Tax policy is an important issue in the upcoming 2012 presidential election. It’s important to understand the candidates’ views toward tax policy and how it affects the country at large. Mitt Romney has proposed to permanently extend all the 2001 and 2003 “Bush tax cuts,” now scheduled to expire in 2013, but would repeal certain tax provisions in the 2010 health reform legislation. Romney’s plan would affect the refundable portion of the Earned Income Credit and the Child Tax Credit.
For instance, if you receive $2,000 from the Earned Income Tax Credit and $1,000 from the Child Tax Credit, but only owe $1,500 in taxes, your tax due would be reduced to $0 and the $1,500 remaining balance of the credits would be eliminated. Currently, the extra $1,500 is added to your tax refund.
Tax provisions in the 2009 stimulus act, which were extended through 2012, would be allowed to expire, as well. These include the American Opportunity tax credit for higher education (up to a $2,500 refundable credit per college student). In current tax law, once any tax owed is eliminated, up to $1000 of any remainder of the Education Credit may be added to your tax refund. However, under Romney’s tax plan, any portion of the Education Credit that is not used to eliminate any tax due will not be included in your tax refund.
For example, the $2,500 Education credit earned will first be applied to any tax due. If you earned the $2,500 credit and owed $2,000 in taxes, the remaining $500 would not be refundable under the Romney tax plan. Currently, the $500 remainder is added to your refund.
The Romney plan would also eliminate the tax on long-term capital gains, dividends, and interest income for married couples filing jointly with income under $200,000 ($100,000 for single filers and $150,000 for heads of household).
At the corporate level, the Romney plan would reduce the corporate income tax rate from 35 to 25 percent. In addition to certain current tax credits being made permanent, it would also allow a “tax holiday” for the repatriation of corporate profits held overseas, but he does not specify whether the repatriated earnings would face any tax (and, if so, at what rate).
Overall, taxes would fall for the country’s wealthiest Americans and rise for some of the poorest under the tax plan proposed under Mitt Romney.