How to close a budget gap that has exceeded $1 trillion in each of the last four years and avert a “fiscal cliff” of austerity cuts and tax hikes that threaten recession is the subject of White House negotiations with congressional leaders starting Friday.
In a surprise move, President Barack Obama, perhaps emboldened by his strong showing at the polls last week, jolted the familiar ground of those discussions with a call to raise revenue by $1.6 trillion over 10 years, twice the revenue goal he laid forth in budget talks held one year ago.
As the politicians prepare their negotiation stances, liberal and conservative economists are offering their ideas on how to solve America’s growing fiscal gap.
In a blog post published Saturday, Greg Mankiw, chairman of the Economics Department of Harvard University who served as an advisor to Mitt Romney’s campaign, approvingly cited an idea from the Tax Policy Center that would raise revenue without increasing tax rates.
By capping itemized deductions at $50,000, the center–a joint project of the Brookings Institution and the Urban Institute–says revenues would increase by $749 billion over 10 years. That’s about half the president’s current goal and nearly all of the amount the president was seeking just a year ago. And nearly all of that revenue would come from the nation’s top earners, the center says.
According to Mankiw, “this may be the germ of a possible deal between President Obama and Speaker (John) Boehner: The speaker agrees to this tax hike if the president agrees to some fundamental reform of the entitlements, such as gradually but significantly raising the age of eligibility for Social Security and Medicare.”
But such a deal is far from acceptable to Robert Reich, University of California at Berkeley professor and former secretary of labor in the Clinton administration. Reich, in a blog post published Monday, advises the president to seek even more revenue while completely shielding entitlement spending.
Setting $4 trillion–“the consensus of the Simpson-Bowles Commission”–as his revenue goal, the former Cabinet secretary outlines four steps to closing the U.S. fiscal gap.
Reich says he’d get the first trillion (over the next decade) by raising taxes on the rich: “Why not go back sixty years when Americans earning over $1 million in today’s dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits?”