How two Mainers would tackle the fiscal cliff

Phil: My phone is ringing off the hook with clients venting their fear that Washington is going to jump the fiscal cliff and send our economy back into recession. How about you and I take a stab at solving this problem since no one in Washington seems willing?

Ethan: I’m in. Revenue first. I like what President Barack Obama proposed: $1.6 trillion in increased revenue from the wealthy through allowing income tax rates to revert back to their Clinton-era levels, plus taxing dividends as income and reinstating a 45-percent rate for estates worth more than $3.5 million. It reduces the deficit dramatically and greatly reduces the gap between the wealthy and middle class.

Phil: Figures you would start with revenue. However, if you were candid about our financial predicament, you would join me in calling for $1.6 trillion in spending reductions to match your new taxes. Your tax increases do not help us rein in spending. We could be witnessing the first “politically induced recession” in our lifetimes!

Ethan: Indeed, my revenue enhancements are not spending reductions. They are tax increases on those who have seen their share of the tax burden drop 14 percent over the past 30 years, while their share of the income has doubled. This increase helps alleviate that imbalance, and it reduces the deficit by $1.6 trillion. What’s not to like?

Phil: Where do I begin? From 2000 to 2012, federal spending doubled. Of the nearly 143 million tax returns filed, only 3 percent reported taxable income of at least $200,000. These so-called wealthy people paid 52 percent of all federal income tax.

Ethan: Yes, but that same group owns more than 62 percent of the wealth.

Phil: Real leadership has to recognize that we have a spending problem, and any solution seeking more revenues must also be partnered with immediate spending reductions. Unless and until Democrats acknowledge our spending problems, nothing fundamentally is going to change. Are you ready to acknowledge spending must be reduced now?

Ethan: Yes. What do you need in cuts to support the amount of revenue I have put on the table? Let’s make a deal.

Phil: We’ve already made more progress than Washington! May I suggest that the Social Security eligibility start age, for anyone currently under 55, be 69 (instead of 65) and index it to life expectancy from there forward?

Ethan: I can support raising the age, but I need a hardship exemption for those who can’t work past 62 (coal miners’ bodies wear down a lot faster than ours). Second, I need a minimum benefit for low-wage workers that keeps everyone above poverty. Third, I need a more progressive retirement formula, so the lowest-wage earners max out on their payments earlier. You cool with that?

Phil: You’ve decreased solvency a bit, but OK. Now Medicare. Let’s increase the eligibility age there to 67 for the same group of people currently 55 years old and younger.

Ethan: Here’s my problem. If you raise the age, you are simply putting off much-needed coverage or forcing businesses to hold onto the expense longer than they would otherwise. Even the moderate Simpson-Bowles deficit reduction plan didn’t go down this road. How about we gain savings by forcing doctors to be paid on salary, as opposed to by the number of procedures?

Phil: Here you are going to have to think and act like a believer in a “free-market economy.” Americans must treat health care like they are buying a computer or a new car. Ask and look for the best price, service and results. Costs will come down if we accept the reality that neither our employer nor the government has created lower costs.

Ethan: Unfortunately, when I am having a heart attack in the back of an ambulance, I don’t really have the option of shopping for the best cardiac surgeon. However, since Obamacare will take care of most of the uninsured, and since Hillary Clinton will certainly reverse this provision of our compromise when she becomes president after Obama, and since you accepted all my new taxes on the rich, I can live with your proposal. Any other cuts you need?

Phil: We’re making progress, yet there are many more billions to go. Can you join me in immediate reductions in defense, education and energy bureaucracy, loopholes and agriculture subsidies?

Ethan: Pretty general, but sure. How about we tie those cuts to the last thing I need. I want language in the bill that forces Congress to deal with tax reform. Our tax code is absurd and riddled with special interest give-a-ways. We create a commission like Simpson Bowles. We call on it to come up with a revenue-neutral proposal (no additional money, but no less) that is pro-growth and progressive. Its job is to come up with a plan that must then be voted up or down by Congress. No amendments, just like the base-closing commission. Work for you?

Phil: I am a financial planner by trade. Of course I want a simple tax code where everyone pays something! Done.

Ethan: Done? Wow, that was easier than I thought. These folks in Washington need to drink a little more Poland Spring water from Maine.

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