Friday, December 21, 2012

How to fix the Fiscal Cliff without raising taxes

First, we should raise taxes to the Clinton era.  Under Clinton, the economy not only grew, but we actually had a balanced budget - in large part due to the tax rate he used.

But given hat the Republicans staked their reputation on not doing this.   Their incredibly stupid pledge of "Don't raise taxes"- mainly at the insistence of an un-elected lobbyist Grover Norquist-  may force us to do this.

But lets talk about how to do this.

  1. Cap Tax Credits to no more than the minimum tax rate for 25%  Currently that would be $35,351.   Why the weird wording?  To make it automatically rise when the tax brackets do.  Note Tax Credits are far more valuable than tax deductions - they directly reduce your tax bill on a $1 for $1 basis. 
  2. Cap Tax Deductions to no more than the minimum tax rate for 28%.  Currently that would be $85,561. 
  3. While we are capping credits and deductions, eliminate the caps for all federal taxes.  Currently you only pay payroll taxes on the first $110,000.  So wealthy people basically pay far less a percentage of their wages than the average person for Social Security, Medicare and Medicaid.   Similarly unemployment taxes are currently capped at $1,000 per employee.   No longer will we let the wealthy pay less than their fair share of taxes - they have to pay tax on every dollar they make, not just the first $100,000 or so.
  4. Rule that any capital gains or dividends over $100,000 count as regular income, with an exception for the sale of any home you have lived in for more than 5 years continuously. 

These three rules basically eliminate massive unfair advantages that the wealthy have.  It won't affect the poor at all.  The middle class would have to have rather unusual tax situation to be significantly affected.  But the wealthy would lose massive tax advantages they have.  As a side note it makes Social Security solvent again and is a step towards fixing Medicare and Medicaid.

Then lets talk about cutting spending.   The military are ripe for tax cuts.   Use the original sequestration formula - For every $1 that the House Majority (GOP) take from the military, the Senate Majority (DNC) will take away $1 from non-military spending.

 Note, by Tax Deductions, I am not referring to business expenses.  Those should paid directly (or re-reimbursed) by your business, subtracting from their bottom line, so they don't pay taxes on it in the first place.  Instead I am referring to charity giving, 401K contributions, retirement account expenses, mortgage taxes, etc. 

Some will the claim this will reduce charity giving, because you can only get deductions for the first $85,561.  Trust me, if you give more than $85,561 to charity, you are not doing it for the tax deduction.   Similar arguments apply for Tax Credits.

These short, simple rules will raise substantially raise the tax on the wealthy

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