The Economist: Much-needed advice for Congress

Dear members of Congress:

Four years ago I wrote a very nice letter to our new president giving him some useful advice on things to do during his term in office. It was such things as lowering the speed limit to 55 and imposing a $5-a-gallon tax on gasoline in order to reduce our dependence on fossil fuel. And putting a $5-a-bottle tax on bottled water so we’d go back to drinking our perfectly satisfactory tap water. And adopting zero-based budgeting. But I never received a response from him, and he appears to have ignored my suggestions. Perhaps his staff never gave the letter to him.

After thinking about it, I realize that Congress, not the Executive Office, is where the important decisions are made. So, I want to make some helpful suggestions to you to ensure you preside over a productive four years for our country and its economy.

The first thing you need to do is eliminate the fiscal cliff. I realize that the easy thing to do is make some modest adjustments to tax and spending policy and leave the big problems for a later Congress to solve. But, the longer you put it off, the bigger the problem will become.

The answer to our seemingly endless budget deficits (the budget has been balanced only five times since the early 1960s) is quite simple. Get rid of all income tax deductions. Get rid of the deductions big corporations enjoy. Get rid of the deductions the wealthy enjoy. Get rid of the deductions the middle class enjoys. Get rid of them all.

Now, I realize that on the surface it looks like everyone’s taxes will go up. And no one gets reelected to Congress on a program of raising taxes. But, don’t be fooled by what appears to be obvious.

If you get rid of all deductions, you’ll be able to lower the tax rates on everyone. That will make the Republicans happy. And tax revenues will increase so there is less need to cut vital social programs, which will make the Democrats happy.

Of course, that means individuals and businesses will make decisions based on what is best rather than what is most tax advantageous. We may end up living in smaller houses or not buying a home until we are a bit older. Europe has managed to get along for generations doing that. I don’t believe we will stop giving to our favorite charities. Maybe some people give simply for the tax deduction, but I have faith in the American people to continue to support the things they believe in.

Businesses will invest in what makes economic sense rather than in what their Congressperson has managed to get a tax break for. Agriculture will have to do what is profitable rather than what is subsidized.

I know, I know. It’s a shocking concept. But, if you have the faith in the American people that I do, you know that they will make sensible decisions that are best for them and their country when those decisions aren’t distorted by tax policy.

We are all unhappy that Warren Buffett paid a lower tax rate than his secretary. Even Mr. Buffett was unhappy. Clearly there is something wrong with a system that permitted that to happen. But, if Mr. Buffett had no “rich guy” deductions AND paid Social Security tax on his entire income, his tax rate and his tax payments would go up.

Which reminds me of something I think both the Democrats and the Republicans in Congress don’t seem to understand. It isn’t the tax rate that is important to reducing the deficit, it is tax revenues. There are numerous examples of higher tax rates leading to lower tax revenues

As for tax rates, I’m on record saying I think a flat tax is fairest. But, if you’ll follow my suggestions, I’ll accept a higher tax rate on those with higher incomes. Not a punitive rate, mind you – we want them to continue to work hard. But a higher rate.

I hope I can count on you to stop politicking for a few months and spend some time doing what is best for our country. That will be a shocking change!

Hopefully yours,

Your Colorado Economist

Categories: Economy/Politics