Earlier this week, before our attention was turned to the troubles in North Africa, I offered up a possible source of savings for the detail-hoarding Romney budget plan — the step-up-in-basis provision of the tax code, which lowers the tax burden on inherited assets. As a commenter astutely pointed out, the justification for this policy — that such assets already were double-whammied by the estate tax— should have died along with the 2001 Bush tax cuts.
A more popular idea is to axe the tax-exempt status of municipal bonds as well as interest on life insurance savings. The editors of National Review tout the idea anew here. I agree with NR that Romney does not intend — and in his right mind would never propose — to raise taxes on the middle class. And I think that ending the current treatment of municipal bonds and life insurance is a worthy idea.
However, I’m still not persuaded that these (let’s remember, speculative) changes would get the Romney plan across the finish line of its own stated parameters. Even if these reforms netted as much as revenue as is optimistically projected — around $86 billion annually — the Romney administration still would find itself in a quandary. As Matthew O’Brien points out, revenue neutrality isn’t the only issue; there’s distributional neutrality to consider. The authors of the Tax Policy Center study that kicked off this debate estimated that the reforms would affect families making less than $200,000, resulting in a net reduction in tax rates on the wealthy.
I’m sympathetic to NR’s argument that we shouldn’t realistically expect copious policy details from presidential campaign platforms. But I fall back on this point: Mitt Romney could have saved himself a lot of trouble if he had not specifically promised a top marginal tax rate of 28 percent.