By Kim Dixon
WASHINGTON (Reuters) - Republican U.S. presidential challenger Mitt Romney's proposal to slash income taxes by 20 percent across the board would boost income for the wealthiest taxpayers while reducing it for the middle class, according to a nonpartisan analysis released on Wednesday.
The report by the centrist Tax Policy Center found that Romney's tax cuts would boost after-tax income by an average of 4.1 percent for those earning more than $1 million a year, while reducing by an average of 1.2 percent the after-tax income of individuals earning less than $200,000.
Tax policy and how to tame the U.S. government's budget deficit, topping $1 trillion in recent years, is a major point of contrast in the presidential race, in which Romney will face President Barack Obama on November 6.
The Romney campaign blasted the study, calling it biased and noting that one of its authors, Adam Looney, was formerly an official in Obama's Treasury Department.
"President Obama continues to tout liberal studies calling for more tax hikes and more government spending," Romney campaign spokesman Ryan Williams said.
The Tax Policy Center, a joint venture between the Brookings Institution and the Urban Institute, is led by Donald Marron, a former economic official in the administration of Republican President George W. Bush.
Another of the study's authors, William Gale, was an economic adviser to Republican President George H.W. Bush.
Romney, former governor of Massachusetts and a multi-millionaire who made a fortune at private equity firm Bain Capital, has not spelled out how he would lower tax rates. He has said broadly he would cut some tax benefits for the wealthy.
Because the value of the 20-percent tax cut for richer Americans would exceed the gains they get from popular tax breaks that Romney might chop, they would see the greatest income gain from Romney's possible changes, the study said.
"We add up how much people get from the tax cuts and then add up how much can potentially be raised," from ending tax breaks, said Looney, an economist and study co-author.
TAX BREAKS AT ISSUE
About two-thirds of the $1.1 trillion in revenues that the government foregoes annually because of tax breaks would have to be curbed to fund Romney's tax cut, the analysts said.
These tax breaks include popular ones such as the mortgage interest deduction, the break for employer-provided health insurance, and credits for low- and middle-income families.
The analysis assumed elimination of tax breaks would start with the wealthy, as Romney has suggested, and that some revenue growth would come from lowering tax rates.
The revenue-boosting promise of lowering taxes, especially for the wealthy, is a hallmark of Republican tax policy, though "trickle-down" economics is disputed by many economists.
Obama has blasted Romney's tax plan for disproportionately benefiting the wealthy. On Wednesday, Obama cited the Tax Center study in attacking Romney's tax plan.
"Under my opponent's plan, guess who gets the bill for these $250,000 cuts?, you do," Obama told a campaign rally.
The tax policy debate is expected to intensify toward the end of 2012, with the expiration of lower tax rates for all Americans enacted under Republican President George W. Bush.
The Democratic-led Senate last week passed legislation extending most of those tax rates -- but not for households earning more than $250,000 a year.
The Republican-led House of Representatives will likely pass their plan to extend the current rates on Wednesday.
The dispute is not likely to be resolved until after the elections.
Romney's tax proposal also includes cutting some taxes on investment income and eliminating taxes on inherited estates.
(Reporting by Kim Dixon; Editing by Kevin Drawbaugh and Cynthia Osterman)