Wednesday, April 13, 2011

Tackling the Deficit and Joining the Tax Debate

As I write this article, I am also doing several tax returns. Some call it multi-tasking. I describe it as plain taxing. Somebody has to do it in our family. For years I have been tackling tax issues, targeting deductions, tagging tax tips, creating tables and most recently putting them all in my Tablet.That's talking about technology! This one I did not have to “take it from my barber”.
Congressman Paul Ryan (R-WI) just came up with his proposed Budget Plan in his capacity as Chairman of the U.S. House Budget Committee. Since the U.S. Constitution requires that all appropriation measures emanate from the House and given the corresponding mandate that Republicans got in the last elections, they must now have to come up with a budget plan. I assume that such a plan is both Ryan’s and the Republicans’.
The debate has been framed: “Proposition: Resolved: That the Ryan Budget Plan should be passed into law.”
The positive side claims that it is “brave, radical, and smart.” It is supposed to be smart because it proposes the “kinds of cuts necessary to bring federal expenditures in line with tax revenues”. It is alleged to be radical because it “goes where Ronald Reagan and Newt Gingrich never did by terminating the entitlement status of Medicare and Medicaid.” It is also being proclaimed as “the boldest tax reform proposal since the 1980s, proposing to lower top individual and corporate rates to 25 percent and end deductions.”
The main goal of the Ryan plan is to reduce the budget deficit and eventually to eliminate the $14 Trillion debt. There is no question as to this goal. The issue is more on how to reach it. Ryan is supposed to be daring and bold by targeting the poor, the disabled and the elderly. Cutting the programs that benefit them would, according to him, bring America to the “Path to Prosperity”.
Whose prosperity? The only ones guaranteed with more money in their pockets are the wealthiest Americans. Not only was it cowardly not to ask the rich Americans to share more of the burden at this point in history, Ryan even proposes to reduce their taxes. In fact, he wants to make permanent the Bush tax cuts which largely contributed to the deficit in the first place. He also included in his plan new tax cuts for the rich. That’s taking things which the poor, the elderly and disabled currently have and “bravely” giving it to the rich – the exact opposite of Robin Hood. It is brutal and ruthless. It is easy to go after the weak and the defenseless. Asking the rich to go back to what they were already doing before should not be hard either.
Balancing the budget should always be our economic goal. To do it, you have to deal with both the revenue side and the expense side. While one may want to touch entitlements, it is not necessary to make it worse by making our society’s titled elite feeling “entitled” to an additional reduction of taxes.
Aside from letting the tax cuts for those earning more than $250K expire, a genuine tax reform has now become necessary. Ryan wants to reduce the number of individual tax brackets which is currently 6 and to lower the top rate for individuals and corporations from 35% to 25% but remove deductions and credits.  Obama wants also to eliminate many of the deductions taken advantage of by the top 2%.
Without reducing the tax rate, removing or reducing deductions and credits and simplifying the tax return might be an acceptable path. Something like the 1040EZ might be a good model. A predetermined standard deduction or the mortgage interest deduction for one family home whichever is higher, subtracted from the adjustable gross income would equal the taxable income.
Based on my computation using 2009 figures for 138 million returns published at the IRS website, income tax revenues would more than double. For corporations, removing the tax loopholes and certain deductible corporate expenses as proposed by the Fiscal Commission headed by former Senator Alan Simpson would also increase revenues.
Extending the retirement age is also an acceptable proposal in order to increase revenue base. After all, the life expectancy for Americans is now a lot higher than when the retirement age was originally set. Just do not think of reducing the pension of the retired. They have earned it as a vested right that cannot be waived.
Defense spending should definitely be cut. A substantial portion of the budget is spent on defense. Avoiding future wars and disengaging from the current ones would surely bring the necessary consequence of reduced defense costs. Hence, a decreased deficit.
Propositions are usually debated on the basis of benefits, necessity, and practicability. While the Ryan plan aims to benefit future generations eventually and speculatively, it benefits more the wealthy Americans who actually need the least immediately. It seeks to reduce the deficit at the back of the poor, the disabled and the elderly.
While it is necessary to eventually payoff the country’s debt, it is as mandatory to convert certain spending into equity by looking at education, innovation and infrastructure development as investments for the future. Current interest rates are low but the return on investment on science, technology, innovation and infrastructure when securitized as assets are exponentially high.
Ryan and the Republicans control and represent only 1/3 of the legislative process. The Democrats control the Senate. Given the fact that it would take at least 2/3 votes to override any veto by the President, it is next to impossible to pass the Ryan plan into law. Ryan knows it and the Republicans know it.
Besides, current quantitative analysis now shows that the assumptions and projections made in the Ryan plan are faulty, disputable and virtually impossible. Examples are the projection of an unemployment rate of 6.4 percent rate in 2012 and 2.8 percent in 2021. Even the Heritage Foundation which was the original source has already modified the projections.
On the basis of practicability, the Ryan plan as proposed would not become law.
My involvement in politics started in the struggle between Democratic Capitalism and Communist Socialism. While the difference has focused on who controls the means of production, for me the battle has always been which system benefits humanity the most.
I chose the side of Democratic Capitalism because I thought it would guarantee individual human rights, democratize wealth and capital, and most especially, it would create a “human and just society – based on human dignity, built on justice and dedicated to progress – where every man may develop and fulfill himself according to his ability and in the service of his fellow men.” (CSM Manifesto)
As a young boy I learned of what the late Philippine President Ramon Magsaysay said, “Those who have less in life must have more in law.”
As a young adult, I heard the Pope assert, “preferential option for the poor”.
All my life, I was taught, “To whom much is given, much is required.”  This should apply to taxation for the benefit of current and future generations.
America is great because of its compassion and caring for its citizens. Will it continue to be so?

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