Death and Taxes

Yesterday being tax day, I thought it was a good time to write about taxes (I'll leave death for another day).  Tax issues are all the rage in Washington as each side of the political aisle tries to make it look as if they are doing something about our national deficit while not actually doing anything that would potentially cost them votes or actually hurt any of their perceived constituencies.  In other words, a lot of talk with no real action.  The money keeps being spent, the taxes keep being cut, the deficits keep growing and the nation keeps running headlong into oblivion.  Nothing new.

I will be probably be the only person in the entire country that says the following: I pay too little in taxes.  Last year, my effective tax rate (the percentage of my gross income that I actually ended up paying to the federal government) was somewhere between 7 and 8 percent.  Partly that was because I had an exceedingly difficult year with lots of medical bills and I got the advantage of the tax benefit for putting a new water heater in (not because I wanted the tax break, but because my water heater broke).  However, it made me think about our tax system and what needs to happen if we really want to get serious about tackling the budget.

I am by no means rich by any way of judging such things.  I took a huge hit in the wallet when I decided to leave my position as partner in a private law firm and become a prosecutor.  I knew that at the time and I'm still glad that I made the decision because for the most part the trade off of having a schedule that let's me spend more time with my family and the ability to help actively take care of my daughter is worth much more than money.  My wife and I do all right, but like most families, every month we scrape by.  But after the economic implosion that we saw in 2008 and the lingering effects of that implosion on working people, we are lucky to have what we have and are doing a whole lot better than most.

So, why, you are probably asking yourselves, do I think I should pay more in taxes?  Well, I'll give it a whirl.

There is a lot of talk in Washington about "shared sacrifice."  With this concept I agree.  There should truly be shared sacrifice with all levels of the economic strata paying their fair share.  However, nobody in Washington actually means there should be actual shared sacrifice. 

The Republicans say the entire issue is about government spending -- well, at least government spending on things they don't like (arts, the poor, trains, healthcare for women, NPR, etc.).  Their proposals call for cutting Medicaid, Medicare, Social Security, funding for health care, social services, housing, education, etc. while at the same time giving additional tax cuts to the richest people in the country and further tax breaks to corporations.  In fact there was even the proposal for a corporate tax holiday (I'm not sure what paying no taxes while getting a huge tax refund while posting billions of dollars in profit is, but apparently it's not a holiday).

The Democrats as usual a wishy washy about the cuts they propose (they want cuts to things like subsidies for heating oil because apparently it's ok if grandma is a little cold, she has blankets after all), but mostly want to raise taxes on the richest Americans by rolling back the Bush tax cuts for families making more than $250,000 a year, but still extending the tax cuts for the remaining Americans.  Now, I'm all in favor of rolling back the Bush tax cuts, if for no other reason than that they have been an abject disaster for our economy, but the problem with the Dems approach is that it, too, fails to truly address the problems that we face with our deficits.

Both plans fall way short of actually putting a dent into our deficit.  The cuts proposed by both parties target the absolute smallest part of the federal budget -- domestic discretionary spending.  Plus both parties are being cowards when it comes to tax policy -- the Republicans not wanting to tax anybody and the Dems only wanting to tax those that they don't think will vote for them.

I heard David Stockman speaking this weekend on NPR (yes, that bastion of socialist propaganda).  I hate to say that Stockman, the architect of Reaganomics in the 1980s, made more sense than anybody who I have heard speak on these subjects in a long time, but he did.  He agreed that the Bush tax cuts had to be rolled back, but that they had to be rolled back for everyone.  He also said that we couldn't get by just targeting this very small portion of the federal budget, but that we had to look at things like the defense budget and entitlement programs, which are the largest portion of the federal budget if we were going to really get serious about reducing the deficit.

Here are some things that I propose:

First, we have to raise taxes.  I have never seen a financial crisis like the one we are currently facing addressed by a proposal of a tax cut.  It won't work.  It never has worked and it never will work.  Taxes have to be raised probably across the board, at least to the point where they were under President Clinton.  It's going to hurt.  It should hurt.  But shared sacrifice involves actual sacrifice, not just screwing everyone else.  We should also look at going back to some kind of marginal tax bracket.  Maybe not the 91% rate that we had under Eisenhower (although people were doing a lot better back then across the board), but as we continue to see what are obscene salaries going to the wealthiest Americans and the divide between rich and poor becomes cavernous, a marginal rate makes more and more sense.

Second, we need to eliminate many tax credits and simplify our tax code.  In 1986, the Reagan administration passed a huge tax cut with bipartisan support, but did so by eliminating most of the corporate tax shelters and loopholes that allowed the richest among us to avoid paying their fair share of taxes.  Since then, taxes have remained low, but tax credits and loopholes have found their way back into the system.  First, eliminate these insane laws that allow corporations to avoid paying taxes by having off shore addresses and giving them breaks for shipping jobs overseas.  But, in addition to this, we have to look at giving up some of our sacred tax credit cows.  The one that I think makes the most sense (and I argued adamantly against this for years) is the tax credit for mortgage interest.  The reason that I have supported this tax credit is that it made it more affordable for more people to own homes and allowed the middle class to grow and for our economy and society to become more stable.  However, with the rising foreclosure rate and the fact that the middle class has been essentially wiped out, the argument for keeping this tax credit is less convincing than it used to be, and I think it is time to toss this one away.  There are many others that could be looked at, but this is after all my lunch hour and it is limited.

Third, we need to reform, but strengthen entitlements.  People in Washington are freaking out about Social Security, Medicare and Medicaid.  We don't need panic.  Entitlements don't need major surgery, they need a fitness plan.  With Social Security, we may need to look at raising the retirement age.  But, before we do, we need to address some other things about Social Security that just don't seem to make sense.  First, we need to at least raise, if not eliminate, the cap on salaries subject to Social Security.  Right now, only the first $107,000 of an individual's salary is subject to Social Security withholding.  Raising this substantially, or eliminating it entirely would create a huge influx of funds into the Social Security Trust Fund.  We also need to look at means testing for Social Security recipients.  Social Security was intended as a program to prevent older Americans from becoming destitute and wards of the state in their final years.  It has worked tremendously in that regard.  However, I don't think that Jamie Dimon really needs to be receiving Social Security benefits when he turns 65.  Some sort of means testing makes sense.  Last with SS, we need to stop raiding the Social Security Trust Fund to pay for other shit not related to Social Security.  If ever a trust needed to be a spendthrift trust it is one run by the government.  Social Security would be fine, if Washington politicians were not allowed to spend its principal to pay for things not related to Social Security.  As for Medicare and Medicaid, we pretty much need to leave them alone.  There are areas in which reforms may be needed, especially in the areas of how funds and services are delivered, but they are both fairly efficient programs, despite the calls for their destruction coming from the right.  The proposals of Rep. Ryan are far from "courageous" as they have been hailed, but are just more of the same -- balance the budget on the backs of the poor and the aged.  Getting rid of Medicare and Medicaid will be a net loss for the public as we will see much higher costs of care for the poor and the aged fall on the rest of us in terms of higher insurance rates and health care costs, as their care will go more to ER's and be unable to be collected and therefore passed on.

Last, we need to look at cutting military spending.  This doesn't mean that we need to pack up our soldiers and ship them home from Afghanistan and Iraq tomorrow (although that wouldn't be the craziest thing I've ever heard, either) and it doesn't mean that our soliders should go without necessaries like body armor or weapons (although we sent them to Iraq without them, but again I digress).  However, the unnecessary spending in our military budget can easily be eliminated.  Well, that is, except that it benefits the district of every Congressman.  We still seem to be running a Cold War military in a post 9/11 world and that doesn't seem to me to make a lot of sense.  We can't balance the budget without cutting waste in our military and that may mean we also need a shift in the way our military is used around the world.

None of this has the remotest possibility of getting passed, by the way.  As long as Washington is more concerned about re-election and raising money, the chances for real reform will never have a chance.  However, I strongly believe that if both sides were to sit down and have a serious conversation with the goal being to come up with policies that actually benefited our nation rather than looking good in opinion polls, I think there is a lot upon which we could all agree. 

The debate as it is reminds me of the DirecTV commercial with the rich Russian guy sitting on his gold throne surrounded by busty blond babes and tiny giraffes with electrodes attached to his arms and chest running to a weightlifter lifting what looks like about 400 pounds.  We want the huge muscles, we just want someone else to do the work.  Here's the truth: you can only lose weight and gain muscle by eating healthily and working out.  Here's the other truth: we can only balance the budget and address our economic crisis by taking measures that actually hurt financially.  There's no easy fix.

I welcome any other ideas that people have.  And you can all now see why I will never be able to run for public office.