Almost a year ago, I commented on a tax 'solution' which I think could work here in the U.S.
Here we are, post-election, and what are we hearing from Republicans? Astonishingly little pushback, almost no effort to 'obstruct' (not that were ever obstructionist, in my opinion), and a generally held agreement that taxes have to rise because that's what the election was all about.
I doubt the commentary would be vastly different if Romney had won, but the focus on tax increases versus spending cuts would probably be significantly altered. I also don't think that's what the election was all about, either. But that's the meme.
Still, where do we go from here? Every day, we hear that "something has to be done before we fall off the fiscal cliff."
I say the "fiscal cliff" is nonsense, and several people who I
admire, and some I
have lost faith in, agree. The reason it is a cliff is purely political. In economic terms, it may well be the first step to being the cure to what ails us. Not the best cure, but a cure, nonetheless. It's a modestly political event forcing political maneuvering. Modestly political because the event isn't biased - it was agreed to as a non-partisan kick-the-can-down-the-road solution. Now the politicians who agreed to it are scared of it because nobody benefits directly and nobody can lay claim to its results or consequences.
My solution won't benefit any political party directly, either. What it will do is soothe many political hacks, and open the door to a word I feel is overused and not well understood by those who vote. Compromise.
What does Obama want?
Obama has said the only option is to make the very wealthy pay more. I suppose, if you consider yourself morally superior, this is a logical stance. The very wealthy (which Obama has said is $250,000 a year – a level I have a hard time agreeing with), however, have been paying progressively more of their income to Federal Tax over the years. From 1999 through 2009, the top 1% saw its rate move up and down each year, with up being
the main direction. The top 50% has seen its overall share rising consistently over the same period. We have fewer people paying more than ever before.
Furthermore, if you live in a major urban area, where most people who make $250,000 or more, then you'd know $250,000 in salary isn't 'very wealthy'. Very well off, yes, but not very wealthy when you consider cost of living. You're best bet is to set it at $300,000 a year and above, which would make it seem a bit more honest but not raise as much tax income.
Not that this matters. Taxing people who earn $250,000 or more in salary isn't going to raise revenue in the amounts Obama wants. All it will do is soothe class warriors and earn Obama some political credibility. The real 'very wealthy' make their money from investments and capital gains. If nothing else, Romney's tax returns prove this (as do Obama's).
My first reaction to solving our deficit issue is to cut spending back to the current tax revenue levels. This is logical and reasonable, since the issue we are really faced with is too much spending, not too little in taxed income.
But my stance is considered crazy by some who feel they are morally justified in demanding people pay for others, that government is the font of all that is good. I MUST COMPROMISE.
Fine. Since Obama won, and compromise is an overused word of the day, I will seek to make concessions in a fashion which is win-win for all involved.
My new solution is really my old solution but updated a bit to make it more appealing to both sides. It still won't get voted on, but it's going to solve some of the issues both Republicans and Democrats face.
1. Cut $900 billion in spending. This eliminates the impact of "stimulus" carryover in the budget, plus the deleterious effects of TARP and all the other bailouts.
2. Limit spending increases to 3% a year across the board for the next 5 years.
3. Do a zero-based budgeting approach, rather than the current flat increase approach. Make people explain why they want to spend, rather than just spending for spending's sake.
4. Institute a Tobin Tax on all financial transactions, payable by buyer and seller, of .02% (.0002) per transaction. This will raise more than $1.2 TRILLION annually from the NYSE alone. If you factor in foreign exchanges, commodities exchanges and a host of other exchanges which exist, you could cut it to .01% (.0001) and still raise about $1.5 TRILLION!! Remember, it's only .01-.02%, so it's not going to hurt investing. Furthermore, it's taxing the source of the recent financial meltdown. Finally, it's taxing the group which directly benefits from the Fed's insane QE Infinity program to keep ZIRP in place forever and ever. It's a justified tax, in many ways.
5. Cut income taxes by 1% point on all incomes below $250,000, do not raise taxes on any incomes or capital gains for 5 years. I doubt anyone would argue against this.
Ultimately, what is the benefit of this solution? Republicans get spending concessions (somehow...that's the political battle that should be fought, where and how to cut). They also get guaranteed limitations on growth of both income taxes and spending.
Obama wins the 'tax the very wealthy' argument he's seeking, the Republicans and Democrats both engage spending cuts they know they must have, the Republicans can get a tax cut, AND say they didn't raise taxes on the average person (which Democrats would enjoy, too), and the people get a balanced budget.
I know this will never fly because nobody 'wins'. It's also not what I'd like to see. I'm just trying to take a somewhat realistic view on how some of these issues can be overcome and not have it seem like one side wins an argument that isn't worth winning or losing.
