I hope the president starts negotiations over a “grand bargain” for deficit reduction by aiming high. After all, he won the election. If the past four years have proved anything, it’s that the White House should not begin with a compromise.
Assuming the goal is $4 trillion of deficit reduction over the next decade—that’s the consensus of the Simpson-Bowles Commission, the Congressional Budget Office, and most independent analysts—here’s what the president should propose:
First, raise taxes on the rich—and by more than the highest marginal rate under Bill Clinton or even a 30 percent (so-called Buffett Rule) minimum rate on millionaires. Remember: America’s top earners are now wealthier than they’ve ever been, and they’re taking home a larger share of total income and wealth than top earners have received in more than 80 years.
Why not go back 60 years when Americans earning more than $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits? If they were taxed at that rate now, they’d pay at least $80 billion more annually—which would reduce the budget deficit by about $1 trillion over the next decade. That’s a quarter of the $4 trillion in deficit reduction right there.
A 2 percent surtax on the wealth of the richest one-half of 1 percent would bring in another $750 billion over the next decade. A one-half of 1 percent tax on financial transactions would bring in an additional $250 billion.
Add this up, and we get $2 trillion over ten years—half of the deficit-reduction goal.
Raise the capital-gains rate to match the rate on ordinary income and cap the mortgage-interest deduction at $12,000 a year, and that’s another $1 trillion over ten years. So now we’re up to $3 trillion in additional revenue.
Eliminate special tax preferences for oil and gas, price supports for big agriculture, tax breaks and research subsidies for Big Pharma, unnecessary weapons systems for military contractors, and indirect subsidies to the biggest banks on Wall Street, and we’re nearly there.
End the Bush tax cuts on incomes between $250,000 and $1 million, and—bingo—we made it: $4 trillion over ten years.
And we haven’t had to raise taxes on America’s beleaguered middle class, cut Social Security or Medicare and Medicaid, reduce spending on education or infrastructure, or cut programs for the poor.
Mr. President, I’d recommend this as your opening bid. With enough luck and pluck, maybe even your closing bid. If enough Americans are behind you, it could even be the final deal.