My Short Proposal to Congress to Help Avoid the 2nd Fiscal Cliff

By Tom Pallow

Dear Capitol Hill Participant,

Few optimum strategy maneuvers have ever been more obvious than what awaits the Democrats in relation to tax policy and the coming sequestration/debt ceiling “cliff” compromise that will need to occur over the next few months. It is obvious that the American people and Democrats would most benefit by President Obama and Democrats in Congress supporting a Collins/McCaskill Employer Tax Carve-Out for businesses with less than 500 employees for those making above $400,000 and $450,000, as well as for those making above $220,000 and $250,000, as President Obama and Democrats should now push for income tax rate increases, or at the least scheduled income tax increases to occur in a few years, for those making above $220,000 and $250,000 as part of the coming sequestration/debt ceiling cliff compromise. In exchange for this new tax increase Americans and Republicans would receive their choice of some of the healthcare efficiency improvements that are in my last paper. Such a tax policy when statically scored would almost double the $620 billion over 10 years that the January 1st tax increases would achieve, but with ETCOs they could raise as much as eight to ten times the federal revenues (1). These new federal revenues, along with the greatest amount of healthcare reforms possible, would mean less federal spending cuts, more debt reduction, and a greater likelihood of passing a short term economic stimulus that would help our economy more easily get through the headwinds of January 1st’s FICA tax increase. In just a few months we can pass a bill where both parties get somethings they desperately want, but most importantly, the American people win! More on ETCOs and my last paper can be found at my website, ThirdWayProgressives.org.
An ETCO would make January 1st’s $400,000 income tax increase, as well as a newer $220,000 income tax increase, much more economically efficient thereby allowing it to raise as much as four to five times the federal revenues, and importantly, incorporating an ETCO would be the best strategy for bringing about enough Republican votes so that the income level for a new income tax increase could be brought down to $220,000 and $250,000. If there ever existed a time to pass an ETCO it is now, and given that there has never existed any serious argument against ETCOs, the competence of Washington DC will be clearly tested over the next two months, although I believe you will be up to the task. An ETCO for January 1st’s capital gains tax increase, or even a newer even higher capital gains tax increase, could also be enacted with this same sequestration/debt ceiling cliff compromise, or they could be put off until the needed corporate tax reforms occur later this year. Tax deduction reductions for the wealthy that a majority of Congress agree on should also be enacted with this important vote in two months, although some of this may have to be put off until later this year. But the most important tax policy that could be enacted in the next two months is the above ETCO strategy. It will bring certainty to American businesses that in the short, medium, and long term they will be in a favorable tax environment, and it will bring certainty to the financial markets that we are handling our federal debt, both of these factors will encourage and allow for even more economic growth and tax revenues.
Please feel free to contact me if you have any questions concerning these issues, and I wish you all the luck in these very important endeavors!

Tom Pallow
Third Way Progressives
202-903-1133

1. When the same assumptions of the following study are used when analyzing ETCOs: Obama Tax Hikes: The Economic and Fiscal Effects, Published on September 20, 2010 by William Beach , Rea Hederman, Jr. , John Ligon, Guinevere Nelland Karen Campbell, Ph.D. Center for Data Analysis Report #10-07.

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