Recommendations for "Grown-up" Lawmakers
In a Washington Post column entitled "It's Time for the Grown-Ups to Step Up in Washington," Fortune magazine senior editors Allan Sloan and Geoff Colvin make recommendations for lawmakers to follow if they want to "grow up," as they put it. Their policies constitute a comprehensive alternative to the fiscal cliff that has so far gone unaddressed in Congress.
They note that Medicare is a large challenge and not nearly as easy to figure out as Social Security, whose options are known and easily quantifiable. They start by pointing out that in 2006, one-quarter of Medicare spending went to people in the last year of their life. Thus, they propose cutting out Medicare spending on end-of-life measures, instead making beneficiaries purchase such care out of pocket or with supplemental insurance. In addition, they would add surcharges, presumably to premiums, for smokers and the obese to reflect their likely additional spending.
In terms of Social Security, Sloan and Colvin include options that are common to most bipartisan plans: raising the payroll tax cap, making the benefit formula more progressive, and increasing the retirement age for life expectancy. These three measures would likely ensure solvency for at least the next 75 years.
On defense, the two say that it "can and should be cut." They don't specify exactly how much the defense budget should be cut but say that "it's time for members to think less about directing pork to their districts and more about the nation’s future."
On tax reform, the two endorse a very similar approach to Simpson-Bowles, although they go a little further on tax reform than the Simpson-Bowles Illustrative Plan. They would fully eliminate the largest tax expenditures in the code: the health insurance exclusion, the mortgage interest deduction, the charitable deduction, and the state and local taxes deduction. In addition, they would eliminate the Alternative Minimum Tax, get rid of most other tax expenditures while maintaining the Earned Income Tax Credit, and tax capital gains and dividends as ordinary income. Based on these parameters, they believe they would raise a similar amount of revenue as Simpson-Bowles with tax rates of 9, 15, and 24 percent.
On corporate taxes, they would enact revenue-neutral corporate tax reform, although they are less specific about what tax expenditures they would eliminate. They also agree that the international tax system needs changing, but they are split between moving to a worldwide system -- where US companies have their total worldwide earnings taxed -- or a territorial system, where only income earned in the US is taxed.
Sloan and Colvin clearly put a lot of thought into this plan, which should show lawmakers something: it isn't easy. Legislators will have to be even more detailed in their plans and will have to go through a lot of negotiations to make sure that enough people are satisfied. If they think they will be able to put something together at the last minute that does more than just kick the can, they are mistaken. Congress must begin work on a fiscal plan ASAP.
For starters, though, Sloan and Colvin provide many good ideas, and lawmakers can also look to the many other plans out there for policies to consider.