What Does the Government Shutdown Mean? That We're Not Focusing On Real Tax Issue

Don’t you just love this time of year? The leaves are changing colors, the air is crisp, and Washington is fighting another fiscal battle. Unfortunately, the annual signs of autumn are now accompanied with the Democratic vs. Republican budget showdown. Republicans voted to defund Obamacare, the president has refused to negotiate on raising the debt limit, and our government shut down Tuesday.  How can anyone doubt that the ever-elusive “grand bargain” will never happen?

What gets lost in all this political posturing is the fact that the United States is in desperate need of deficit and tax reform. The last time Congress enacted a comprehensive tax reform, Top Gunwas still in theaters. For those of us too young to remember, the year was 1986, and the president was Ronald Reagan. Democrats and Republicans in Congress worked together with President Reagan to pass the Tax Reform Act of 1986. In today’s Congress that sort of compromise and bipartisanship is unheard of. The Tax Reform Act of 1986 helped propel the American economy forward, paving the way for the boom of the 1990s. Our nation needs a tax code for a 21st century economy.

My goal is to borrow ideas from both sides of the political spectrum in order to find common areas where compromise can be made, and the Tax Reform Act of 1986 will be my main reference for policy ideas.  

President Reagan and Congress raised the maximum long-term capital gains rate from 20% to 28% and lowered the maximum ordinary income tax rate from 50% to 28%. They did this based on the principle that equal incomes should pay equal taxes. This principle should play a major role in any current discussion of tax reform. Is it fair that Warren Buffet pays a lower effective tax rate than his secretary?  A majority of Americans do not think so. Recall the uproar during the 2012 election over the revelation that Mitt Romney paid an effective tax rate of 14%. Since the wealthy receive most of their income from capital gains, and not ordinary income, it is only sensible they pay a similar rate. 

Today, the top capital gains rate (20%) is about 20% lower than the top income tax rate (39.6%). Many economists may argue that this is necessary to encourage investment by the wealthy. This may be true, but there is definitely room for Congress to raise capital gains taxes while still creating incentives for investment. One way to promote investing is to revive a 1985 proposal to index capital gains to inflation, which would provide a tax break to investors. For example, if inflation is 10% during the time one owned an asset, then the first 10% of capital gains would be tax-exempt.  This is just one of the numerous strategies that Congress could use to promote investment while closing the gap between capital gains and income taxes.

Increasing the capital gains tax serves as a positive step towards bringing more equality into our tax code. For those deterred by rhetoric about the battle of the 99% versus the 1%,  a higher capital gains tax is a more sensible, moderate way to reduce some of the tensions created by this perceived income inequality. Currently, the long-term capital gains rate is the same 20%, whether you make $1,000 or $1,000,000 in gains. A progressive capital gains rate (maybe one that mirrors the income tax brackets) may be another innovative policy Congress should consider.

Dispelling Chained CPI Myths

Dead on arrival… When President Obama released his budget recently, Congressional Republicans immediately shot it down. This was no surprise because the budget called for tax increases, which Republicans vehemently oppose. However, I was puzzled by the negative reactions of a few Democrats; after all, President Obama’s budget included many progressive ideas, such as more stimulus spending. What could have caused such dissent from his party? Well, the budget called for the adoption of Chained CPI to measure future inflation; a move that Democrats and Republicans condemned as an assault on seniors and a severe benefit cut. 

Shifting to Chained CPI entails updating and improving the way the federal government measures inflation for various government programs. The government indexes benefits (such as Social Security), in order to keep up with inflation, so that both rise at the same rate. The government has not changed the way it calculates inflation in quite some time. Since the 1990s, Chained CPI has been viewed as a more accurate measure of inflation than our existing policy because current estimates overstate inflation and, hence, benefits paid.

This brings me to the first myth about Chained CPI. Chained CPI is NOT a benefit cut. Chained CPI slows down the rate of growth of social security payments. Seniors will not wake up next month and receive any fewer dollars in Social Security benefits than they are used to. Chained CPI would shave only 0.3% off inflation estimates or about $9 annually for the average couple that retired in 2010. Under Chained CPI, Social Security benefits would keep up with cost of living, rather than increase faster than inflation as they do now. 

In fact, moving to Chained CPI actually helps strengthen Social Security. By 2033, the Social Security trust fund will be depleted and will require a massive increase in the payroll tax or a 25% across-the-board decrease in benefits. As the Baby Boomers retire over the next two decades, more and more pressure will be put on the Social Security trust fund. The worker-to-retiree ratio has fallen from 5:1 in 1960 to 3:1 in 2010 and will only continue to decline, which means less revenue to support beneficiaries. In two decades, Social Security will no longer be solvent. Imagine the horrors if the checks actually stopped coming! The shift to Chained CPI will help maintain social security for current and future retirees.

Another prevalent myth claims Chained CPI is a hidden tax increase that will hurt the poor, the disabled, and the elderly. Chained CPI will slow the growth rate for income tax brackets. Individuals right on the cusp of a higher tax bracket may suddenly be “bumped up” into a higher one. However, it is important to remember two points. First, due to our marginal income tax system, only the small portion of above the threshold will be taxed at a higher rate, and second, Chained CPI should be viewed as only one part of comprehensive tax reform.

Chained CPI alone will not solve our budget deficit problem nor will it close the Social Security funding gap, but Chained CPI or a similar policy will play an integral role in any budget deal between Democrats and Republicans. The switch has already been a part of most major bipartisan deficit-reduction plans (Simpson-Bowles, Domenici-Rivlin, Obama-Boehner). Fix the Debt, a non-partisan movement to fix America’s finances, states that the switch to Chained CPI will reduce the social security funding gap by 1/5 and reduce deficits by more than $300 billion over the next decade.

Chained CPI is not just smart policy; it is also smart politics. Congress and the President can easily find a way to make this happen and doing so will prove that both Democrats and Republicans are serious about solving America’s deficit crisis. Furthermore, Chained CPI does not just kick the can down the road to future generations. It asks all Americans, old and young, Democratic and Republican, to be willing to exchange a small amount of personal sacrifice for a whole lot of societal benefit.                 

Chad Kolinsky is a graduate of the University of Miami and a blogger for The Can Kicks Back (www.TheCanKicksBack.org), a non-partisan and Millennial-driven movement to fix the national debt. 

We are the Millennials

            We are the millennials. We are Generation Y.  We are the 95 million Americans born between the late 1970’s and the early 2000’s.  We are America’s largest age demographic, we are growing, and we are the future of this great nation. According to The Center for American Progress, by 2020, there will be 103 million of us: 90 million of which will be eligible voters representing 40% of the electorate. In the landmark 2012 election, for the first time in the history of the United States, more millennials voted than senior citizens.  President Obama successfully won our demographic by large margins in both the 2008 and 2012 elections.  In fact, in 2012, President Obama received about 5 million more votes from 18-29 year olds than Mitt Romney did. Just by looking at these figures, it is safe to say that the candidate, who wins the millennials, wins the election.  The new, perpetual presence of millennials within the electorate is an extremely important concept that will dictate the future of our nation. We, the millennials, need to grasp how significant the opportunity that lies before us is.  We need to wake up and understand the undeniable potential for change our generation can bring about.

We are a radically different generation compared to the Baby Boomers or even Generation X.  We are the first generation to grow up in a globalized world and to experience the political, social, and economic transformations brought about by the Internet. Most importantly, our generation understands that change is unavoidable, a necessity, to remain relevant within the modern world.  Unlike past generations, we do not partake in the nostalgia of “traditional America values” because American values have been evolving our entire lives.  We look back at the 20^th century to see what made our country great, and then look ahead to the future for ways to make our country even greater. 

            Our familiarity with change and the lack of traditional ideology allow millennials to offer new common sense solutions to our nation’s problems.  We understand the need to reform entitlements because the looming burden of retiring baby boomers ultimately falls upon us.  We see the need to alter our bloated defense spending because taking care of our battle weary veterans and defending against cyber warfare are a greater priority than creating surpluses of fighter jets.  We take a progressive approach in promoting green energy, investing in schools, and supporting government’s role in society.  And yet, we do not want the federal government making decisions that should be left to the states, such as the legalization of marijuana, and most recently, gay marriage. 

            The topic of gay marriage is a surprisingly accurate gauge of where our country stands, and in what direction it is headed. Within the next few weeks the Supreme Court will likely either throw out, or make significant changes, to key anti-gay marriage legislation.  In 1996, when DOMA was signed, many argued same-sex marriage was morally wrong and had to be prevented at all costs. Today, over half of the nation believes gay couples deserve the right to marry.  This is attributed, in large part, to the influence of us, the millennials.  73% of 18-29 year olds support gay marriage compared to 39% of those aged 65 and older.  Some surveys even show figures of millennials supporting gay marriage in ratios greater than 4:1.  Last week, Senator Rob Portman, R-Ohio, a potential Vice Presidential candidate for Mitt Romney, declared his support for same sex marriage.  The national conversation is changing on both sides of the aisle, and millennials are leading the way.

            Our generation is finally finding its voice in American politics.  The 2012 election was the 3^rd straight election in which more than 50% of eligible millennials voted.  As we continue to get out and vote, we will elect representatives who embody our generation’s hopes and dreams.  The number of Millennials in Congress increased 3% from the 112^th Congress to the 113^th Congress; today, over 35 house representatives are under the age of 40. These trends will only continue to grow in 2014, 2016, and beyond as our generation becomes more politically active and aware.

            Both Democrats and Republicans in Congress should take heed of this coming shift.  The refusal to reform entitlements, change our tax code, or invest in our future will not go over easy. If both parties do not pay attention to the changing political tides, then it is all to likely that we just might put an end to this defunct two party system and create a party of our own. When Congress kicks the can down the road, it lands squarely in our laps - if Washington cannot solve our nations problems, then we Millennials will find representatives who will. 

            

The Future of the Israel Palestine conflict

            Today, the United Nations approved a resolution to lift the Palestinian Authority’s U.N. observer status from “entity” to “non-member state”.  138 nations voted in favor of the resolution and 9 voted against it: including the United States and Israel.  This resolution will not change the Israel-Palestine conflict, but it does allow Palestine to join the International Criminal Court and other UN organizations.  The Israeli government stated they would not treat this as a hostile move as long as the Palestinians do not try to join the ICC.  This was more of a symbolic victory for the PA and I do not believe they will try to further enrage Israel.             

           While raising Palestinian U.N. status does not create a sovereign independent state, it does recognize the universal right of a Palestinian state to exist.  With peace talks non-existent and last weeks conflict between Israel and Hamas, this is a very important wake up call to Israelis and Palestinians.  By elevating Palestine from an “entity” to a “state” the international community shows both of these nations that a two-state solution and peace process must happen. 

            The status quo of constant conflict will not be accepted.  As U.N. Secretary-General Ban Ki-moon stated, “Israelis and Palestinians must break out of a zero-sum mentality, and embrace a peaceful path forward.”  Both sides need to understand that they will NOT receive 100% of their desired territory / demands to achieve peace.  In the end the prize of peace will be great than any concessions by either side. 

            I believe the United States was on the wrong side of this symbolic victory.  Think of the message the US would send to Israel if it stated that the Palestinian Authority is not just an “entity”, but also a “state”.  As Israeli’s closest friend and largest supporter, we would say that the peace process MUST begin again.  It is exactly the kind of wake up call the Netanyahu administration needs. 

            Unfortunately, in America’s highly venomous partisan atmosphere any criticism of Israel is branded as anti-Semitic or anti-Israeli.  The United States supports Israel 100% and only wants to bring peace to the nation / region.  As Israel’s “best friend” the US should be in the position to provide constructive criticism.  Instead, officials like President Obama have to constantly claim their support for Israel, because others complain that he does not stand behind EVERY action Israel makes. 

            So what about Hamas?  Today Hamas reiterated that Israel does not have a right to exist.  How can Israel negotiate with an organization that think it should be wiped off the map?  I argued that Israel should not negotiate with Hamas.  Israel should create a viable peace plan with President Abbas and the Palestinian Authority.  If Israel and the West Bank can reach a two-state solution, without Gaza, it has many beneficial consequences.  First, it will show Hamas that NOTHING will be achieved with violence and constant wars.  Second, it will bring relevance back to the PA, Abbas, and the West Bank.  Many pundits claim the big lose in the recent Israel-Gaza conflict is the Palestinian Authority because the conflict showed how irrelevant the PA is.  It is time to MAKE the PA relevant again and begin to negotiate a two state peace. 

            Now as for the two state solution, who says there has to be TWO states?  Imagine one federal state encompassing the lands of Israel and Palestine, compromised of two states, a Jewish state of Israel and an Arab state of Palestine.  Israel and Palestine would have their own parliaments as well as a federal government.  The federal government would force both nations to work together on issues they can agree on. 

            Now I know this is completely hypothetical and will never happen, but the point of this exercise is to get back to the peace process.  True peace will require concessions, compromise, and innovative ideas from both sides.  All I know is the status quo is completely unacceptable and if the international community, United States, Israel, and Palestine do not take this opportunity to forge a lasting peace, then more generations will grow up believing peace will never happen. 

What did all that money buy? An argument for campaign finance reform

            This election cycle was the most expensive in history.  Candidates, Super Pacs, and political parties spent around $6 billion on federal, state, and local elections.  The Obama and Romney campaigns spent a little under $2 billion dollars combined.  In the post-Citizen’s United era the media-political industrial complex flourishes like never before.  A majority of the spending bought TV ad space, especially in the swing states.  I spent one weekend down in Miami and I saw political ads every commercial break.  300,000+ ads aired in Ohio alone.  And yet what did all this money by?

            Sheldon Adelson, the godfather of Newt Gingrich’s campaign and single largest donor in the 2012 election, spent over $50 million.  And what does he have to show for it?  Every candidate he backed at the state level lost, except one (I believe he lost 9/10) and Sheldon contributed $20 million to the failed primary campaign of Newt.  Too many $50 million is more than we will make over many lifetimes, but it is pocket change to Sheldon.  He stated he would spend over $100 million to defeat President Obama, so by his standards he went cheap this election cycle. 

            Karl Rove was another grand spender of this election cycle.  He planned to defeat President Obama and win back the Senate for Republicans via Crossroads GPS and American Crossroads.  These groups spent over $300 million combined!  And once again I ask, what do they have to show for it?  Democrats actually gained seats in the Senate and by any metric Karl Rove, Crossroads GPS, and American Crossroads were failures. 

            So what did we learn from this election?  Money cannot buy victories?  The consequences of Citizen’s United and unlimited political contributions by corporations and unions were overstated?  Some people are making that exact argument; that this election cycle shows we don’t have to worry about campaign finance reform and political spending. 

            However, if this election has shown anything, it is that individuals and corporations will spend exponentially large amounts of money to help the candidates they support.  And it just so happens that the most fervent contributors also possess the most extreme views.  As Democrats and Republicans have moved to the radical left and right, the last thing we need are more extreme candidates. 

            Today it is way too easy for a Karl Rove or a Sheldon Adelson to fund a campaign against a candidate he does not agree with; or for Grover Norquist and American’s for Tax Reform to fund a challenger to a Republican Congressman who did not sign the Taxpayer Protection Pledge to not raise taxes - under any circumstances!  

            These are not the candidates America needs.  We need more moderate, bipartisan candidates, and not for far left / far right candidates who refuse to compromise.  And we need 3^rd party candidates who have real chances at winning elections.  So until I start to see billions of dollars spent on independent campaigns, I will argue against Citizen’s United and for campaign finance reform. 

            The real loser’s in the post Citizen’s United era are the American people because more political spending leads to more extreme candidates, which leads to less compromise and governance, which leads to more cynicism and punditry in the media, which leads to more political spending by radical individuals.