10/23/2012 03:39 pm ET Updated Dec 23, 2012

The Romney Deduction 'Bucket' List

Kudos to Mary Follano, the Long Island mother who, during last Tuesday night's debate, asked Gov. Romney which deductions he was going to cut in order to bring down tax rates. She asked because she has two kids in college and has a tuition tax deductions, individual and child tax deductions; in addition she probably has a home mortgage, and gives money to charity. On Tuesday, for the first time in the debates, Mitt Romney actually explained to the audience which of these deductions he would cut. The answer is -- all of the above.

The former Massachusetts governor explained that he would give each family a "bucket" -- he said perhaps $25,000, but has said $17,000 in the past -- and that they could fill with deductions of their choice. We still do not know how big the bucket will be. On Tuesday he said: "I'll pick a number..."

Given the individual and child tax deduction for a family of four is $15,200 that leaves precious little for a family to put into the bucket for their mortgage deduction. This year, for example, the average family paid $12,372 for a new 30-year mortgage at 4 percent, according to LendingTree, but the amount varies enormously based on housing prices across the country. Under Romney's "plan," poor Ms. Follano will lose her tuition tax credits, her charitable deductions and any other deductions for which she is qualified.

This precisely how Gov. Romney's plan "broadens the base" for taxes, which is a major goal of his plan. Ms. Follano and 47 percent of Americans will lose the deductions that currently exempt them from income tax liability. In private, Gov. Romney disparaged Americans that who do not pay income tax. It is important to remember that the 47 percent of Americans who do not pay income taxes still pay payroll taxes, state taxes, municipal taxes, sales taxes, gas taxes, sin taxes and real estate taxes. But they don't pay income taxes. Romney's plan is to limit tax deduction for these families so that they will have to pay income taxes.

In exchange the Romney plan reduces tax brackets by 20 percent. That means that a family that earns between $17,400 and $70,000, their tax rate would be 13 percent instead of 15 percent. In other words, Romney proposes to cut deductions for families who now exempt from income tax so that they will have to pay a whopping 13 percent tax increase! How is Gov. Romney going to fulfill the promise he made twice during the first debate -- "I will not, under any circumstances, increase taxes on the middle class"?

Gov. Romney claims to offset the 13 percent income tax increase by giving families earning less than $200,000 a year an exemption from capital gains taxes on the dividends or interest they receive on their savings. Unfortunately one-quarter of American families have no savings at all, but would still have to pay the increased income tax. The capital gains exemption will not help another half of American families who have put their savings into a Roth IRA or a 401(k), where their money is already exempt from capital gains taxes.

The bottom line is that the Romney plan will broaden the tax base to finance lower tax rates, but he will do it by capping all of the deductions by some figure he will not specify. To Romney, the size of the "deduction bucket" may just be a number that he pulls out of the air -- but to Mary Follano and most middle-class families, the size of the deduction bucket is what will protect them from a 13 percent tax increase.