Solving the nation's budgetary Rubik's Cube
BY MICHAEL LAPOLLA
Thursday, December 06, 2012
12/06/12 at 3:17 AM
Do you have great confidence that our federal officials are really worried and are working hard to permanently resolve our budget/spending problems? Me neither. Nevertheless, here is one idea not yet mentioned but worth discussing. Its balance is intriguing.
Our federal government has created a Rubik's Cube of budget arguments resulting in legislative paralysis. The real Rubik's Cube has been solved in 5.66 seconds, one-handed in 14.55 seconds and blindfolded in 28.8 seconds. That should be some inspiration that our budget problems are resolvable. Let's take the "first twist."
Proposal: After federal expenditures have been cut dramatically - make the "Bush tax rates" permanent - then eliminate the federal income tax deduction for all state income, sales and property taxes. Period. No exceptions.
In 2010, Americans paid more than $1 trillion in state and local taxes. Federal income tax law allows all of this expense to be deducted.
What is the value of this deduction? The Center for American Progress estimates it at more than $70 billion this year and $450 billion in fiscal 2011-2015, or an average of $90 billion annually. This amount would be less than 10 percent of annual needs to balance a federal budget. But it could be an important 10 percent.
How would such an action meet the political needs of both parties?
For Republicans, the proposal would meet the "no increase in tax rates" goal. By being reasonable, this proposal could meet the general principles of signed "no new taxes" pledges. The "rich" would be taxed the most of course, but along with everyone else in proportion to their consumption and holdings. Also this proposal is a starting point for overhauling and simplifying the tax code.
National Democrats seem obsessed with "taxing the rich." This proposal will "tax the rich" the most - absolutely, proportionately and progressively. In the end, residents of the "richest" states would absorb more than 70 percent of the burden while residents of the "poorest" states would bear less than 30 percent.
This proposal also meets the Democrats' goal without the arbitrary ugliness of defining exactly who is "rich." That definition is now unnecessary. The proposal is self-regulating, self-calibrating and self-administering. It allows Democrats to focus on the important issue of spending reductions.
We have a $16 trillion national debt, and $1 trillion annual deficit, that the federal government has already spent. We have no choice but to stop the bleeding. We should try to do it on fair terms.
While this proposal taxes the "rich" heavily, it spreads the assessment more broadly. Even the non-taxpayers will be affected indirectly. It paves the way for many additional systemic, creative and effective actions.
There is a downside of raising this "new" federal revenue. It will be removed from the economies of state and local governments. That will be very painful but it will be a pain shared equally, proportionately, and progressively across the nation. We must accept that any and every federal tax dollar will be extracted from a local economy somewhere regardless of approach. Doing nothing is the cowardly option.
On average, this would cost federal taxpayers $290 per capita nationwide. Residents of rich states like New York, New Jersey and Massachusetts would pay the most per capita. Those living in poorer states will pay less per capita. Oklahomans would send more than $700 million at a rate of $198 per capita.
Under this proposal the "rich" pay a lot - but everyone pays something. This is a nice start on a longer journey.
The next step? There is certainly no painless approach to rein in runaway federal government spending. There is no formula where the problem is solved and nothing changes. The Rubik's Cube took at least 5.66 seconds (and a lot of practice) to solve. This problem is going to take longer. But it can be done.
Let's try it with our eyes open and using both hands. Let's do it an efficient and effective way and stop the nonsense.
Michael Lapolla is co-chairman of the Oklahoma Academy's Research Design and Production Group. The Academy's 2010 Town Hall discussed municipal government and the issues of state and local taxation were central to the debate. This proposal is a product of the author's not endorsed by the academy.
Michael Lapolla: There is no formula where the problem is solved and nothing changes