Reverse thrust

30 November 2012 By Daniel Indiviglio

A decade ago, a budget surplus inspired an intended short-term tax cut. Why not do the same thing in reverse now there’s a deficit? The new revenue paired with reform of entitlements could put the debt on a safer path. And an expiry date should help Republicans come around.

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U.S. congressional leaders met with Treasury Secretary Timothy Geithner on Nov. 29 to discuss the opening offer from the White House on a fiscal deal.
President Barack Obama’s proposal looked similar to the budget he offered in February 2012, which was unanimously rejected in the U.S. House of Representatives and voted down 99-0 in the Senate. It calls for $1.6 trillion in additional tax revenue over 10 years. Of that sum, $600 billion would come from tax reform, like closing loopholes and cutting deductions. Another $960 billion would result from allowing President George W. Bush-era tax cuts to expire for wealthier Americans, raising their marginal income tax rates, as well as dividend, capital gains and estate tax hikes.
The president’s plan also called for $50 billion in new stimulus for 2013. It would delay $1 trillion in so-called sequester spending cuts ordered last year and replace them with other unspecified cuts. Obama’s plan would lower Medicare costs by $300 billion, mainly by reducing payments to healthcare providers.
Republicans prefer more aggressive reform of entitlement programs. Although open to increasing revenue through tax reform, they are resistant to raising tax rates. House Speaker John Boehner said he was “disappointed” with the White House’s offer.
A set of tax hikes and spending cuts are scheduled for 2013, creating a so-called “fiscal cliff” that could send the United States into recession, according to the Congressional Budget Office.

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