Sunday, January 6, 2013

Congress postpones making real decisions

Knoxville News Sentinel Sunday, January 6, 2013 Happy New Year. While the country was treated to the latest edition of our government in Washington behaving badly, I purposely ignored anything related to the "fiscal cliff" until Jan. 1. It did not take any insight to forecast that Congress would wait until the last second to do something, and what would be done would be to continue to kick the can down the road. Not only was Congress dealing with the fiscal cliff, lawmakers also were dealing with approaching yet another debt ceiling. So, typically, Congress decided to take action on neither. Treasury Secretary Timothy Geithner has stated that he will do some creative accounting (which he is famous for in preparing his own taxes) to push the ceiling date out for two more months, at which time we will be treated to the same absurd theater that we saw in 2010 with the debate on raising the ceiling. In the case of the fiscal cliff, Congress only addressed the tax issue and postponed the spending issue. Was anyone surprised? On the revenue side, there was a suggestion made by Republican presidential candidate Mitt Romney that deserved some serious attention. It was to limit deductions. Some of us are old enough to remember the Tax Reform Act of 1986 signed by Ronald Reagan, which lowered personal tax rates at the top and raised them at the bottom. It also took away personal interest deductions and basically left only the mortgage interest deduction for households. Romney's suggestion to limit deductions would have been a compromise for those who want to increase taxes on the "wealthy" and those who do not want to raise taxes at all. By limiting deductions, the tax rates would stay unchanged, satisfying the no-tax crowd, while revenues would increase temporarily, satisfying the bigger government crowd. The Tax Policy Center estimated that if all deductions were eliminated and all tax rates were cut by 20 percent, plus the Alternative Minimum Tax were eliminated, then $2 trillion in additional revenue would be raised over 10 years. However, such a proposal is too simple to be enacted by our politicians. The Tax Policy Center estimated that if deductions were limited to $17,000, revenue would increase by $1.7 trillion over 10 years. Limiting deductions to $25,000 would raise $1.3 trillion, and limiting deductions to $50,000 would raise $760 billion. In the Senate bill, which passed, 89-8, there is a limit on deductions, but the bill, not surprisingly, was suboptimal, linked to incomes rather than to total deductions. As to sequestration of federal spending? It was delayed for two months. That means we can look forward to the government again acting even worse when it has to deal with both sequestration and the debt ceiling. Scripps Lighthouse By Dr. Harold Black Sunday, January 6, 2013 Happy New Year. While the country was treated to the latest edition of our government in Washington behaving badly, I purposely ignored anything related to the "fiscal cliff" until Jan. 1. It did not take any insight to forecast that Congress would wait until the last second to do something, and what would be done would be to continue to kick the can down the road. Not only was Congress dealing with the fiscal cliff, lawmakers also were dealing with approaching yet another debt ceiling. So, typically, Congress decided to take action on neither. Treasury Secretary Timothy Geithner has stated that he will do some creative accounting (which he is famous for in preparing his own taxes) to push the ceiling date out for two more months, at which time we will be treated to the same absurd theater that we saw in 2010 with the debate on raising the ceiling. In the case of the fiscal cliff, Congress only addressed the tax issue and postponed the spending issue. Was anyone surprised? On the revenue side, there was a suggestion made by Republican presidential candidate Mitt Romney that deserved some serious attention. It was to limit deductions. Some of us are old enough to remember the Tax Reform Act of 1986 signed by Ronald Reagan, which lowered personal tax rates at the top and raised them at the bottom. It also took away personal interest deductions and basically left only the mortgage interest deduction for households. Romney's suggestion to limit deductions would have been a compromise for those who want to increase taxes on the "wealthy" and those who do not want to raise taxes at all. By limiting deductions, the tax rates would stay unchanged, satisfying the no-tax crowd, while revenues would increase temporarily, satisfying the bigger government crowd. The Tax Policy Center estimated that if all deductions were eliminated and all tax rates were cut by 20 percent, plus the Alternative Minimum Tax were eliminated, then $2 trillion in additional revenue would be raised over 10 years. However, such a proposal is too simple to be enacted by our politicians. The Tax Policy Center estimated that if deductions were limited to $17,000, revenue would increase by $1.7 trillion over 10 years. Limiting deductions to $25,000 would raise $1.3 trillion, and limiting deductions to $50,000 would raise $760 billion. In the Senate bill, which passed, 89-8, there is a limit on deductions, but the bill, not surprisingly, was suboptimal, linked to incomes rather than to total deductions. As to sequestration of federal spending? It was delayed for two months. That means we can look forward to the government again acting even worse when it has to deal with both sequestration and the debt ceiling.

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