It sounds like there is one area that both Democrats and Republicans talk about as important and that area is revising the tax code. Everyone seems to agree that the tax code is too complex. What is not clear is if revising the tax code in the ways it really needs to be revised constitutes an increase in taxes. Since Republicans are in thrall to Grover Norquist, they are not allowed to change taxes in any way that Mr Norquist defines as a tax increase. They signed a pledge, which should be unconstitutional, but which apparently is not.
I know very little about the tax code; it is not my area of expertise. But I do know how to read so I asked the internet to tell me what parts of the tax code should be changed. Hardly anyone is very specific in their recommendations. But the internet did lead me to Robert Pozen, a senior lecturer at Harvard Business School and a senior fellow at the Brookings Institution. He wrote an op-ed in The Washington Post on the subject last year on July 19, 2011 entitled A debt plan Republicans can support.
He says, “On the corporate side, Congress could raise $150 billion over 10 years by adopting four measures:
First, Congress should eliminate the $60 billion tax subsidy for producing ethanol.
Second, changing corporate accounting standards from LIFO (last in, first out) to FIFO (first in, first out) would raise $70 billion over 10 years.
Third, Congress could raise $17 billion by taxing ‘carried interest’ earned by investment professionals at ordinary income rates (35%) rather than capital gains rates (15%).
Fourth, Congress should eliminate the allowance for accelerated depreciation of certain capital expenses such as corporate jets. Although this is a rhetorical favorite of Democrats, it would raise only $3 billion over 10 years.
On the individual side, Congress could raise substantial revenue by imposing several limits on the mortgage interest deduction (2nd and additional houses, vacation property, home equity loans, restricting such deductions to mortgages of as much as $500,000 per couple instead of $1million). This could raise $150 billion in revenue over the next decade.
To raise the final $100 billion of revenue, Congress could modify the approach to insurance premiums in the recently passed health care legislation. That legislation imposed a ‘Cadillac’ tax effective 2018 on any insurance company offering health care plans with premiums of more than $27,000 per year. Instead of the ‘Cadillac’ tax Congress could cap the currently unlimited exclusion for employer based health care premiums at $23,000 for families (and $8,500 for singles), effective 2013. For example, a family with health care premiums of $24,000 per year would pay income tax only on the last $1,000.
This cap would have a narrow impact; approximately 80 percent of workers would not be affected. Yet the cap would help constrain health care expenditures by limiting the tax subsidies for the most expensive plans.
I will continue to explore the internet for other suggestion re tax code reforms, but in my preliminary search I didn’t see too many people offering specifics.
Of course when you have one party (the GOP) whose stated goal is to stop the other party (Democrats) from accomplishing anything for as long as our current President is in the White House, then there is no longer any room to discuss tax code revisions or any other economic strategies for that matter. This stance alone should convince every voter that it would not be wise to elect any Republicans in the 2012 election. The reforms to the tax code are something that could be tackled right now to help us avoid that “fiscal cliff” we will hear about almost daily at least until the election and maybe beyond. Will it happen? I doubt it.
Here is what the Republican in my backyard had to say:
“Ok. I read this and it isn’t horrible but you are missing the point. The point isn’t a lack of funding, a need for increased taxes. The problem is the out of control, and increasing spending. Obama’s spending nearly as much as spent for WWII. Further, recent legislation is going to increase the deficit. If all the tax increases proposed here passed, it still won’t touch the deficit. What is coming, is a huge increase in middle class taxes. There is no free ride and the majority of the wealth regardless of what Democrats think, is in the hands of the middle class.”
(He knows I don’t agree with the way Republicans do the math relative to Obama’s spending, but he insists the Republicans did the math correctly.)