In a closed-door meeting with donors yesterday, Romney floated the idea of closing a few of the biggest deductions that benefit high-income households. NBC's First Read reports:
In a speech to donors in the backyard of a private home here, the former Massachusetts governor and presumptive GOP presidential nominee outlined his plans to potentially eliminate or consolidate federal agencies, win back Latino voters and reform the nation's tax code.
Romney went into a level of detail not usually seen by the public in the speech, which was overheard by reporters on a sidewalk below. One possibility floated by Romney included the elimination of the Department of Housing and Urban Development, the Cabinet-level agency once led by Romney's father, George.
"I'm going to probably eliminate for high income people the second home mortgage deduction," Romney said, adding that he would also likely eliminate deductions for state income and property taxes as well.
"By virtue of doing that, we'll get the same tax revenue, but we'll have lower rates," Romney explained. "The nice thing about lower rates is that small businesses not get to keep a larger share of what they're earning and plow it back in to hire more people and expand their business."
The mortgage interest deduction is one of the largest tax deductions the federal government gives out - taxpayers deduct about $90 billion every year - and, as the Weekly Standard notes, it benefits the wealthy almost exclusively. (And low-income earners are usually completely shut out from benefitting, as smaller mortgages wouldn't even have a deduction large enough to override the standard deduction.)
Lowering rates and broadening the base are the right steps to take on tax reform. This is completely in opposition to Barack Obama's "Buffett Rule" ruse, in which rates are raised while the tax code gets more complicated. While the Buffett Rule is a scheme that is going to receive only Democrat votes, lower rates and a broadened base has had bipartisan support over the last few years.
This may rekindle old debates over "tax expenditures" vs. "tax cuts." Politicians always like to frame tax deductions as "tax cuts" because, let's face it, people like tax cuts. But the reason that the federal tax code is so monstrously huge is because there are deductions and credits for everything under the sun.
Republicans too often bemoan the complications in the tax code without offering specifics. There are a lot of deductions and credits in the tax code that Republicans and conservatives approve of, like the child tax credit. Simplifying the code can be difficult and politically risky. Romney is willing to be candid about going after tax deductions in a closed door meeting, but will he be able to do it publicly?