Thanks to the Des Moines Register for printing the editorial by Peter Morici on 2/16/2013. (Obama blackmailing taxpayers to stick blame on Republicans – see link below.) President Obama and other politicians and pundits who say the sky will fall if the sequestration cuts are allowed to go into effect are using misleading fear tactics. Politicians at all levels of government who don’t want to see spending cuts always say that the services that will be cut are those that are the most needed and the most visible. Examples include President Obama’s statement in his State Of The Union address: “These sudden, harsh, arbitrary cuts would jeopardize our military readiness. They’d devastate priorities like education, energy, and medical research. They would certainly slow our recovery, and cost us hundreds of thousands of jobs.” Agriculture Secretary Vilsack has warned us that layoffs of food inspector will result in food shortages. A top general stated that troops in Afghanistan will have their stay extended because there won’t be enough money to train replacement troops. Homeland Security Secretary Napolitano said the we should expect increased wait times in airports due to mandatory furloughs of security staff.
President Obama has built his own wall to prevent agreement to avoid the “fiscal cliff”. There is no public outcry to raise the 35% top income tax rates on those with the highest incomes. The outcry is against the 15% – 17% average tax rate paid by the super wealthy like Warren Buffet and Mitt Romney, not against high wage earners who pay 35% on most of their income. If the 1% paid taxes on most of their income at the current top rate of 35%, there would be no problem. We need eliminate special interest tax breaks. For example, carried interest (otherwise known as bonuses for hedge fund managers) should be taxes at regular rates up to 35%, not as capital gains at 15%. Capital gains should be taxed at 15% only if the gains were earned over a much longer period of time, say 10 years. Currently, the 15% tax rate is applied to gains on assets held for only 1 year or more. Eliminate the home mortgage interest deduction on second homes. Cap the home mortgage interest deduction to loans of up to $250,000. There are many other special cases where income is taxed at less than the top rate of 35%. Those are the special tax breaks that we should look at ending – not raising the top rate.
I just don’t believe most people think we should raise the top income rate above the current 35%. All of the examples given are of the super rich, like Warren Buffet and Mitt Romney, who earn millions each year and pay a total tax of between 15% and 20%. This is the unfair situation that most people think of and most politicians describe when they ask the rich to pay their fair share. Maybe the easiest way to fix this problem is to revamp the Alternative Minimum Tax. Why can’t we simply tax all earnings over $250,000, no matter the source, at the maximum 35% rate? This would include interest earned on tax exempt bonds, dividends, capital gains, carried interest, and any other type of income that is otherwise tax exempt or taxed at lower rates. It that doesn’t generate enough revenue, then start taking away itemized deductions based on income. If need be, take away all itemized deductions.
The idea above presumes that we need to increase revenues (taxes) to help solve our deficit problem. Of course, the biggest cause of our problem is that spending has increased too rapidly. So, the biggest part of the solution should be to reduce spending.
The chart at the link below shows clearly that our deficit problem is due to uncontrolled spending, not that revenues (taxes) are too low.
Chart showing the history of federal revenues and federal spending: http://www.heritage.org/federalbudget/growth-federal-spending-revenue