Here’s what I like:
● Trying to reduce spending as a share of GDP to 21 percent — very commendable for a centrist group.
● Civil-service retirement-benefit reductions; requiring greater contributions for the government’s defined-benefit plan; making the benefit formula less biased in favor of older workers.
● Repeal of the state and local tax deduction.
● Limiting the mortgage interest deduction.
● Trying to wring savings from Medicare/Medicaid.
● Indexing the retirement age in Social Security to longevity — very good. Bravo.
● Lowering the top marginal tax rate on corporate income and regular labor income.
● Shifting to a territorial system for taxing corporate profits.
● Eliminating the AMT.
Here’s what I don’t like:
● Although the plan says it would try to cap revenue as a share of GDP at 21 percent, there is nothing in the plan that would do so. Gradually, productivity will push a larger share of income into the higher marginal tax brackets, resulting in higher revenue relative to GDP.
● Social Security solvency is achieved over 75 years only, rather than over the infinite horizon. This means that in ten years, when the 75-year window includes, at the back end, a ten-year window where solvency does not exist, we will again be back in 75-year insolvency.
● The plan calls for increasing the tax base for Social Security. This is a large tax hike for many workers.
● If the commission were really serious about reducing government health-care spending, it would have pushed for high-deductible health insurance plans inside the president’s program enacted in March.
● The commission failed to include a higher retirement age for Medicare, which is indispensible for bringing down long-term Medicare costs.
● The tax plan raises the cap-gains and dividends tax rates to 28 percent.
● The tax plan shrinks the marginal tax reduction received by the typical working family that has an additional child. In effect, the commission adopts the view that fiscal policy does not influence fertility. We have a long-term old-age entitlement problem in large respect because these programs “crowd-out” the traditional incentive to raise kids. So instead of tax benefits for parents being part of our fiscal problem, they are really part of the solution.
— Bob Stein is senior economist with First Trust Advisers.
Why is it that all but one of the things Mr. Stein likes about this proposal has to do with lessening or eliminating current tax deductions? As one who is so very, very tax-weary, this is disheartening.
The one exception, trying to reduce spending to 21% of GDP, is noble but without any specifics. I understand that will be the task of the commission overall, but this seems to be the most fragile of goals offered by the commission leaders. I wouldn't bet the milk money on this one!
Reply to this commentLinkReport AbuseHas anyone on this commission given any thought whatsoever to the impact on home prices a reduction in the home interest deduction would create? Perhaps the commissioners distracted Mr. Ryan of Wisconsin because as strong as he is on economics, he surely would have pointed out the impact.
Reply to this commentLinkReport AbuseThe list of what needs to be done isn't quite complete.
Reply to this commentLinkReport AbuseMissing is that tiny, inadvertent omission: STOP STEALING THE MONEY.
Someone explain to me why it's good that I can't deduct my state and local taxes anymore? How can those count as income to me when gov't is confiscating it from me? I might be more inclined to reducing deductions as long as it meant an overall reduction in my taxes.
Reply to this commentLinkReport AbuseI hope Mr. Stein will return to answer some questions in the comments here. Personally, I'm also curious about the elimination of the State & Local deduction. How does he justify taxing the people on income they were required by law to spend on paying the tax on their incomes?
To put it a different way: how can money forcibly confiscated by a State or Local govt. possibly be considered 'income' for purposes of a Federal income tax?
Reply to this commentLinkReport Abuse"Indexing the retirement age in Social Security to longevity — very good. Bravo"
Great Federal employees still get to retire at age 57 while the rest of us work into our 70's.
And state and local workers can retire (and immediately receive lifetime pensions and health care even before that.) Anchorage, Alaska school teachers can retire after 20 years, so you can have 42 year old retired teachers running around. We pay them to play for twice as long as we paid them to work.
Reply to this commentLinkReport AbuseWilliam and Spool32:
Worse than that, what Mr. Stein seems to be in favor of is taxing a tax. The money we pay as state and local taxes is a percentage of income, in most cases the same amount of income taxed at the federal level. So when a portion of our income is paid to state and local agencies as tax and the IRS taxes it again by eliminating the exemption, it's a tax on a tax.
I understand that so many exemptions favor special interest groups (i.e., homeowners are favored with mortgage interest deduction because it has been a long-time goal of the government to foster home ownership), but only non-taxpayers are left out of the exemption on state and local taxes. (Perhaps since that group is now about 40% it's a large enough group to gripe?) For that reason Mr. Stein and other economists think it is equitable to do away with them. When the benefitted group objects, it only shows how hard it is to eliminate any deduction, so why not do away with them all?
If we were looking at a 19% flat tax rate, it might be do-able, but we're so incredibly OVERtaxed otherwise, it's hard to find any comfort in an across-the-board leavening.
Reply to this commentLinkReport AbuseWhy are you and others on this site applauding "requiring greater contributions for the government’s defined-benefit plan". Shouldn't the government begin immediately shifting towards a defined contribution plan like the rest of the private sector?
Reply to this commentLinkReport AbuseLimiting the mortgage deduction for current homeowners will, in itself, be a huge hit to people and could jeopardize their ability to make their mortgage payments.
Simultaneously repealing the state and local tax deductions will put many on the road to bankruptcy.
It is very puzzling why the Debt Commission did not suggest repealing Obamacare as a way to eliminate much of the nation's debt and future debt.
Reply to this commentLinkReport AbuseI can't speak for Mr. Stein, but I think that there are a couple of reasons a conservative/libertarian might support eliminating the deduction for state and local income taxes. As a general matter, it's part of the broad goal of simplifying the tax code: eliminating complications and deductions (any of which might have a legitimate moral or "fairness" argument in its favor) in exchange for lower rates. More specifically, eliminating the deduction would make it more costly to live in a high-tax jurisdiction, and would therefore create pressure from taxpayers on their states and localities to lower taxes.
Reply to this commentLinkReport AbuseWhy is indexing the retirement age in social security "very good"? Won't the people who need it most be the first to kick the bucket, so wouldn't it be like taking money from people who will never reap the benefits to give to people who already are pretty well off?
Reply to this commentLinkReport Abuseeliminating the state and local tax deduction, great idea. love it. time to end the federal subsidy for state and local public sector bloat.
Reply to this commentLinkReport AbuseThis is merely tinkering with a broken system. The tax code needs to be scrapped and replaced with something radically simpler, like a flat tax or consumption tax, and the elimination of withholding. Only when the entire electorate is paying their way, and physically writing the check to do it, will we get spending under control.
Reply to this commentLinkReport AbuseThe deductibility of state and local taxes is amongst most odious of special interest tax breaks because it forces citizens who force their elected officials to keep their taxes lower to subsidize the higher tax states and localities.
If you want a bigger government at the local level, pay for it yourself and leave me to deal with my own local yokels.
Reply to this commentLinkReport AbuseThe state & local tax deduction amounts to a federal subsidy of that taxation - and the higher the state & local taxes, the bigger the deduction.
Why should voters in low tax states effectively subsidize the high tax policies of states like New York and California?
Why should people in a low tax state shoulder more of the tax burden than the voters in California who keep electing "high tax" politicians?
Reply to this commentLinkReport AbuseDon't give me that garbage about the home mortgage interest deduction. The Nat'l Assoc. of Homebuilders has been pitching that canard since the '96 campaign when they attacked Steve Forbes' flat tax.
I bought a home because it was the smart thing to do financially, not because some tax break. If they eliminate that tax break, but my tax rate drops, what do I care? I'd rather have a simpler tax code with no deductions that leaves me with more money in my pocket than have a tax code longer than the Bible.
Reply to this commentLinkReport AbuseI don't know why Mr. Stein likes the idea of eliminating tax deductions for state and local taxes, but I would like to see them eliminated, too. The deduction is a subsidy for high tax states, encouraging higher tax rates. In Sacramento, they can raise my taxes by $1, but, thanks to the federal deduction, I see a net increase of only 75 cents. They get a dollar after causing only 75 cents worth of pain. Let us have all the pain of raising taxes and all the pleasure of reducing them. Meanwhile, in Washington, they impose higher taxes to make up for my missing 25 cents, but the taxes fall on all states. The low tax states pay a more so that the high tax states can pay less.
Of course you don't want to pay more taxes; neither do I. How about a deal? Eliminate the deductions and lower the general tax rates in a way that is revenue neutral.
Reply to this commentLinkReport AbuseEliminate the state and local tax deduction? So I'd pay federal tax on money forcibly taken from me by state and local government? As to the home mortgage interest deduction, I will simply lose my home. This deduction was part of my calculation in determining buy v. rent and how much house to buy. I notice some people seem to think this deduction is a subsidy, e.g. someone else is paying for my home. I own my labor. The government forces me to pay a high % of the fruits of my labor. If they rebate me a portion of this amount, how is this taking money from anyone else unless someone else thinks the have a right to my income? In any event, its clear that the US government is as corrupt as any on Earth, though it is stealthy about it, and it wants to break the middle class. These deficit cutting ideas, some of them, at any rate, will do just that.
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