If you have watched the news at all in the past couple of decades, you know that America generally has a budget problem. While both political parties want to see the budget get under control, they both have their ideas of how to get it done. Mitt Romney has outlined a tax deduction cap, bringing in more money via taxes.
Democrats are often in favor of more taxes to raise more money. Republicans, on the other hand, feel keeping taxes lower will encourage more money to be earned and subsequently taxed thus bringing in greater revenues. Romney has outlined a plan that will keep taxes low, in fact extending the Bush era tax cuts, but put a cap on the amount that people can deduct off of their taxes. During the debates on Tuesday October 16th he discussed briefly how it would work. He explained that suppose the cap is at $25,000. People could still use all of their same deductions, such as giving to charities, mortgage interest deduction, child tax credits and the like. But as soon as their deduction “bucket” is full, they cannot deduct any more money.
The idea is that those who are in the upper income brackets will not be able to write off quite as much as they were in the past. With fewer areas of deducting income, these people would naturally be paying more in taxes. The higher your income, the less of your income you can write off. Thus those with lower incomes will not have as many deductions, and many people will not even notice a change in how they are taxed. The idea seems reasonable, but will it work.
Most critics believe it simply will not raise enough extra revenue. The economy may be picking up, but the government is still not looking so hot with all the debt they have managed to rack up in the past 10 years or so. The caps are estimated to bring in an additional $1.7 trillion dollars over the next decade. However, the program is expected to cost $4.8 trillion during the same time period. While one side is arguing it will work, the other is arguing it will not.
Republicans argue that higher taxes kill jobs and raise less revenue because fewer people are making money. Democrats argue that the cut and cap method will not raise sufficient revenue to do much at offsetting the overall budget deficit. In most people’s lives, when something needs to get done, there is compromise on everyone’s part as to how to get it done. Unfortunately those compromises rarely work their way into politics. What do you think? Who has the better plan to get government spending under control?
This article was first published on http://moneyprime.com.