tfmsview:

Executive Summary --

The Co-Chairs of the Debt Commission (real name is National Commission of Fiscal Responsibility and Reform) came out with a proposal on how to reduce the National Debt. This article discusses taxes with the main emphasis on simplifying the income tax code by eliminating deductions. But I couldn't help noticing that the amount of reduction the Debt commission expects to realize is the same amount of deficit reduction we would see if we just let the Bush era tax code lapse. It's an interesting choice, follow the debt commission which means changing Social Security, doubling the gas tax, cutting the military and slashing Medicare or letting the Bush tax cuts lapse which means the wealthy pay an additional 4% tax and families only get a tax deduction for the first $500 they put toward their kids college fund.

- Tom McMasters

First examine this ironic coincidence. As you can see in the slide I pulled out from the Debt commissions proposal if all the commissions recommendations are adapted then the deficit would be reduced by 4 trillion dollars. Notice that in the NY Times quote that follows the debt would be reduced by 4.678 trillion dollars if the Bush tax cuts were allowed to expire. I'll get to writing about simplifying the tax code after that.

NY Times Article "Ending the tax cuts for the rich would bring additional revenues to the government of more than $678 billion through 2020, the administration has projected. Keeping in place the tax cuts for everyone else would cost nearly $4 trillion, and more counting the interest on that increase to the federal debt."

We hear a lot of discussion about the Democrats wanting to allow the highest tax bracket to revert back to 39.5% from the current level of 35% but there has been little publicity on the other possible changes. Other tax brackets changed as well. Perhaps a good compromise would be to have all the tax brackets revert halfway back. I know some of that $4 trillion tax savings was due to things other than tax brackets. I got a letter from the company that manages my educational IRAs and they tell me it is possible the tax deductible portion will be reduced back down to just $500 a year. The fact is I view tax deductions for educational funds and Health Savings Plans as inflationary mechanisms that funnel a disproportionate amount of money into these sectors of the economy. That's why I'm advocating the Debt commission's focus on simplifying the tax code to eliminate many deductions such as those for IRA's, Healthcare, Education and mortgage interest.

In theoretical discussions I can see a place for social engineering via targeted taxes. But recently I've started to believe this should not be taking place in the income tax code. Deductions for interest payments and health insurance are a form of social engineering put in place to allow more people to be able to buy houses or get health insurance that has instead been a leading contributor to inflating the cost of both. Consequentially, these deductions have done more to enrich the providers than they have in improving affordability. Note that when the news reports tell you why so few doctors are becoming family practitioners it is because their take home pay of $140,000 is so much less than that of the specialist. One of the many contributors to there being so much money available to pay healthcare providers is people are willing to accept that their hourly wage is decreased by $6, $10 or $15 an hour in order to pay insurance premiums. That $13,000 to $30,000 contributed in the hopes of getting good healthcare is going to more than just the doctors. Because there is so much money in this sector many others have managed to get their fingers into the pie. Those sunk cost go into enriching people like Insurance CEOs and malpractice lawyers that do not contribute to the efficiency or improvement of the healthcare system. I am a firm believer that people should not allow their employers to divert $13,000 to $30,000 of potential wage to pay for health insurance. Health insurance purchases should be a personal decision. I would bet if insurance payments had never been tax exempt we as a country would be paying significantly less to the healthcare industry while receiving far superior care.

The social engineering that led to the mortgage interest deductions also was off the mark. There are basically two choices for housing either buy or rent. The mortgage rate deduction decreases the cost of housing for those who buy so consequentially it raises it for those that rent. So what has happened is we made it more expensive for the renters to rent reducing the amount they can save for buying a house or whatever else they may want to use their money. For those that go out and buy a house it all evens out in the end but is this the type of social engineering we want to conduct with our tax code? Do we want the government telling us we have to want to own a house?

I apply the same inflation theory logic to higher education - tax breaks for Educational IRA's and 529 plans contributed more to the creation of administrative bloat and instructor salaries than they contributed to improving the educational experience of a larger number of students.

Stated one more time - our forefathers of the the 60', 70', 80's, and 90's seem to have had good intentions when they tried to encourage saving for college, buying a home, and promoting health insurance. But as it turns out they really just increased the demand for these services to a greater degree than was sustainable. Though these attempts provided a false temporary improvement we are now realizing a dramatic decrease in the percent of people that will be privileged enough to have them in the future. Since there was a false perception these attempts worked previously the natural tendency will be for people to want to dedicate even more resources along this path. This is exactly the opposite approach than the one that should be taken. Instead, we should look at the Debt Commission's presentation, adapt the good measures they propose and encourage our leaders to go even further in simplifying the income tax code.

One of the excuses we hear the Republicans give to continue their campaign to lead us into bankruptcy -- an excuse that is echoed by the Democrats -- is the paradigm which states that you need to cut taxes (Republicans) and you need to increase spending (Democrats) in order to "stimulate" the economy. My thoughts on spending our way to economic recovery are summed up in this email.

About the Author

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Background: tfmsview, The Online Magazine; publishes commentary and opinion by Thomas F. McMasters. Tom McMasters achieved ballot position for Ohio ’s 8^th Congressional District Republican Primary as an alternative candidate to Rep John Boehner. The congressman from the 8^th district represents the people from Allen Township, Jacksonburg, Ansonia, Ludlow Falls, Arcanum, Maria Stein, Beckett Ridge, Mayfield, Bradford, Middletown, Burkettsville, Montezuma, Butler Township, New Bremen, Camden, New Miami, Casstown, New Paris, Celina, New Weston, Chickasaw, Newberry, Coldwater, North Star, Dayton, Osgood, Eaton, Oxford, Eldorado, Piqua, Fairfield, Pleasant, Fletcher, Potsdam, Fort Laramie, Rossburg, Gasper Township, Sommerville, Gibson Township, St Henry, Gordon, St Marys State Park, Grand Lake, Staunton Township, Granville, Tipp City, Greenville, Trenton, Huber Heights, Troy, West Manchester, Union City, West Milton, Versailles, York , Wayne Lakes It covers Darke, Preble, Miami , Mercer and parts of Montgomery and Butler counties. Newspaper and television stations that serve the district include: The Middletown Journal, WCPO, The Cincinnati Enquirer, The Dayton Daily News, The Fairfield Echo, The Hamilton Journal-News, The Huber Heights Courier, The Middletown Journal, The Oxford Press, The Piqua Daily Call, The Daily Advocate, The Daily Standard, The Oxford Press, The Tipp City Herald, The Tipp News Daily, WCET, WDTN, The West Milton Record, WGRT, WHIO, WKEF, WKRC, WLWT, WPTD, and WXIX.

Tom would like to thank all the Ohio voters and absentee voters that took the time to find their voting places and precincts to cast their ballots in his bid to become a member of the US House of Representatives. American politics and Ohio politics benefits from all the new people becoming engaged in the political discussions. The registered voters that identify with The Ohio Tea Party, Coffee Parties, Constitution Party and others engaged in the political debates will help strengthen the incumbent and all challengers.

Now that the primary is over Tom has again embraced his tfm persona as a political commentator; offering insight into issues such as the budget deficit, the national debt, taxation, healthcare reform. The website is set up as a political blog but it delves into other categories concerning basic American and Ohio life. Also, contributions and comments by all readers is always welcome.

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