In the New York Times, fiscal cliff negotiations were front and center, as a number of has-beens and future has-beens blathered incessantly on the topic.
This essay will cite some of the specifics in the articles referred to above, and then turn to tax benefits and all the opportunities they afford legislators to make a grand bargain.
David Brooks, Times columnist, wrote an op-ed piece proposing a road map for conservatives in Congress. Brooks, you might remember, is the former moderate conservative who threw Mitt Romney under the bus. Conservatives should now be treating his comments with some degree of skepticism, in my opinion. He wrote, “... they [Republicans in the House] have to acknowledge how badly things are stacked against them,” “... shafting Sam’s Club to benefit the country club,” and something about printing “47 percent” on T-shirts.
Brooks’ comments are trite and already under advisement. If he wants to be taken seriously by Republicans, he shouldn’t insult them. I know this tactic makes his column more palatable to the paper’s predominantly liberal readers, but Brooks should set aside personal gain when discussing such a serious subject.
The Times editorial board, once again serving as Obama’s mouthpiece, said that the latest Republican fiscal cliff proposal was “a remarkably shallow one that demonstrated a lack of seriousness in negotiations, or farsightedness in policy.”
“If Mr. Boehner had used a calculator ... he would have discovered it is impossible to produce $800 billion in revenue from eliminating deductions without severely curtailing the deduction for charitable donations.” This is shortsighted perspective as will be demonstrated later in this essay.
Is it productive to have the left-wingers at the Times stirring the pot and fanning the flames of class warfare? Where is the paper’s sense of responsibility relating to keeping the conversations civil? Ladies and gentlemen of the Times, we all know that someone suffers, be it rich people, poor people, not-for-profits, for-profits, special interest groups, or whomever in proposals to increase taxes and decrease spending. Can we all just stipulate that Americans will have less when this process has ended?
The Times reports the recommendations made by a “Democratic Group” of luminaries that arguably has thousands of IQ points at their disposal, but little sense of what it will take to strike a fiscal cliff deal. With all this brainpower, people like John Podesta, Bob Rubin, Larry Sommers, Bill Daley, and Roger Altman suggested that rates for the rich should be increased to the Clinton-era rates (that’s original), tax benefits for the rich should be limited (another deep thought), the capital gains tax should increase along with the rate on dividend income, carried interest for investment fund managers should rise, etc.
Is this all you guys have? I hope you negotiated all this on a conference call in less than 45 minutes and didn’t waste any money on bringing in lunch.
But what about spending?
The aforementioned lists the 10 largest federal tax benefits. During the next five years, our government will forego over $4 trillion because of these items. By the way, charitable deductions, that were the centerpiece in the Times editorial, only account for $249 billion of the total. When conversations about decreasing tax benefits for the rich occur, why aren’t our leaders and legislators considering all of these items to minimize the impact on any individual special interest group?
A great deal of the tax benefits listed above affect all Americans, so they would not be cut. But, a huge, uncalculated amount belongs to the affluent. For instance, the top 5% of earners probably account for most of the capital gains deduction of $357 billion. As a reminder, the numbers referred to are for five years only, not the standard 10-year horizon. So, the $4 trillion cited earlier could be as high as $8-9 trillion over a decade.
Social Security payments in 2013 will $820 billion (22% of the budget). FICA receipts currently offset much of this amount, but this will change dramatically in the near future. Medical expense, which includes Medicare and Medicaid, will total $811 (21%) and will increase markedly in years to come. Interest on our national debt will be $583 billion (15%), and grow minute by minute as the country borrows more money. Together, these items will effectively bankrupt our country if not reformed. There is no long-term solution to the fiscal cliff problem without the inclusion of spending reform. Republicans should not yield in this regard.
The fiscal cliff conversations as tedious and confusing as they are have exposed America’s vulnerability. Our country is in danger if we continue to live beyond our means. The mission of America is not to make a profit like corporations. But being able to fund services, provide security, and insure a minimal amount of suffering can only be accomplished in the long-term through effective fiscal management.