Thursday, November 4, 2010

Sitting Ducks

Gone in 24 hours. Gone are the firm majorities but for now the country has pressing matters, and the Democrats have control over Congress until January 3rd,  2011. There are pressing issues. There are debates that must be made. President Obama had the opportunity to govern nearly unopposed, these two months will be his last chance.
The most important regard the estate tax and the Bush Tax Cuts.

            Starting with the Estate Tax, the Congress must come up with a compromise. My proposed compromise would be to have an estate tax rate of 35% for individual estates of 2.5 million and 5 million for families. Once the estate reaches $10,000,000 it will be taxed at the rate of 50 percent. Both rates are lower than the historic average and also represent a necessary compromise. The problem is republicans are adamant about an extreme proposal that would do away with the estate tax or limit its effects. The estate tax must not go away because it is inherited wealth, not earned wealth. This would raise revenue without waging true class warfare. In all likelihood, Democrats would force the Republican hands while they have the opportunity to do so, so something will be done. A proposal along these lines is necessary.

            Regarding the Bush Tax there have been many proposals. This ranges from total repeal, which would raise 370 billion in revenue per year. Some such as Alan Greenspan have advocated for this. On the more radical side, some republicans have pledged more tax cuts. Obviously the new way forward for Congress would be a compromise. I along with President Obama would advocate letting the cuts expire on the most affluent.  President Obama’s number is 250,000. I would propose retaining the cuts for those making the lowest four tax brackets and repeal tax cuts for those that fall into the top tax brackets. This would reduce the deficit more than President Obama’s proposal. Republicans clearly do not want to obstruct and force the expiration of the Bush Tax cuts. This would make them appear even more favorable to the rich and not to the common man that supported them on Tuesday.
            Ultimately, this forced bipartisanship will not last forever. There will be tough fights in the upcoming session of Congress. The 112th Congress will face big, pressing issues. Compromise is necessary. Republicans run the risk of a ‘do-nothing Congress’ and Democrats want to appear strong and help show the President as a uniting figure, fighting for his people. Something that was not apparent if one looked at the results of last Tuesday's election. It was a clear referendum on the role and size of government. 

            Now if you thought that there was obstruction in the last Congress, there will be even more this Congress. One potential move is to continue his course, which is unlikely. Another extreme move is to turn to the left or the right, neither of which is good. He can triangulate like Bill Clinton. This is likely. He would make proposal that he would hope Congress would pass. The other possibility, though not good for the country, is to run against a “Do nothing” congress in the style of Harry Truman in 1948. If the proposal passed by Obama with bipartisan compromise is popular with the people, he could run as a fighter and a moderate that is interested in helping is people. This would put in a strong position to win in 2012. Potential proposal could include social security reform, tax reform, immigration and energy. Since my colleague focused on Energy and Immigration, I will focus on Social security and Tax Reform.

            One possible proposal is a payroll tax cut but subject the regressive tax to more income. The cut would last until December 31, 2012. In other words to say $166,666 around the top of the 3rd highest bracket currently. This cut would save business money and allow the people to spend more money. In the long-term it would allow social security to become more solvent over time. Social Security is expected to become insolvent 2037. This would also have stimulative effect on the economy more so than regular tax cuts according to Time Magazine. Additionally, the Congressional Budget Office stated that payroll tax cuts create more jobs per million dollars invested than tax cuts or infrastructure spending. This could palatable to Republicans as it would indicate a tax cut for small business. It would help both the poor and middle class.

              Tax reform is a longer and more complicated debate. It too must be addressed. There are many loopholes in the system. According, information weekly and the New York Times on November 2, 2010, there are 1 trillion dollars lost due to exemptions each year. This exceeds tax revenue. Thus it is imperative to limit exemptions and credits, in order to reduce tax rates for all and limit some of the ambiguity of the American Tax Code. The World Bank rates America as the 5th easiest country to do business. However, when it comes to paying taxes it ranks 62nd in the world. This must be changed, in order to increase American tax revenue and competitiveness. This will stabilize the economy and put Americans on a path to prosperity. If President Obama was orchestrating these necessary reforms it would put him on a good path for 2012. 

Are our leaders up to the challenge? We will find out soon.

-S. Martin 

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