenses (especially when it involves long-term care) have been quite high. I’m not saying that the number is right, but I wouldn’t be so quick to jump on it.
Albert
Oct 19 2012 at 1:22pm
Something in the analysis that Bartlett is citing doesn’t make sense to me. According to chart 4 at: http://taxfoundation.org/slideshow/putting-face-americas-tax-returns , the effective income tax rate for those making over 1 million is 23% and the effective rate for those making over $250K is 22%.
Now, if Romney cuts the 35% tax rate by 20% that gets you a tax rate of 28%, still well above the effective rate that people are currently paying.
You can’t have it both ways. You can’t simultaneously claim that rich people are using so many deductions that their effective rates are small, and at the same time claim that there is no money to be saved by eliminating deductions.
Albert
ssh
Oct 19 2012 at 1:34pm
One thing I have noticed about presidental tax plans is that they are very, very important w.r.t talking about them, analyzing them, and comparing them, for whatever particular reason having to do with presidental candidate stuff.
However! They do not, in fact, seem to be all that important when it comes to how much taxes I (or anyone else for that matter) will have to pay one day, if they are in fact elected (or not for that matter).
Foobarista
Oct 19 2012 at 1:52pm
Why are people bothering with this stuff? All that matters at this point is high-level frameworks. What makes it through Congress will bear little resemblance to anything proposed on the campaign trail, so this seems to be a gotcha game among a bunch of insiders, who seem primarily interested in impressing each other.
And Obama’s numbers have never added up, so if the point is to support Obama, great, go ahead and do so. If the point is to argue that a campaign-level plan is incomplete: you’ve won the Tim McCarver Prize for Extreme Banality. If the point is to score points for one’s “independence” (Bartlett, Frum, etc are good at that) so you can go to the right Washington parties, that’s pretty lame and boring.
Doug
Oct 19 2012 at 2:18pm
Oh good God, the US tax code might reduce the massive amount of deadweight loss that it creates. Oh the humanity!
Ken P
Oct 19 2012 at 3:01pm
I agree with Mercedes that this is likely an avereage of those who actually take deduction. The taxes deducted point to that as well. If most in this group make closer to 50k, they would have to be paying close to 12% state or sales taxes or living in an expensive home.
Cmprostreet makes a good point that the avereage could be by deduction, inflating numbers even further by eliminating zeros from people who didn’t claimTHAT
deduction.
I just don’t buy that the average person pays around 35% of his pretax income on tax deductible expenses.
egd
Oct 19 2012 at 3:09pm
What’s with the title of “The Last Word on Romney’s Tax Plan”? Is Mr. Bartlett trying to preempt criticism or discussion of the topic? Is he saying that his is the final authoritative voice?
If so, I’ve got some bad news for Mr. Bartlett: Josh Barro had “The Final Word on Mitt Romney’s Tax Plan” last week in Bloomberg.
Since we’ve already had the Final Word, I’m afraid there’s no room for Last Words.
Vadim
Oct 19 2012 at 3:16pm
The IRS has provides a wealth of information for those wanted to really look at this kind of stuff.
See
http://www.irs.gov/pub/irs-soi/09in21id.xls
Patrick R. Sullivan
Oct 19 2012 at 4:03pm
Which usually is followed by the ‘Oops, I guess that makes my prediction look foolish.’ If McCarver says a batter can’t hit a curve ball, bet on the next one he sees going over the fence.
Also appropriate for Bartlett ever since he got fired from that Republican think tank.
Thomas
Oct 19 2012 at 5:48pm
The CCH data he is relying at second hand on show that the average tax payer itemizing deductions in fact has a lesser amount than he shows through his novel additive method. Mercer has it correct, as anyone finding the CCH data will see (and anyone who knows how the medical expense requirements work would suspect).
In any case, most filers don’t itemize, and that includes a large percentage of those in the income groups Barlett mentions.
I don’t think Barlett’s error was intentional. He just doesn’t know much about tax policy. The fact that he continues to write about tax policy as if he were expert in it is a form of lying, and he should be criticized harshly for that.
Scrutineer
Oct 19 2012 at 6:58pm
Bartlett doesn’t seem particularly trustworthy to me. Here he is lecturing a commenter, “Every Democrat voted against [Medicare Part D]. Get your facts straight.” When another commenter points out some Democrats (11 senators) did vote for it, Bartlett leaves his own belligerent remark uncorrected.
John Thacker
Oct 21 2012 at 6:45pm
Hi Scrutineer:
Thanks for remembering my comment from two years ago. Actually, if you note, you’ll see that I made both the original comment that he lectured and linked to the rollcall showing that 11 Democrats plus Jeffords did vote for it.
Ever since that incident, I haven’t trusted Barlett to honestly present numbers at all.
Comments are closed.