<!DOCTYPE HTML PUBLIC "-//W3C//DTD HTML 4.0 Transitional//EN">
<HTML><HEAD>
<META content=text/html;charset=iso-8859-1 http-equiv=Content-Type>
<META name=GENERATOR content="MSHTML 8.00.6001.19088"></HEAD>
<BODY style="PADDING-LEFT: 10px; PADDING-RIGHT: 10px; PADDING-TOP: 15px"
id=MailContainerBody leftMargin=0 topMargin=0 CanvasTabStop="true"
name="Compose message area">
<DIV><FONT size=2 face=Verdana>
<DIV id=fb-root></DIV>
<DIV class=header>
<DIV class=left><A href="http://www.nytimes.com/"><IMG border=0 hspace=0
alt="The New York Times" align=left
src="http://graphics8.nytimes.com/images/misc/nytlogo153x23.gif"></A>
<NYT_REPRINTS_FORM>
<LI class=reprints>
<FORM name=cccform
action=https://s100.copyright.com/CommonApp/LoadingApplication.jsp
target=_Icon></FORM></LI></DIV>
<DIV class=right> </DIV></DIV><BR clear=all>
<HR align=left SIZE=1>
<DIV class=timestamp>August 6, 2011</DIV>
<DIV class=kicker></DIV>
<H1><NYT_HEADLINE version="1.0" type=" ">The Truth About
Taxes</NYT_HEADLINE></H1><NYT_BYLINE></NYT_BYLINE><NYT_TEXT>
<DIV id=articleBody><NYT_CORRECTION_TOP></NYT_CORRECTION_TOP>
<P>A week later and we are still amazed at how the Republicans in Congress
pulled it off. They held the economy hostage, won some cheap political points,
and all of us will spend the next decade paying the ransom as government
programs — $900 billion over 10 years in the first round — are slashed and the
recovery is put at risk. </P>
<P>The only glimmer of hope is that the battle is not completely over — if
President Obama is finally willing to fight. </P>
<P>Under the terms of the ill-conceived debt agreement, Congress has to propose
another $1.5 trillion in deficit reduction measures by December. Just to ensure
that rationality does not have a chance, Republican leaders said they would not
put anyone on the deficit-cutting “super-committee” who might entertain the idea
of raising taxes. </P>
<P>A week later and we are even more amazed by the failure of Mr. Obama and the
Democratic leadership to stand up to this intransigence. If they do not start
pushing back, with the same ferocity, the results will be disastrous. </P>
<P>Standard & Poor’s made its judgment about both the political standoff and
the all-cuts, no-new-revenues deal on Friday when it lowered the country’s
long-term debt rating one notch, down from AAA. And while “no new taxes” pledges
are almost always big political winners, Americans are also figuring out that
the country cannot keep on this way. According to the latest New York Times/CBS
News Poll, 63 percent support raising taxes on households that earn more than
$250,000 a year to help address the deficit. </P>
<P>If that is not enough to energize the White House, here are a few more facts.
To avoid across-the-board cuts, Congress must enact at least another $1.2
trillion in deficit reduction measures over the 10 years. For all of the talk of
“big government,” there is no way to cut that much in discretionary programs
without crippling basic functions. Lawmakers could eliminate the Federal Bureau
of Investigation, Pell Grants, the Centers for Disease Control and Prevention,
the National Institutes of Health and Head Start and still not cut $110 billion
annually. </P>
<P>Entitlement reform is essential. But it is unlikely that lawmakers will agree
on deep cuts to Medicare, Medicaid and Social Security. Finally, asserting that
deficits can be tamed with spending cuts alone ignores that the Bush tax cuts —
costing $1.8 trillion from 2002 to 2009 — are a big reason we got into this deep
hole. </P>
<P>Here is the bottom line. There is no economically sensible or politically
honest way to address the deficit without also increasing revenues and reforming
the tax code. The major challenges are these: </P>
<P><STRONG>LET THE BUSH CUTS EXPIRE </STRONG>Mr. Obama vowed to let the high-end
tax cuts (for people making more than $250,00) expire in 2010. But in a preview
of the debt fight, he agreed to extend the cuts for two more years when
Republicans held unemployment benefits and other measures hostage. </P>
<P>Letting all of the cuts expire at the end of 2012 would save $3.8 trillion
over the next decade. Letting the tax cuts expire for those making more than
$250,000 would save $700 billion. That would make a real dent in the $2.4
trillion in total deficit reduction envisioned in the debt limit deal. </P>
<P>A sensible and fair approach would be to let the high-end tax cuts expire as
scheduled, but keep the other tax cuts for another year. That would keep more
cash in the hands of people most likely to spend it and prop up consumer demand
while the economy is weak. It would give Congress and the administration time to
undertake tax reform. </P>
<P><STRONG><STRONG>MAKE REAL REFORMS </STRONG></STRONG>Most Congressional
Republicans are willing to embrace reform, but only if it is “revenue neutral.”
There is no question that the system is overly complicated; it is also riddled
with hugely costly special deals for special interests. Any reform must
streamline the code, make it fairer and — most important — raise more revenue.
</P>
<P><STRONG>TARGET TAX BREAKS AND LOWER RATES </STRONG>Each year, the government
provides $1 trillion in tax breaks. Some of the largest breaks — for itemized
deductions and retirement savings — should be retained because they subsidize
important goals, like home ownership and old-age security. Right now, wealthier
taxpayers get the greatest benefit. The process needs to be reformed so that
most of the help flows to those who most need it: low- and middle-income
taxpayers. </P>
<P>At the same time, super-low tax rates for investment income should be ended.
Capital gains are taxed at a top rate of 15 percent, compared with a top rate
for wages and salary of 35 percent. Proponents argue that the lower rate is an
incentive to invest, but research shows that it also encourages gaming of the
system. Tax breaks that have outlived their purpose must be ended, starting with
subsidies for the oil industry, which is making billions in profits. </P>
<P>The revenue from such reforms could be used to pay down the deficit and allow
all tax rates to be lowered, improving incentives to work. The amount of revenue
raised and the drop in tax rates will depend on how much tax breaks are curbed.
<STRONG></STRONG></P>
<P><STRONG><STRONG>OTHER TAXES </STRONG></STRONG>Congress should consider
raising revenues in other ways, like a value-added tax, or carbon taxes. That
way all of the needed revenue for deficit reduction, and for what government
provides, does not need to be squeezed from the income tax. A value-added tax is
conducive to saving, and a carbon tax helps protect the environment. </P>
<P>The public is open to new taxes, and the economic facts are clear. Until tax
increases are considered in equal measure to spending cuts, there will be no
budget fix.</P>
<P>___________________________________________ </P><NYT_CORRECTION_BOTTOM>
<DIV
class=articleCorrection></DIV></NYT_CORRECTION_BOTTOM><NYT_UPDATE_BOTTOM></NYT_UPDATE_BOTTOM></DIV></NYT_TEXT>
<CENTER> </CENTER><NOSCRIPT class=noscript-show></NOSCRIPT></FONT></DIV>
<DIV><FONT size=2 face=Verdana>Wayne A. Fox<BR><A
href="mailto:wayne.a.fox@gmail.com">wayne.a.fox@gmail.com</A><BR></FONT></DIV></BODY></HTML>