Morici: Soaking the Rich Won’t Cure Fiscal Ailments

Monday, 03 Dec 2012 12:52 PM

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Plans to raise taxes on the rich to narrow deficits and pay down debts won’t solve the country’s fiscal woes, said Peter Morici, a professor at the Robert H. Smith School of Business at the University of Maryland and former chief economist at the U.S. International Trade Commission.

Tax hikes on wealthier Americans form part of a Democratic proposal to steer the country away from the fast-approaching fiscal cliff, a one-two punch of tax hikes and spending cuts scheduled to take effect at the same time at the end of this year.

The nonpartisan Congressional Budget Office has said failure to avoid the cliff could tip the country into a recession.

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

Allowing the Bush-era tax cuts to expire for the top 2 percent of U.S. households won’t narrow deficits, Morici said, as tax hikes do nothing to address swelling longer-term liabilities.

“President Obama wants to raise tax rates on families and many small businesses earning more than $250,000, and Congressional Republicans would like to curb entitlements by increasing Medicare premiums paid by wealthier participants and slowing Social Security cost-of-living increases,” Morici wrote on his blog.

“The bottom line: even if Mr. Obama delivers on his campaign promise to tax the rich and Republicans obtain some curbs on entitlement spending, the federal deficit will likely remain near or above $1 trillion for the foreseeable future and could easily rise to much more by the end of the decade,” Morici wrote.

Americans are living longer and healthcare costs are rising, something the president’s Affordable Care Act and tax hikes are powerless to address — the new law just extends coverage.

“The reasonable solutions are to raise the Social Security retirement age to 70, and pattern U.S. healthcare after other national systems that better contain costs,” he said.

“The Germans and Dutch spend one-third less on healthcare, because their governments more aggressively regulate prices, better ration care and spend less on lawsuits.”

Both parties need to stand up to supporters to make true fiscal reforms as well.

“Democrats, hamstrung by unions, are loath to require Americans to work longer, and are too beholding to tort lawyers and the medical establishment for campaign support,” Morici noted.

“Republicans refuse to admit vouchers and more competition — we already have plenty of the latter among providers, drug and device manufacturers and insurance companies — won’t adequately slow rocketing costs,” he added.

Failure to tackle mounting liabilities will eventually repel investors away from U.S. government debt, which could bruise the economy by forcing draconian fiscal reforms down the road.

Talks to avoid the short-term fiscal cliff, meanwhile, continue to drag on with little progress.

Republicans branded a White House proposal to raise taxes with stimulus spending put in place in lieu of government spending cuts as a “joke,” including Sen. Lindsey Graham, R-S.C.

“I think we’re going over the cliff,” Graham told CBS’s “Face The Nation” news program.

“It’s pretty clear to me they’ve made a political calculation. This offer doesn’t remotely deal with entitlement reform in a way to save Medicare and Medicaid and Social Security from imminent bankruptcy.”

“I’m serious about revenue,” Graham added.

“You can limit deductions to $40 or $50,000 a person, which takes care of the middle class. Upper income Americans will lose their deductions, and raise about $800 billion of revenue. But I’ll only do that if we do entitlement reform, and the president’s plan when it comes to entitlement reform is just, quite frankly a joke.”

Editor's Note: Startling Proof of the End of America’s Middle Class. Details in the Video

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