Election, shmelection. When it comes to keeping the enterprise known as the United States of America solvent, a.k.a. avoiding the Fiscal Cliff, the country is right back where it was on November 5, 2012. With pretty much the same cast of characters in this practiced face-off: The President vs. Congress, specifically the Republican-dominated House.
This now annual showdown might as well be one of those daily re-enactments of the Gunfight at the OK Corral staged to entertain tourists out West, and it's getting mighty old. Even as the advance billing gets more and more alarmist as the end of the year approaches: The End is Near! The Loss of the Bush Tax Cuts! Sequestration, Automatic Tax Hikes, and a Double-Dip Recession Ahead! All is almost lost!
Who will blink first? Buckle your seatbelts, it's going to be a bumpy ride. Stay tuned -- and nervous. If this perpetual crisis is familiar, like an old melodrama with daily matinees and immediate seating, so is the obvious way out. The president says the government needs more revenue to balance its books, while the GOP says people don't need to pay even higher tax rates. Especially on capital that could otherwise get this stalled economy moving. Welcome to Impasse City.
Both sides are right. So why not find a way to assure more tax revenue but not raise tax rates across the board? Here's how to do it: To raise about the same amount of tax revenue, don't raise the tax rates, just tax revenues. The voluminous U.S. tax code, perhaps the most indecipherable document since the Book of Revelation, is stuffed with special exemptions, deductions and tax breaks for just about every special interest with friends in Washington. Why not start out cutting some of those tax breaks? The federal fiscal situation would be a lot healthier for it, and the American tax structure a lot fairer.
Ah, but just which exemptions and deductions should be eliminated? Everybody's got his own favorite. So does every industry, every economic interest, and everybody with a lobby, trade association or foundation. That's the problem Mitt Romney (remember him?) ran into when he proposed cutting back tax breaks while lowering tax rates during the recent unpleasantness known as an American presidential election. Challenged to name just which tax breaks he'd cut out -- that is, just which powerful interest and bloc of voters he would offend -- he came up with an approach that's more than fair: Put a cap on the amount of exemptions and deductions any taxpayer can claim, and let the taxpayer himself choose which ones he'd sacrifice.
Want to give up the tax deduction for the interest paid on your mansion's mortgage, but keep the one on your gifts to charities? Fine. Or vice versa. So long as you stay within your limit of deductions and exemptions. The choice is yours.
But would limiting tax breaks really provide enough additional revenue to reduce the federal government's increasingly unmanageable deficits? It all depends on how much of a tax break you'd allow each taxpayer to keep.
It's estimated that capping all itemized deductions at $50,000 a year would mean an extra $749 billion for Uncle Sam over the next decade. Lowering the cap on such tax breaks to $25,000 a year would raise some $1.3 trillion over the same period.
Mitt Romney had perhaps the best and fairest suggestion: Adopt an annual limit of $17,000 a taxpayer, and tax revenue would increase by some $1.7 trillion by 2022. That plan would make the country's tax structure more progressive and provide more revenue for the government. That's even after income tax rates were cut by 20 percent and the Alternative Minimum Tax eliminated. That tax has proven an increasing burden on the country's middle class as inflation eats away at the value of the dollar.
Please note that these revenue estimates come not from the Heritage Foundation or Cato Institute or some other center-right think tank, but the anything-but-conservative bean counters at the Tax Policy Center, a reliably left-of-center source of economic analysis. At last, something left and right, liberal and conservative could agree on.
Problem solved. Or would the politicians in Washington consider such a solution unspeakably sensible?
The biggest obstacle to such an approach may be the president's ideology. He seems fixated on raising tax rates for those Americans making more than $250,000 a year -- even if they wind up paying a bigger tax bill if their tax breaks were eliminated. The greatest obstacle keeping Congress and the White House from adopting such an approach appears to be the president's my-way-or-no-way pride. If he could lay it aside for a moment, Washington's wild Thelma-and-Louise drive over the Fiscal Cliff could come to a screeching halt just in time.
— Arkansas Democrat-Gazette