As a part of the fiscal cliff all the talk now is that there must be new revenue for our bloated federal government. The Democrats believe the emphasis should be on more revenue (i.e. higher taxes). Since neither the Democrats nor Republicans have the guts to reduce the increase in major entitlements such as Medicare, Medicaid, food stamps and Social Security, the increase in taxes looms large.
To save face some of the Republicans are saying they will not go along with increased rates but might agree to limiting itemized deductions. This, of course, is an actual tax increase for those who itemize. When you sign your tax return and pay the extra amount, does it matter how that increased amount came about?
Consider this: I know of a number of people whose income is between $200,000 to $400,000 and are generous in giving money for charitable purposes. If they are giving $50,000 to $60,000 to charity each year and changes in the revenue code restrict their deductions to 15 or 20 thousand (those numbers have been thrown around) that would be a tremendous increase in their income taxes.
Do we want to penalize these individuals who are doing what people with some wealth should be doing? Limiting the tax benefit generous citizens receive by giving to charity means these 501(c)(3) organizations will have less money to operate and therefore the federal government will have to pay more to take care of those in need. This, of course, fits right into the philosophy of government handling this moral obligation. The problem is that the government is lacking funds to pay at the current level, let alone the increase that would come about. Further, I believe non- profits do a much more efficient and effective job with their funds than the federal government.
Also mentioned for possible restriction is the home mortgage deduction. It is obvious that limiting this deduction would be detrimental to the home owning industry but at least this reduction would apply to the individual and not punish the needy as would happen if we restrict charitable giving.
So what is the answer? Why do we have to wait for a real crisis for congress to act? With the wheel-spinning that has gone on between the president and congress it will take a major Greece-like situation before action is taken. Real cuts of 20 to 25 percent will be necessary. Why can’t we actually reduce expenditures instead of only decreasing the increase?
We could start with a three step program that would make a significant difference without even dealing with Medicare and Medicaid. A similar program could be worked out for those two mammoth expenditures.
Step 1. Decrease Social Security payments by one percent for the next three years. Accompany this with a means-testing reduction for seniors who have considerable wealth. It could start with a gradual reduction for those having income over $100,000 excluding Social Security and canceling out Social Security benefits once income reaches $500,000. If this was done hundreds of billions could be saved and all parties would be contributing.
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Step 2. Cut down significantly on two federal programs that have shown the biggest fraud – those being the food stamp program and the Earned Income Credit. To have the food stamp recipients increase by 100 percent in the past few years is unconscionable. There are many sources now for the needy to receive help and these sources are increasing every year. Food banks, church assistance and organizations like Cleburne County Cares exist all over this country.
The Earned Income Credit allows a family to receive tax free about $6,000 annually from the IRS even though they haven’t paid a dime in income taxes. Reports indicate irregularities or actual fraud may be present in 35 percent of Earned Income recipients. This program is ripe for reform.
Step 3. Reduce compensation for all federal employees by five percent and hold that decrease for the next three years. Then increase the participation by federal employees for health care benefits. Follow that up with a small increase, say 10 to 15 percent, in pension and health care payments by retired federal employees. There is absolutely no reason why this shouldn’t be done. Our federal government is bankrupt and owes tens of trillions in unfunded obligations. When a private company goes bankrupt, these kinds of adjustments are made. These actions would save tens of billions each year. When Delta Airlines took bankruptcy, the retirees saw a 50 percent reduction in their pension payments.
In summary – why is the pressure from the media and the liberals on the Republicans to cave on more revenue? The gigantic, disgusting problem of debt and deficit is not because of decreased revenue, it is because of outlandish, out of control spending. The first step in this process should be to attack spending – including and especially entitlements.