Let’s be perfectly clear about taxes and the deficit

C. Scott Litch Contributor
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My apologies for combining a common phrase from Presidents Obama and Nixon. You rarely see that done, for good reason.

While pundits can analyze the politics of whether the current tax deal helps President Obama or the GOP (after all, the lower rates will expire again in two years and will be plenty of fodder for the 2012 election) or how insane some Democrats in Congress are in terms of their ignoring the 2010 midterm election message from the American people, let’s be perfectly clear about one thing. We should not lose sight that this is just a temporary fix that puts off for another day the hard decisions. Those decisions are a complete tax code overhaul combined with meaningful spending reductions.

What does that mean for taxes?

First of all, what do tax rates have in a common with the stomach of a woman wearing a bikini? In both cases, flatter is better. We need to move to a flat tax system. Perhaps a compromise would have a second higher marginal rate for the mega-wealthy, but for most Americans it should be a PERMANENT flat rate (around 15%) and most of the current credits and deductions should be repealed. This would be a tremendous boon for economic growth and also for future family financial planning. Combine this with a cut in corporate tax rates, and happy days will be here again!

But what about the deficit?

Tough choices need to be made. Not just tinkering around the edges, but big stuff. Some things were laid out by the Deficit Reduction Commission, but even they shied away from critical issues. We need to lay them all on the table. The following items would have tremendous savings and are imminently fair:

  • Raise the retirement age for Medicare, and make wealthier seniors pay more; but give them choices by expanding, not cutting back on, Medicare Advantage plans (which were a big target to pay for Obamacare).
  • Raise the eligibility age for Social Security — based on the same rationale as a Medicare retirement age increase, because we are living much longer than in the 1930s or 1960s when these programs were originally created. We can’t have each working citizen trying to pay for two or three retirees.
  • Let wealthier seniors have a wider range of investment options in Social Security, revitalizing the Bush privatization plan — which wasn’t such a bad idea after all. There can be safeguards to provide fixed returns for seniors below certain income levels.
  • Consolidate the military. Why are the Army, Navy, and Air Force separate? Isn’t all modern combat completely integrated? How about an American Defense Forces? If we’re gonna be efficient and reform-minded about government programs, the military cannot be exempt.
  • Although we should not let our guard down on national defense in terms of superior weapons, technology, and personnel, let’s cut some deals with like-minded countries to get them to contribute a greater share of America’s costs for keeping the world safe. We’ll take cash or checks. How about withholding our U.N. dues until the check clears?

  • Eliminate corporate welfare. The free market means free competition, not chrony capitalism or special favors. This means no special corporate tax breaks, such as ones for ethanol production that have apparently snuck their way into the tax deal.
  • Eliminate farm subsides. There are not many family farmers left in our country because it’s simply not an efficient way to support a family in a modern, developed nation. Most American farmers are big corporations. Their competitors are poor farmers in developing countries — would it be such a bad thing to help those folks via free and fair trade?

Until leaders of both parties are going to address these matters, we will be having these debates about minor changes in tax rates on a regular basis, essentially fiddling while Rome burns.

C. Scott Litch is the chief operating officer and general counsel for a non-profit association. Scott is a licensed attorney, Certified Association Executive, and also holds a masters degree in public policy. He is the author of The Principled Conservative in 21st Century America, released in the fall of 2010 just prior to the GOP mid-term election tsunami.