This last week Newsday ran a seven part series on tax reform. On Sunday it summed up it's series with an editorial on pg. A34 "We can clean up this mess."
"Over the course of the past week, Newday's editorial pages have laid out sensible ways of balancing the federal budget by making our tax system simpler and fairer, getting control of runaway health spending, and putting Social Security on a sound footing, Any reasonable person who's looked at our nation's budget troubles agree we need less spending and more revenue, which is exactly what we offered. As a bonus, our proposals would help narrow the gaping trade deficit and reduce economic inequality."
As to the "reasonable person" claim I'm not sure about that. I don't know that we need less spending. They do mention runaway health spending but this is thanks to the private sector-they do acknowledge this further down the page by suggesting health care reforms like making Medicare universal etc.. As to non military public sector spending I'm not sure that any reasonable person would agree that it needs a cut.
The subtitle of this piece though bothers me: "The U.S. is indeed deep in debt, but there are solutions to make taxes fairer, raise revenue and restore sense and hope."
Is the big problem for the U.S. right now that we are deep in debt? And if so why are the bond vigilantes so sanguine about this: despite all the alarmism about it, our borrowing costs right now could not be cheaper-creditors in buying U.S. Treasuries right now effectively pay us to hold our debt, as if a credit card company paid you 5 percent interest a month on your outstanding balance. Again, it can't be said enough: we are not Europe we do not have a debt crisis, there is no risk to our credit. The actions of the rating agencies is misallocated expenditures on paper usage. While its true the market sold off the week after the downgrade in August, our debt yields actually dropped after the downgrade. The equity market does not matter on this issue-what do they know?-what counts is the bond market. The vigilantes held their fire.
For more please see http://diaryofarepublicanhater.blogspot.com/2011/11/no-us-has-no-euro-style-debt-crisis.html
Newsday puts forward its tax proposal which calls for "lowering rates and raising the capital gains tax."
"The federal income tax system is insanely complex and riddled with loopholes and giveaways. In an ideal word, we'd replace it with a simple, progressive tax on what you spend rather than what you earn. That would promote savings and investment."
Now before they go on to what they want for our un-ideal world, I simply push back on this. First how is a consumption tax possible progressive? Taxing what you spend rather than what you earn is regressive and taxes though of modest incomes more than the wealthy. Then too, this whole canard about "fairness and simplicity" must be pushed back on too. "Simplicity" is not one and the same as fairness, I can think of any number of tax proposals which are simple but not at all fair. For the most part both consumption taxes and flat taxes are simple to understand certainly, but they are the opposite of fair and progressive.
Here is what they do propose: "we'll settle for improving the system we have by lowering tax rates, taxing capital gains as regular income and dropping the corporate income tax, which brings in relatively little revenue and encourages tax-avoiding contortions."
"We'd also purge the tax code of breaks for ethanol production, the oil industry, agriculture and other special interests. And we'd reduce or eliminate a lot of the tax deductions beloved in this region(that is to say Nassau County, Long Island, New York where many middle and upper middle class taxpayers benefit from the mortgage interest deduction-my note) including those for home-home mortgage interest and health insurance. Each year Uncle Sam forgoes $1.1 trillion in tax collections as a result of various breaks and deductions. The biggest special-interest beneficiary is all of us: home ownership is subsidized to the tune of $148 billion a year this way encouraging Americans too buy too many houses and borrow too much to pay for it. Such policies have been disastrous."
"Finally, we'd make Social Security sustainable by slightly raising the payroll tax-and making a lot more income subject to it. If you make between $110,000 and $220,000, your taxes would go up quite a bit."
"There's something or other in our plans to make almost everyone unhappy. Owners of expensive Long Island homes might decry our proposed limits on the mortgage deduction, for example. On the other hand, the same tax payer would enjoy a lower rate."
They certainly do hit their own readers pretty hard-as mentioned above Nassau is a middle class to upper middle class county. Indeed many Nassau residents would be hit hard twice-by raising the payroll tax to $220,000 and eliminating the mortgage deduction. As to raising the cap that is a change whose time has come but why cap it at $220,000? Why raise the taxes of the upper middle class but much less for the wealthy? Why have a cap at all on payroll taxes?
As to the mortgage deduction their claim that the same taxpayers who lose it will also gain by having lower rates begs a question: why do it then? Supposedly the elimination or reduction of the credit is because $148 billion a year is being "subsidized" by Uncle Sam, so this is supposedly to raise revenue. But if you lower the taxes of these same taxpayers by the same amount it;s revenue neutral and then a wash. Why do it then-putting a side the dubious claim that we must discourage people from buying homes.
I agree that we certainly do need more revenue. What is not clear is why every time anyone influential suggests this it always has to take the form of cutting taxes for the wealthy and cutting the corporate income tax Newsday's gloss is particularly aggressive calling for its elimination? I don't get why every proposal always cuts corporate and high income taxes then claims to make up for it somehow buy eliminating mostly middle class loopholes-sometimes they also call for eliminating or reducing the Earned Income Credit which mostly benefits the working poor. The reality is that if as Newsday claims, this is meant to raise revenue-rather than be revenue neutral, someone's taxes on net will have to go up. On this proposal who does? It is not at all clear that it is the wealthy-corporate taxes are simply eliminated so theirs goes down a 100 percent. Who cares about loopholes?
What stands out to me here is that the mainstream-some even think that Newsday is liberal and it may even have a mildly liberal veneer-Newsday's proposals sound little different from the "tax reform" proposals of Paul Ryan and the Cato Institute. Everyone seems to agree that we must make the tax code "broader"-which means raise the taxes of the poor and lower them for the rich after all the Right is outraged that "50 percent of Americans pay not income tax."(They always ignore the taxes they do pay like the payroll tax and state sales tax).
Everyone claims that we can cut the top rate by 25 percent or so and yet raise more taxes by eliminating loopholes. Why is this the preferred strategy? Why not simply let the Bush tax cuts expire? Indeed if we let all of them expire-not just the poor, we could make up the deficit right there.
Overall though the deficit should not be the priority it is right now. Again, there is no debt crisis in America, there is no risk of rising borrowing costs, the bond vigilantes exist no more than the confidence fairy.
Indeed with the sharp market preference for our debt we actually could-and perhaps should-be borrowing right now.
The deficit is the wrong worry. This fetish as we have seen only materializes during Democratic Administrations. http://diaryofarepublicanhater.blogspot.com/2011/11/why-deficits-only-matter-when-democrat.html
With the end of Iraq and if we let the Bush tax cuts expire we could end the problem anyway. In addition if the economic recovery continues as it has during the third quarter to lead us to expansion, this can do more than anything to reduce the deficit. Nothing does the trick more than an increase in tax revenues which is what makes austerity during a recession so wrongheaded-it only leads to more recession and lower tax revenues.