House Speaker John Boehner has it right: This is the time to give this country a refreshed tax code better suited to permitting the economy to grow at its strongest.
The “fiscal cliff,” about $1 trillion of which was created by the Congress and the president as a cudgel to force the two to bring federal spending and revenue in line, is the opportunity to reshape the way the tax code too often determines unwise corporate decision-making and unnecessarily rewards family-spending decisions.
For those who want to see a more progressive tax code, that the “cliff” includes the end of what were to be temporary income-tax cuts, is a bonus. So, too, that the Jan. 1, 2013, date includes the end of a two-year slight reduction in Medicare payroll tax withholding.
There could be more at stake for taxpayers, and the economy, but this list is about as heavy-hitting as it gets. There will be a lot of economic misery without agreement on how to resolve the cliff.
Boehner, and most Republicans, have said firmly that they will come up with additional tax revenue not through rate increases, but through the elimination of tax loopholes and adjustments to Medicare and Social Security. In the corporate world, including agriculture and energy, there may be thousands of federal incentives designed to stimulate production and job-hiring whose time has come and gone. Those provisions should be singled out and cut.
For Medicare and Social Security, a means test could be applied to both, and benefits from each could be postponed a year or two. Those suggestions are being made. In the case of reducing the U.S. Postal Service’s deficit, rural America will lose some of its post offices and everyone could lose Saturday home delivery. Those are unavoidable, and even now that the election is past, no political candidate is willing to say so.
Meanwhile, President Barack Obama is fixed on allowing the tax rate for the wealthiest Americans to climb while saying little or nothing about possible spending reductions or changes to the tax code. In addition, there is plenty of skepticism about the claimed cost-reduction efficiencies in the Affordable Care Act.
While Republicans claim that additional revenue can be found in closing tax loopholes, that means going up against the business community. But Republicans will be able to do that much more easily and with a much greater chance of success than Democrats. As part of the bargain, let Democrats propose the entitlement cuts.
Unfortunately, neither cutting loopholes and reducing entitlements nor raising taxes on the wealthy will be an adequate solution to the “cliff.” The cliff requires all of that, and more.
But John Boehner is on the right track. There will be no better time to scrutinize and eliminate the myriad tax breaks that have lost their usefulness, and to cut a bit from Medicare and Social Security benefits. The tougher the tax review, the lesser the eventual increase in the tax rates.
So far, the White House has not matched the Republicans’ intensity in deconstructing the tax code. That is unfortunate.
The lights will not go out Jan. 1 if a resolution to the cliff has been missed, nor will employers begin aggressively hiring that day if there is a solution. Harm, and benefit, will require some months. Americans have allowed Congress to work two-and-a-half days a week, and for the president to be absent from Washington. Now is the time for them to arrive at the combination of spending reductions and revenue increases that are necessary to put the country on more solid economic standing, and that includes a far more effective and realistic tax code.