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Subject: the fiscal cliff   

  



 





  

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Bart,

The Republicans have made their initial offer on the "Fiscal Cliff" -- no tax increase on the wealthy,
expiration of Obama's payroll tax cuts, and cuts to Social Security, Medicare, and Medicaid. 
I'm surprised they didn't ask for more tax cuts for the wealthy and elimination of Obamacare.
 Obama's initial offer was what he has been saying, let the Bush tax cuts expire for the wealthy,
keep the payroll tax cut, add a bit of stimulus, and prevent Congress from freezing the credit limit.

I think he hasn't learned how to deal with mad dogs.  Here is the list I would have offered:

1. Expiration of the Bush tax cuts (entirely) -- and replace them with #2
2. New income tax rate: 10% for AGI under $10,000, 15% up to $50,000, 25% up to $100,000,
    35% up to $200,000, 45% up to $500,000, 55% up to $1,000,000, and 65% for income over $1,000,000
3. Elimination of the "carried interest" exemption.  Capital gains must be only for investments in equity 
    that changes value with the value of the company; this would also eliminate the use of capital gains
    definition for interest collected from bonds and dividends.
4.  Interest, dividends, etc. paid by companies are treated just like interest paid by banks--regular income
     --except that, when such payments cannot be deducted by the provider (such as dividends) they are taxed as capital gains.
5. Capital gains to be taxed as half their actual value if held over one year.  This deduction to phase out
    with income over $100,000, such that those earning over $2,000,000 have no capital gains deduction.

(Note that all the tax descriptions above are based on single earner; the married and head of household brackets to adjust as currently.)

6.  Alternative Minimum Tax limits and deductions to scale by CPI every year.  Minimum tax to be
      the third tax bracket (25%) and maximum tax to be 35% (fourth tax bracket).
7.  All tax bracket to shift with CPI.
8.  All corporations to pay income tax based on the profits from work and sales in the US.
9.  Corporation that expect US assistance overseas to pay tax on 33% of their foreign profits.
10.  Removal of the income cap on Social Security tax.
11.  Elimination of the debt limit.  This is a political device to try to embarrass the President; if Congress
       has already approved spending, they have already approved the payment of that spending.
12.  Immediate stimulus spending of $1 trillion, to cover the productivity gap between GDP on the course
       we were on before 2008 and the one we are on now.  The majority of this stimulus must be spent
       on infrastructure, including subsidies for alternative energy.
13.  Reinstitution of the Windfall Profits Tax.
14.  Stimulus to be reduced in future years based on unemployment rate and core inflation.  Value in future years
       to be [2.5 x (base unemployment rate in most recent quarter - NAIRU) - core inflation from most recent quarter]
      * $200 billion.  (Right now, NAIRU is 5.2%, most recent quarter's unemployment is 8.0%, and core inflation
       is 2.0%; this would come out to $1 trillion for this year.)

Well, that's all I can think of for spending...and I bet we would be growing fast enough
to eliminate the stimulus by the end of Obama's second term!
 Russ



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