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White House Photo: Pete Souza

Dear President Obama: As the "fiscal cliff" approaches, the jawboning intensifies. But "we" Progressives, especially here in California, were instrumental in your election victory, and we expect that you will follow through on our demands during the campaign: there must be more revenues in any legislation to prevent the U.S. from going over the fiscal cliff, and it must involve increased taxes for the richest among us, who have benefitted most from the Bush tax cuts which have been in place for the past ten years or so.

Consider this: The Bush tax cuts decreased the top personal income tax rate from 39.6% to 35%. A hypothetical millionaire who had $1,000,000 in adjusted gross income in each of the past ten years benefitted by over $200,000 in reduced federal income taxes over this period. It is time for payback. Do it.

The Fiscal Cliff

Here are the components of the fiscal cliff, and my ideas as to how to deal with them, considering that $4 trillion in reduced spending or increased taxes (also called "revenues") are needed over the next ten years just to stay even, and considering that our current $16 trillion national debt (only about 10% of which is derived from your recovery measures instituted since January, 2009, the remainder being the Bush tax cuts, unpaid-for prescription drug benefits, two wars, the economic downturn, TARP, Fannie and Freddie, and other debt):

1. Automatic defense cuts;

2. Automatic social welfare cuts;

3. Increase of tax rates, wiping out the Bush tax cuts for all of us, including capital gains rates;

4. Social Security cuts: the "temporary" 2% reduction in payroll taxes paid by individuals, to 4.2% for employees and 10.4% for self-employed individuals, would end;

5. Medicare and Medicaid cuts, mostly in unnecessary funds paid to insurance companies as part of the Medicare Advantage program);

6. Ending of the temporary unemployment benefits extension, which has been in place for most of the past four years;

7. Elimination of the Alternative Minimum Tax patch, meaning that the AMT will catch many more middle income taxpayers;

8. Elimination of the alternative sales tax deduction, in place of itemized deductions;

9. Elimination of the above-the-line deduction for tuition and fees; and

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10. Elimination of the tax credits and deductions patch, affecting:

    • the option allowing taxpayers over 70.5 years to make IRA distributions directly to charities;
    • the credit for energy efficient home improvement;
    • the return of the marriage penalty in the standard deduction;
    • the research credit for businesses;
    • higher estate and gift tax rates;
    • the return of the phaseout of itemized deductions and exemptions; and
    • the child care credit.

    Ways to Avoid the Cliff

    Here are a number of solutions to the problem:

    • Defense cuts. With the war in Iraq now merely a caretaker operation, and the Afghanistan War winding down, you could speed up the withdrawal and let the chips/IUDs fall where they may, as many Progressives (and many not-so-progressive Americans) are urging you to do. Be out of there totally by the end of 2013, or sooner. And as to military aircraft and equipment no one wants, even the generals, except for the defense contractors who make these unwanted new turkeys, cut them. Close and/or consolidate unneeded military bases, much like what was done during the Bush I Administration after the Cold War ended.
    • Social Security. Most people are not aware that the cap on payroll tax payments for Social Security will increase from the current $106,800 to $113,700 in 2013, $117,900 in 2014, $123,000 in 2015 and $128,000 in 2016. Why not increase the cap faster, say another $5,000 per year, or do away with the cap entirely, like Medicare, while at the same time putting a cap on the Social Security benefits a person can receive. After all, if someone has regular annual income of over $1million a year, his or her Social Security benefits are chump change. Added to this, the 2% reduction of payroll taxes to 4.2% for employees and 10.4 % for self-employed individuals could be continued. As Social Security stands now, there is money on hand to pay 100% of benefits for the next 22 years, until 2034. Social Security is only "broke" in the minds of certain Republican politicians, and there are many years ahead to fix it, if a further fix is truly needed.

    Medicare and Medicaid. The current rate is 2.9% (with no cap), but it is little understood that in 2013, persons making earned income of more than $200,000 and families earning more than $250,000 ALREADY will see a 0.9% increase in Medicare payroll deductions to 3.8% of income above those amounts, and a new 3.8% tax on net investment income above those amounts will be imposed. Also, the deduction for medical expenses FOR ALL OF US will not be allowed to be taken in 2013 until after 10% of adjusted gross income is reached (compared with 7.5% in 2012). Enough is enough - don't mess with this, Mr. President, at least for now. The Republicans have proposed increasing the Medicare eligibility age to 67, which is getting a horrified reaction from Democrats and pundits, but if Obamacare kicks in as scheduled, it will mean little whether someone is on Obamacare or Medicare in the future. So this age 67 date could be phased in gradually at three or six months at a time, just like Social Security in recent years. Ultimately the date for Social Security and Medicare eligibility could match at age 67, with protections built in for low income earners under 67 who are impoverished or ill.

    • Temporary unemployment benefits. Continue these benefits for the next year, with annual review thereafter, with perhaps tougher eligibility standards, as the economy seems to be improving (finally!).
    • AMT. If I am hit with the AMT next year because of Congressional inaction, I will refuse to calculate it. (If the IRS wants to do it for me, so be it.) The purpose of the AMT was to make sure that upper income taxpayers don't get away with paying a less-than-fair amount, not trapping someone like me, who lives largely on retirement income. By the way, how the hell did Mitt Romney get away with not paying the AMT?
    • Capital gains. If we go over the fiscal cliff, the capital gains rate for most of us will automatically go from the current 15% back to the old 28% in place from the Reagan Administration through the 1990s. This alone will cause Wall Street to put enormous pressure on the Republicans to agree to a deal with you which keeps the capital gains rate unchanged. Also in danger of being eliminated would be the carried interest provision, which lets hedgefunders have their ordinary income taxed at capital gains rates. This special interest legislation is how Romney was able to pay under 14% in federal income taxes. Mr. President, it has to go.
    • Tax credits and deductions. If Congress eliminates the home mortgage deduction, and you sign the bill, the homes of a lot of Congressmen will be in danger of being attacked by irate citizens who have lost their own homes as a result of this change. And if the charitable deduction is eliminated, the outcry from colleges, churches and charities who depend on receiving support from the taxpayers will be deafening. God will punish them, and their kids won't get into Harvard. If the Estate Tax exemption drops to $1 million from the current $5 million, and the tax rate increases, and there is no longer a charitable deduction, taxpayers will end up working for the Government and will be able to leave only a paltry portion of their estate to their kids, colleges, favorite charities and churches. The only thing that could gain traction is the suggestion (by Romney, of all people) to cap all deductions at a certain amount, such as $25,000. If the State tax deduction is eliminated, people in Nevada, Florida, Texas and other states without state income taxes won't care, but here in California, with the highest state taxes in the country, we would really be pissed. Don't touch it, Mr. President.
    ted vaill

    Mr. President, the Republicans LOST the 2012 election. Romney got 5 million fewer votes and 126 fewer electoral votes than you did, the Democrats picked up seats in the Senate in a tough year for Democratic Senators seeking reelection, and Speaker Boehner's party lost eight seats in the House despite furious voter suppression efforts, Citizens United money, and pro-Republican redistricting efforts in many states with Republican governors and legislatures. The GOP has also lost minorities, women and young people for many elections to come, with their support coming mainly from people with Confederate flag tattoos and gunracks on their pickups, greedy Wall Street hedgefunders, right wing religious fanatics, and grumpy old people. Punish them, Mr.President, they deserve it.

    Ted Vaill

    Wednesday, 5 December 2012