Fiscal cliff follies: Real ways to solve the crisis

By John F. Mahon, Special to the BDN
Posted Dec. 16, 2012, at 10:17 a.m.

The coming fiscal cliff affords the president and the Democratic and Republican leadership in Congress an opportunity to demonstrate leadership — but they are all failing the American people. There is supposedly a debate going on, but both sides are being disingenuous and insincere in their approach. We need what the president has proposed: a “fair and balanced approach” that raises revenues, reduces spending and deals with the deficit. To do so, we need to get beyond the games that are being played.

Examples abound of the gamesmanship on both sides. For example, the discussion about raising the tax-rate ceiling to 39 percent is a red herring in that it diverts our attention from the need to cut spending and raise revenues. We can raise this rate to 50 percent, but, without reform, specifically the closing of loopholes for the wealthy, they will not pay appreciably more in taxes as they can continue to use the existing loopholes to reduce their taxable income. The Republican resistance to these rate increases, given their small impact, is unfathomable and indefensible.

We have yet to see any realistic revenue projections on this move alone. Business magnate Warren Buffett has proposed a significant revenue action by suggesting that the minimum tax on those making more than $1 million be set at 35 percent. This would eliminate the impact of loopholes for the wealthy and raise far more revenue than a tax rate change.

If the Republicans are sincere, they need to publicly provide a list of what loopholes they would close and what the estimated revenues would be from such actions. To be fair, loopholes would need to be eliminated for both individuals and corporations. If the president and the Democratic leadership are equally sincere, they should offer what spending cuts they would make and their estimated impact on both spending and on the deficit.

The president has repeatedly stated he wants to increase taxes on the wealthy and has chosen an income figure of $250,000, or greater, as an indicator of wealth. When has “wealthy” been defined as an income for a family of $250,000, especially if both adults are working in a high-cost area of America? With the current levels of unemployment, it is also likely that this family is providing support to their adult children.

The president should raise this trigger figure to $500,000. He should also prevent Schedule C organizations that make less than $500,000 from suffering a tax increase. This would eliminate the Republican concerns about the impact on small businesses.

The president has, as noted, used the term “fair and balanced” in dealing with the fiscal cliff — I see neither in what is going on right now. If the president lifts the “wealthy” bar to $500,000 and offers specific reductions in expenditures, he increases the pressure on the Republican leadership to offer their proposals regarding closing tax loopholes. He should agree to drop the rate-increase proposal and move to a minimum tax of 35 percent on the wealthy, as suggested by Buffet.

The American people deserve more of their leaders and should expect transparency in these discussions — we have neither at the moment. The president has admonished other nations’ leaders, most recently Egyptian President Morsi, to meet with the opposition “without preconditions.” He would do well to follow his own advice here, provide specifics about his proposals and challenge the Republicans to do the same. We need a triumph of substance over rhetoric.

John F. Mahon is the John M. Murphy chair of International Business Policy and Strategy and professor of management at the Maine Business School, University of Maine. He was the founding director of the School of Policy and International Affairs at the university.

http://bangordailynews.com/2012/12/16/opinion/fiscal-cliff-follies-real-ways-to-solve-the-crisis/ printed on April 20, 2014