The clock is running out for Congress's "super committee" to come up with credible spending cuts and additional tax revenue to avoid disruptive meat axe cuts throughout the budget or "kicking the can" down the road, again, with very unpleasant consequences in financial markets.
There still is light at the end of the tunnel. The good news is that forty House Republicans joined with 60 House Democrats in a letter to the Committee to urge it to "consider all options for mandatory and discretionary spending and revenues" to reduce the deficit, over time, by $4 trillion.
In addition, some Tea Party types appear to have learned to how to add and discovered that even draconian spending cuts alone will not achieve desired goals.
The Toomey Proposal.These developments have now been followed up this week by super committee member Senator Toomey's eminently sensible proposal to raise tax revenues by almost $300 billion over the next decade. This would be done largely by limiting tax breaks for those itemize deductions on their income tax returns.
At the same time, the top tax rate would fall from 35% to 28% and the bottom rate from 10% to 8%. The net effect of the Toomey proposal is to raise taxes for individuals earning over $174 thousand and married couples making over $212 thousand and raise $290 billion in revenue.
Senatory Toomey's initiative follows closely the proposal developed by Martin Feldstein and his colleagues, discussed and advocated in this blog earlier in the year (April 19).
The Arithmetically-Challenged. It is now liberal Democrats who appear to be arithmetically-challenged. They don't understand that you can reduce marginal tax rates for upper income types and if you plug tax deduction loopholes at the same time, you can actually increase their total tax bill. Take a look at this post by a Daily Kos contributor, inspired by a New York Times article, for a sample of this illiteracy.
Let's hope that super committee negotiations will now revolve around the ratio of spending cuts to tax revenue increases. If liberal Democrats want more tax revenues and fewer spending cuts they should specify which remaining loopholes should be plugged.
Caveat: super committee members of both parties should not think they can outsmart financial markets by clever accounting tricks and dubious assumptions. Yes, the Greeks got away with it for several years, but they - and the rest of the Euro bloc - are now paying the price for that deception.
Sooner or later, everybody knows everything.
Posted by: zack | November 20, 2011 at 10:16 PM