October 19, 2012
TAX DEDUCTION REFORM, CAFETERIA STYLE: Romney’s plan to lower tax rates while simultaneously capping deductions is truly brilliant, though little understood. It would operate essentially as a cafeteria plan, where taxpayers get a certain maximum dollar amount of deductions– say, $17,000– and then are allowed to select from a variety of deductions up to the maximum amount.
This is brilliant because it allows each taxpayer to take those deductions he needs/wants the most. For those who own expensive homes or multiple homes, they could use the mortgage interest deduction (up to the maximum limit). For others– perhaps those who rent–other deductions would be prioritized, such as those for student loans, medical expenses, or business expenses.
Not only is this cafeteria-style plan individually customizable and flexible, it avoids the nasty politics typically associated with any attempt to reform deductions. In all other reform efforts, special interests/lobbyists have screamed about the consequences of reducing or eliminating their own deductions. Romney’s cafeteria approach avoids these screaming fests, for the simple reason that no existing deduction would be targeted for reduction or elimination.
It is a win, win approach for everyone. Brilliant.