By Josh Harkinson | Wed Nov. 28, 2012 3:03 AM PST
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| Olivier Douliery/DPA |
Although
you might never know it from listening to the pundits, America isn't
broke. We have plenty of money to pay for government programs—we've just
gradually
lost our ability to collect it.
Here are 10 ways, most of them long favored by liberal economists, that
politicians could avoid the fiscal cliff's $1.2 trillion in trigger
cuts. While these ideas alone won't immediately eliminate the budget
deficit, they will, combined with
expected growth, point the nation towards a sustainable fiscal path.
Stop giving investors a sweetheart deal
Additional revenue: $533 billion over 10 years
Low tax rates on capital gains are the main reason that billionaire
investment guru Warren Buffett pays a smaller percentage of his income
in taxes than his secretary does. In 2003, Congress capped the rate on
capital gains (investment income) at 15 percent—far less than the 35
percent that people pay on their salaries. Tax hawks like to argue that
raising the capital gains tax will stifle investment, but that argument
isn't supported by the evidence. (Just ask
Buffett.)
Taxing capital gains as ordinary income—just like the IRS treats the
investment gains from your 401(k)—would have the added benefit of
undermining "carried interest." That, you may recall, is the ludicrous
accounting trick that allows big fund managers (think Mitt Romney) to
pass off their management fees as investment income, thereby avoiding
the higher tax rates paid by their receptionists and janitors.
Quit subsidizing mansions and vacation homes
Additional revenue: $214.6 billion over 10 years
The popular mortgage interest deduction subsidizes home ownership but it
also distorts the real estate market and favors the wealthy. That's
because people are allowed to deduct interest paid on mortgage debt up
to $1.1 million—which in effect means that taxpayers are helping rich
Americans pay for mansions and vacation properties. Eliminating the
deduction entirely would likely yield the revenue gains listed above,
but also make things tougher on middle-class homeowners. For a more
palatable alternative, Congress could lower that $1.1 million cap to,
say, half a million bucks and
limit the deduction to loans on primary residences.
End the "step up" giveaway on inherited stocks
Additional revenue: $764 billion over 10 years
Suppose your Aunt Mildred bought stock in Acme Widgets back in 1940 for
$10 a share and has watched it appreciate to $100 a share. If she sells
it now, she'll pay capital gains taxes on her $90-per-share profit. But
if Mildred wills you the stock, you'll miraculously forego taxes on her
gains. To put it in accounting terms, Mildred's $10-per-share "cost
basis" will instantly "step up" to the stock price on the day you
inherit it. So if she dies today, and you later sell your inherited Acme
stock at $105, you only pay taxes on $5 per share. But eliminating this
massive loophole would throw a wrench in the estate planning of lots of
rich and powerful families, so don't get your hopes up.
Revitalize the "death tax"
Additional revenue: $
432 billion over 10 years
If you're old and rich and had the choice, this would be a pretty good
year to die. That's because, unless Congress extends its Bush-era cuts
to the federal estate tax (foes call it the "death tax"), the levy on
inheritances will to revert to its
old top rate
of 55 percent and the exempt, nontaxable portion will go back to $1
million per individual beneficiary, down from about $5.1 million now.
Even so, thanks to special breaks for family farms, businesses, and all
but the largest holdings, the estate tax has never affected many
households. In 2003, before cuts to the tax began taking effect, only
1.3 percent of deaths resulted in any federal estate-tax liability.
Heed America's favorite investment guru
Additional revenue: $
171 billion over 10 years
Asking people with taxable earnings of more than $1 million to pay an income tax rate of at least 30 percent, as
Buffett proposes,
would act as a bulwark against the armies of well-paid accountants and
lawyers that aim to punch holes in the tax code. The so-called Buffett
Rule wouldn't raise as much money as repealing specific tax breaks
that skew toward the top earners, but it would help ensure that their
minions can't just concoct a bunch of clever new ways to stiff Uncle
Sam—not easily, anyway.
Reset back to Clinton-era tax rates for upper incomes
Additional revenue: $442 billion over 10 years
Despite a
sharp increase in income inequality in recent decades (see our
awesome charts),
America's top earners now pay nearly the lowest average tax rate in 50
years. So it doesn't seem like too much to ask them to pay
what they did during the Clinton years—remember
budget surpluses and a healthy economy? Back then, people paid a top
marginal tax rate of 39.6 percent on incomes exceeding $380,000. It's
worth emphasizing that marginal rates only apply to what you make in
excess of a given income threshold; everything up to that point is taxed
at a lower rate.
Take agribusiness giants off the federal teat
Additional revenue: $112 billion over 10 years
Contrary to the nonsensical rhetoric we hear from politicians every
time Congress reconsiders the farm bill, agricultural subsidies do
little to help struggling family farmers. If helping the little guy was
the goal, the government could
guarantee every full-time farmer a solidly middle-class income for about $4 billion
—about half of what farm subsidies now cost us.
Instead, the majority of subsidies go to farms with average earnings of
$200,000; the biggest welfare recipients tend to be enormous
corporate conglomerates that
produce huge amounts of nutritionally vapid corn. Eliminating these
corporate subsidies has proved politically impossible, however, given
that agribusiness has a lock on farm state legislators from both major
parties. And we've all witnessed Iowa's outsized role in culling our
presidential choices.
End oil and gas drilling in Washington, DC
Additional revenue: $158 billion over 10 years
Technological advances in hydraulic fracturing have set off the largest
domestic oil boom in decades and minted plenty of new
petro-billionaires. And the oil giants were pulling in mind-boggling
profits well before the current boom began. In any case, their windfall
makes it hard to justify the sweetheart subsidies enjoyed by the oil
and gas industry. Among the breaks is the ability to write off almost
all expenses nearly immediately, to deduct from their taxable income a
flat percentage of revenue on all oil sales (known as "percentage
depletion"), and to essentially take foreign tax credits even when they
aren't paying taxes abroad. Oil and gas companies also receive federal
loan guarantees and qualify for a tax deduction for "domestic
manufacturing." The list goes on.
Forget cap and trade: Impose a carbon tax instead
Additional revenue: $1.25 trillion over 10 years
Climate change is already a sort of tax on carbon, one we all pay for
with extinctions, plagues, wars, droughts, superstorms (hello, Sandy),
and rising seas. Taxing carbon emissions, however politically fraught,
is more efficient than cap and trade (which
California just launched,
by the way) as a way to force polluters to cover a portion of the
massive environmental and health costs they impose on the public, and
give the worst ones a big incentive to clean up their act.
Stop giving corporations an excuse to hide profits and send jobs abroad
Additional revenue: $583 billion over 10 years
Americans corporations are allowed to defer paying taxes on the profits
of their offshore subsidiaries until that money is transferred back to
the parent company. This rule gives companies an incentive to outsource
jobs to low-tax jurisdictions abroad and to disguise domestic profits
as foreign ones by, for example, transferring intellectual property
such as software code to a subsidiary in a foreign tax haven and then
paying the subsidiary royalties for the right to use it. Repealing
"deferral," as this loophole is called, wouldn't cripple American
competitiveness: US companies could still deduct taxes paid abroad from
their federal taxable income.
Revenue as a Percent of 2012 Budget Deficit
Also read "Fiscal Therapy,"
wherein Pulitzer Prize-winning journalist David Cay Johnston fleshes
out similar ideas that could not only repair the budget, but heal
American democracy in the process.
