The fiscal cliff is looming, the national debt is exploding and the economy is stagnant. So what can and should Congress do to prove that it is serious about our urgent economic and fiscal problems? Simply extending all of the Bush tax cuts and repealing sequestration amounts to kicking the can further down the road and is not a serious option. Of course we need pro-growth tax reform, i.e. a major overhaul of our tax code to both simultaneously lower tax rates and curtail tax deductions. But this is a big project and will take some time to be sorted out by Congress.
What can Congress do quickly, in a matter of weeks rather than months, to get the ball rolling? The organization, Taxpayers for Common Sense, has recently provided a useful answer. The report, Sliding Past Sequestration, proposes a plan to cut $2 trillion from the federal budget over the next ten years, or roughly $200 billion per year. This is an example of a serious budget reform program of the sort Congress should initiate to begin to whittle down deficit spending of over $1 trillion per year. In this proposal cuts are made in many different federal departments, including Agriculture, Energy, Interior, National Security, Transportation, and also Tax Expenditures.
Check out these possible budget cuts. More than likely you will approve of some of them and find others to be less appealing. Note that entitlement cuts such as for Medicare, Medicaid and Social Security are not included in this report. Nor are cuts in education programs or social programs for low income people such as food stamps and housing assistance, for example. Of course, adjustments in entitlement programs and social programs will also have to be made sooner rather than later.
For Congress to take the initiative to begin making big cuts in the federal budget will have a very positive impact on its public image. There will be vociferous complaints from those affected by the spending cuts. But this will demonstrate that the cuts are serious and will help Congress recover the credibility which is now so severely lacking.
This plan is not all that big of a deal– 80% of it is accounted for cutting defense and getting rid of the home mortgage deduction and foreign tax credit. Basically it makes huge cuts in defense (which probably makes sense) and getting rid of the only tax deduction the middle tax can take advantage of. Probably not politically doable, would probably hurt the economy in the short run and raise the deficit, and is yet another Republican idea to take from the middle class and give to the rich, but I guess it’s something.
But what about raising tax rates on the rich back to Clinton area levels? That would be expected to raise about $950b (about 50% of what the TCS spending cuts would get), would be more fair, and shows no credible evidence that it would hurt the economy at all.
Wouldn’t that be a truly serious approach to handling the deficit? Where do you stand on that? If you are against it, specifically why? Can one truly be serious about the deficit and not support doing this?
Of course, we need to increase tax revenue as well as cutting spending, in order to rapidly shrink the deficit. The question is how to increase tax revenue in the least damaging way to the economy. Pro growth tax reform, with the lowest possible marginal rates, and the fewest possible deductions and loopholes, will achieve the best results and in the fairest manner.