Fiscal Cliff Part 2: Real World Solutions

It’s not too late for the House, Senate, and White House to come to an agreement that could spare taxpayers and our already fragile economy from the coming “fiscal cliff.” Below are four real world solutions that take into account the dire fiscal challenges we face. If you haven’t done so already, read Fiscal Cliff Part 1 for context.

1) Congress ought to make all the 2001 and 2003 taxpayer relief laws permanent, but if there’s no stomach for this fight, they can agree to cement all the lower- and middle-bracket tax policies while putting the others on a three-year extension (to get past the politicking of the mid-term elections). This would give more time for taxpayer advocates to demonstrate why it’s important to preserve existing rates for entrepreneurs too. Or, get ambitious and put the entire tax system on a sunset timetable, à la the Tax Code Termination Act. This would incentivize Congress to pursue sweeping tax-law changes by setting a more all-encompassing deadline and structured process.

2) Need to raise revenues? Do it in smart ways. The White House has already proposed selling off surplus federal real property. Get more aggressive about asset sales – from buildings to government-owned airwaves – and get not only money from the auctions but also long-term receipts from the taxpaying entities that will productively develop those assets. In a similar vein, royalties from activities such as oil and gas development could pour in if Washington would loosen its stranglehold on responsible exploration. Tax reform itself could be a revenue-raiser without adding to anyone’s tax burden, and not just from economic growth: there would be a boon from simply freeing up part of the $228 billion Americans spend complying with the current mess of a Tax Code.

Think all of this is impractical? They are more plausible for taxpayers than President Obama’s notion that raising capital gains tax rates will massively swell the Treasury’s coffers. President Reagan found this out the hard way when he signed into law an effective capital gains rate hike in 1986, and collections slowed. Bill Clinton, who signed a rate reduction in 1997, benefitted from a revenue boom.

Some would argue these strategies would raise only paltry amounts of money, but consider the alternative. According to the Congressional Budget Office’s "extended baseline scenario" under which ALL current tax relief provisions would expire – including middle-class  rate reductions and the Alternative Minimum Tax “patch” – federal revenues would reach 21.4 percent of our Gross Domestic Product ten years from now. Spending would still beat that figure, at 22.3 percent, and that projection assumes cuts Congress has traditionally avoided – such as lower Medicare reimbursements to doctors – would magically take place. Which brings us to the next point …

3)  The House’s spending-restraint package that passed on December 20 was chock-full of good ideas, but was offered in service to a not-so-good idea: that military spending should be off the table and domestic “discretionary” spending could take less of a nick too. Granted, the sequester mechanism’s approach to slowing expenditures was not particularly surgical, but that doesn’t mean policymakers should exit the operating room with a sick patient on the table.

NTU has partnered with groups from all across the political spectrum to identify hundreds of billions in low-priority Pentagon programs that could be downsized without compromising national security. Combine ideas such as these with the package the House passed, and we just might have a recipe that both parties could swallow (albeit reluctantly).

4) It’s long past time to take an honest, hard look at entitlements rather than a passing glance. Thanks to the closed-door nature of negotiations between Congress and the President, we have only an inkling of what negotiators consider to be “bold” reforms – such as shaving the cost-of-living adjustment formula or tinkering with the retirement age. Given the decades of dithering that have made Social Security and Medicare’s (not to mention Medicaid’s) conditions far less tenable, we prefer other definitions of “bold” – means-testing for future  Social Security beneficiaries, real adjustments to benefit formulas such as wage indices, and policies to allow more individual saving and retirement. Here again bipartisanship, while difficult, is not impossible. The similarities Congressman Paul Ryan (R-WI) and Senator Ron Wyden (D-OR) shared on a premium-support-based Medicare reform plan show us one path. The partial accord between Ryan and Wyden seemed to have been put on ice during the campaign season, but if our public officials are truly interested in putting election-year differences aside here is one place to start.

So is Plan B’s demise a victory for taxpayers, or have we just moved closer to the point where our fate is to get punched harder and fall to the canvas? For NTU’s part, we plan on going the distance – and beyond. Whether taxpayers win in the final round or get hit with a split decision, there will be many more matches to fight in 2013.