I hope the President starts negotiations over deficit reduction from the strongest possible position. After all, he won the election.
The consensus (Simpson-Bowles, Congressional Budget Office, Republican leaders, White House) is we need to cut the deficit by $4 trillion over the next ten years.
First, raise taxes on the rich -- who are now richer than they've ever been, and taking home a larger share of total income and wealth than in over 80 years.
Sixty years ago, Americans earning over $1 million in today's dollars paid 55.2 percent of it in income taxes, after taking all deductions and credits. If they were taxed at that rate now, they'd pay at least $80 billion more annually -- which would reduce the budget deficit by about $1 trillion over the next decade. That's a quarter of the $4 trillion in deficit reduction right there.
A 2% surtax on the wealth of the richest one-half of 1 percent would bring in another $750 billion over the decade. A one-half of 1 percent tax on financial transactions would bring in an additional $250 billion over the decade.
Add all this up and we get $2 trillion over ten years -- fully half of the deficit-reduction goal. Raise the capital gains rate to match the rate on ordinary income, and cap the mortgage interest deduction and tax-free employer health care at $20,000 a year, and that's another $500 billion over ten years. Bottom line: $2.5 trillion in additional revenue, and that's not including spending cuts.
Now, for spending cuts: Cut military spending by 10 percent and we save over $500 billion. Eliminate special tax subsidies to oil and gas, price supports to big agriculture, subsidies for ethanol, tax breaks and research subsidies for Big Pharma, and indirect subsidies to the biggest banks on Wall Street, and we save close to another $1 trillion over ten years.
Bingo: $4 trillion -- without raising taxes on the middle class, without cutting Social Security or Medicare and Medicaid, without cutting education or infrastructure, without reducing programs for the poor.
Are you with me?