Tuesday, December 4, 2012
Fiscal cliff: Simpson Bowles, fiscal cliff, tax reform may need a two step approach
I received an email today from a reader who felt strongly that the answer to the fiscal cliff was to adopt Simpson-Bowles proposals and do a massive tax reform….
I have already supported Simpson-Bowles in my columns. However, massive tax reform cannot be done in 11 days (when Congress recesses).. If anything is to happen before then, we are looking at a 2 step approach...first, to avoid the fiscal cliff with something that has more than a short shelf life..or else investors sitting on $1.6 trillion will be stuck in purgatory for the immediate future and the economy and job creation will suffer. Second, to reform the tax system. I like Romney's bucket limit on deductions because it will confuse and diffuse the special interest lobbyists. I can imagine the avalanche of special interest lobbyists that will descend on DC if deductions are removed deduction by deduction. It appears that both Democrats and Republicans agree to keep hands off middle class mortgage deductions, though. I am in favor of the tax rate increase on the top 2%,..per the recommendation of the Simpson Bowles (in its final form)... because it is politically popular and will keep some of the dire cuts on entitlements from happening. However, as Steve Rattner points out today in the New York Times, neither the GOP proposal nor Obama's proposal reduced the deficit enough to bring it into an acceptable ratio with the GDP. If so, tax reform needs to happen on top of either of the two proposals now on the table.