The Post’s View
Limiting tax deductions
By Editorial Board, http://www.washingtonpost.com/opinions/putting-limits-on-tax-deductions/2012/11/10/92baab40-2a9f-11e2-b4e0-346287b7e56c_story.html – license-92baab40-2a9f-11e2-b4e0-346287b7e56c
AS THE FISCAL cliff looms, leaders in Washington draw red lines. President Obama is “asking the wealthiest to pay a little more in taxes,” as he repeated Friday. House Speaker John A. Boehner is “open” to more revenue but only in exchange for significant spending cuts — and raising existing tax rates is “unacceptable,” the Ohio Republican insisted.
So, more gridlock? Not necessarily. There are politically feasible ways to get more revenue, mostly from the wealthy — without raising tax rates. One is to limit the value of itemized deductions, 80 percent of which accrued to the top 20 percent of taxpayers in 2011, according to the Tax Policy Center. More than 25 percent of the benefits flowed to the top 1 percent.
There are a number of ways this could be done. You could eliminate or cap particular deductions, such as the mortgage interest deduction to the tune of $80 billion per year. You could reduce the maximum marginal rate at which taxpayers can claim deductions, as Mr. Obama proposed in his first-term budgets.
Or, as Mitt Romney suggested during the campaign, you could limit the total dollar amount of deductions any taxpayer could claim. This idea failed to achieve Mr. Romney’s ostensible purpose: offsetting the trillions of dollars in new tax cuts, mostly for the well-to-do, that he proposed elsewhere. But considered separately, as a potential revenue raiser in a broader budget deal, the notion has promise.
If, for example, Congress kept existing tax rates, including the top rate of 35 percent, while capping itemized deductions at $50,000, the result would be $749 billion in additional revenue over 10 years, according to the Tax Policy Center. That is consistent with Mr. Boehner’s no-rate-increase red line and delivers a total tax increase similar to the $800 billion one he entertained in the failed negotiations of 2011. (More revenue from other sources would also be necessary, in our view.)
Meanwhile, nearly 80 percent of the extra revenue generated by the $50,000 cap would come from the top 1 percent of the income structure — enabling the president and his fellow Democrats to strike their promised blow for tax fairness.
An added benefit would be that economic decisions would be based more on market forces than on tax considerations. Raising revenue through a high deductions cap also might minimize political resistance, since it leaves most tax breaks in place for most people. There would be pushback from charities that depend on donations from the wealthy, and from high-tax states that rely on state and local tax deductions. But assuming legitimate issues can be addressed, capping deductions could be part of a red-blue compromise.
Unidentified Female on ‘Face The Nation’, November 11, 2012:
Obama said I have my plans, but I’m willing to compromise, I’m willing to listen, and I’m willing to entertain new ideas. The truth is the President has the upper hand right now. Not only was he reelected by a pretty convincing Electorate, he also picked up seats in the House and the Senate. And 60% of Americans by the way agree with him on Taxes. They think Taxes need to go up for the Wealthiest so that everybody pays their fair share. They agree with him that we need a Balanced Approach.
How’s that going to play out? That’s the $64 Million Dollar Question! The President doesn’t want to drive the country over the Fiscal Cliff, but is he willing to let Tax Cuts expire for everyone if Republicans won’t agree to raise Taxes for the Wealthiest?
Well the challenge is you cannot do Tax Reform over the next two months; and the Tax Rates, as they are now, expire on December 31st. So how do you get a compromise?
David Gergen: The Washington Post, in its editorial today, pointed out that you can keep Tax Rates exactly where they are, limit DEDUCTIONS to $50,000, and you would raise as much basically as you would by Increasing Rates on the WEALTHY!
(Tabacco: That would semantically sustain the GOP’s promise “WE WILL NEVER RAISE TAXES!” – Through SEMANTICS, there is always a WAY AROUND POLITICAL PROMISES – or – WAY TO SAVE FACE! After all, CUTTING SOCIAL SECURITY & MEDICARE is EFFECTIVELY THE SAME THING as a TAX RISE ON MIDDLE CLASS! But GOPers will never phrase it that way!)
Transcribed by Tabacco
Tabacco: I consider myself both a funnel and a filter. I funnel information, not readily available on the Mass Media, which is ignored and/or suppressed. I filter out the irrelevancies and trivialities to save both the time and effort of my Readers and bring consternation to the enemies of Truth & Fairness! When you read Tabacco, if you don’t learn something NEW, I’ve wasted your time.
Tabacco is not a blogger, who thinks; I am a Thinker, who blogs. Speaking Truth to Power!
In 1981′s ‘Body Heat’, Kathleen Turner said, “Knowledge is power”.