In a Fox News interview before the first presidential debate, Governor Romney referred to a "$17,000 bucket" as part of his tax reform plan that includes lowering tax rates below the 2012 levels. He said people can fill the bucket with mortgage interest deduction, charitable contributions, etc. He also suggested that higher income folks might get a smaller bucket. See "Romney pitches 'bucket'-list tax reform plan ahead of debate," 10/3/12. Details are sketchy. For example, does the bucket include personal exemptions?
Today, only 1/3 of individuals itemize their deductions, meaning they have deductions greater than these 2011 standard deduction amounts:
Single $5,800
Head of household $8,500
Married filing jointly $11,600
The personal exemption amount in 2011 was $3,700. For data on itemized deductions, see a recent Tax Policy Center addition on distribution of itemized deductions - here.
This is an interesting idea. I'm not sure what the reasonable dollar amount should be, it also depends on the rate. I think that the "bucket amount" should at least be equal to what a family of four would get today from the standard deduction + personal exemptions. Having that dollar amount drop as income rises brings some vertical equity into the system that should help bring greater equity than what would be the case with Romney's proposed fewer bracket, lower rate structure.
Romney avoids having to say what deductions he would eliminate or reduce. He leaves it to individuals to decide what do deduct within the dollar limit. Of course, given that more itemizers likely have more than $17,000 of deductions, why not just convert the bucket idea into a very large standard deduction (that might phase down as income rises). That brings simplification in that no one would need to track there deductions.
The bucket idea is unlikely to be popular among charitable organizations concerned that the change might reduce charitable contributions. Realtors, home builders and home owners with debt also might no like the idea as the "bucket amount" may be less than their mortgage interest. They would need to see how that interacts with the lower tax rate Romney is proposing.
What do you think?
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1 comment:
It would be interesting to know how $17,000 was calculated and which tax rates he will propose to justify eliminating itemized deductions.
I do agree that charitable organizations may be greatly impacted if such change is ever passed into the legislation.
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