Romney’s deduction cap would touch sensitive tax breaks

[DallasNE]

12. The Concept Makes No Sense

Something that would make more sense would be to follow the medical expense methodology whereby first dollars are exempt until a percentage of total income is met. Assume 2 different people have the exact $20,000 in medical expenses but one earns $55,000 and the other earns $800,000 and the percent is 6% of income. For the person with an income of $55,000 the first $1,200 would not be allowed, giving them an $18,800 deduction. For the person with income of $800,000 the first $48,000 would not be allowed meaning they get no deduction. Lets now do that with all expenses but this time the first person has another $10,000 in mortgage interest, etc. and the second person has another $80,000 in various expenses. The first person still has $1,200 not allowed which would lead them with a $28,000 deduction. The 2nd person still has $48,000 not allowed but this time gets a $42,000 deduction. Lastly, lets change the medical expenses to a more normal $7,500 for both. The first person has $17,500 in expenses minus the $1,200 not allowed so they get a deduction of $16,300. The second person has $87,500 in expenses minus the $48,000 not allow so they get a deduction of $39,500. Right now deductions are geared to offset the progressivity in the tax rates. This would remove some of the regressive nature of deductions. Often made regressive by allowing deductions that are only available to those on the top end. Lastly, nothing works unless all income is treated equally.