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A Project of The Annenberg Public Policy Center

Twisting Toomey’s Tax Record

An ad from a Democratic super PAC misleadingly claims Republican Sen. Pat Toomey supported a “$1,300 tax hike for working families.” He did not.

The claim hinges on a Democratic committee staff analysis of Rep. Paul Ryan’s 2013 budget plan — which Toomey supported. That analysis made assumptions about tax deductions that could “potentially” be eliminated, but such measures were never actually spelled out in the Ryan plan.

The attack ad comes from Senate Majority PAC, a super PAC devoted to electing Democrats to the U.S. Senate. Toomey, who represents Pennsylvania, is facing Democratic challenger Katie McGinty in a race the Cook Political Report rates as a tossup.

The ad portrays Toomey as a Wall Street insider and says that when he came to the Senate he supported “huge tax breaks for millionaires but higher taxes on working families.” Graphics in the ad are more specific, claiming that he supported a plan that would result in a “$286,000 tax break for millionaires” and a “$1,300 tax hike for working families.”

Small print in the ad notes that this refers to Toomey’s vote in support of Ryan’s 2013 budget plan, “The Path to Prosperity: A Blueprint for American Renewal,” which failed to advance after a vote of 41-58. Ryan’s plan called for consolidating tax brackets from the current seven rates — ranging from 10 percent to 39.6 percent — into just two, 10 percent and 25 percent. Those rate cuts would have resulted in tax cuts at every income level, according to a Tax Policy Center analysis. And they would have reduced revenue by more than $4.6 trillion over 10 years.

Ryan vowed to make the plan revenue neutral by eliminating unidentified tax deductions and closing unspecified tax loopholes. He never spelled out which ones. Ryan, who was then the chair of the House Budget Committee, left the revenue-raising details to the House Ways and Means Committee, which is the tax-writing panel.

The Democratic staff on the Senate’s Joint Economic Committee made projections about the impact of Ryan’s plan based on deductions that could “potentially” have been eliminated if the plan were approved.

Joint Economic Committee Democratic staff report, June 20, 2012: To pay for the tax cuts, the JEC report finds, Ryan would potentially have to eliminate tax expenditures that deliver significant tax benefits to middle-class workers. These include tax deductions for mortgage interest, state and local taxes, and charitable contributions as well as the tax exclusions for employer-sponsored health insurance benefits and contributions to 401(k) plans.

Specifically, the staff for committee chairman Sen. Bob Casey of Pennsylvania concluded that if tax deductions for mortgage interest, state and local taxes, and charitable contributions, as well as the tax exclusions for employer-sponsored health insurance benefits and contributions to 401(k) plans, were eliminated, “the typical household making more than $1 million will see their taxes fall by more than $286,000 under Ryan’s budget.” At the same time, “a household making between $50,000 and $100,000 would face a tax increase of at least $1,358,” the report said.

That’s the basis for the ad’s claim. But note the use of the word “potentially” in the report.

The Ryan plan didn’t actually call for across-the-board elimination of tax deductions for mortgage interest and charitable contributions. As we said, the Ryan plan was silent on the specifics of which tax preferences would be eliminated or reduced in order to meet the goal of making his plan revenue neutral. (The Tax Policy Center’s Howard Glickman was critical of Ryan for “leaving the dirty work” of how to pay for his proposed tax rate cuts to the House Ways and Means Committee.)

Roberton Williams, the Sol Price fellow at the nonpartisan Urban-Brookings Tax Policy Center, told us we’d have to know exactly which tax preferences would be changed, and how, before making a reliable prediction about how it would affect taxes at various income levels.

Few elected officials from either side of the aisle have supported across-the-board elimination of home mortgage or charitable deductions, as the Joint Economic Committee’s Democratic staff suggested could “potentially” happen.

And if those deductions were reduced, it is possible to structure the changes such that middle-income earners are not affected. For example, legislators could limit the value of itemized deductions to a certain percentage of adjusted gross income, even if one pays a higher tax rate. Obama, for example, has for years suggested limiting the value of itemized deductions to 28 percent. It is also possible to limit the total amount of itemized deductions to a specific dollar amount.

In 2014, Ryan said he would limit the home mortgage tax deduction to “middle income people” and would oppose eliminating deductions for contributions to charity for any income level.

And in his own 2013 budget plan, Toomey was clear that he advocates a tax plan that cuts rates and “maintains progressivity” by protecting middle-income earners from changes to the tax deductions.

Toomey FY 2013 Budget Resolution: The revenue lost from lower marginal rates will be offset by eliminating or reducing various tax expenditures in a manner that maintains progressivity. Tax preferences directed toward lower- and middle-income families, such as the child tax credit and earned income tax credit, will remain unchanged. However, many tax preferences are disproportionately utilized by upper-income taxpayers. Scaling back the use of these provisions will provide the revenue necessary to pay for the reduction of marginal tax rates.

With the revenue loss associated with tax expenditures exceeding $1 trillion per year, there are many technical ways to limit the value of deductions and tax expenditures and thereby offset the cost of lowering marginal rates. One method put forward by Harvard economics professor Martin Feldstein and the president of the bipartisan Committee for a Responsible Federal Budget, Maya MacGuineas, is to limit the value of tax expenditures to a certain percentage of adjusted gross income. Another option could involve limiting the total amount of itemized deductions to a specified dollar amount.

Toomey stopped short of endorsing either of those alternatives, and merely posed them as options. But the point is that it is possible to protect middle-income earners from changes to tax preferences.

No matter how tax preferences are handled, the Ryan plan would certainly result in higher-income earners seeing the most tax benefit, Williams of the Tax Policy Center told us. The rate cuts are simply too large for upper-income earners not to reap the biggest benefits. It almost certainly wouldn’t work out to an average tax cut of $286,000 for millionaires — as the ad states —  but the tax cut would be substantial, Williams said, and disproportionate compared with those making lower incomes.

But that doesn’t mean middle-income earners would necessarily pay $1,300 more, as the ad states. And an attack based on that assumption is even more baseless given that Toomey has proposed a tax plan that calls for protecting middle-income earners from changes to tax deductions.