Finally after weeks of on and off discussions, President Obama and House Speaker Boehner appear to be unifying on higher tax rates for wealthier Americans. Boehner has abandoned his resistance to raise rates on the wealthy (specifically for those making more than $1 million a year) and the president has moved up his target for the Bush-era tax cuts (from $250,000 to $400,000).
The president also agreed to a new formula that would lower annual inflation adjustments for social security, dropped his demand for extending the payroll tax holiday and lowered his revenue figure to $1.2 trillion from $1.6 trillion. On Tuesday morning Boehner told reporters that the president's offer is "not there yet" but he has hopes for an agreement. He also said he was working on "Plan B" legislation. Meanwhile, Senate Majority Leader Harry Reid said Boehner's plan won't pass the Senate.
Yaron Brook, president of the Ayn Rand Institute, says none of these proposals get at the "real structural problems" the country faces, namely entitlement costs and a dysfunctional tax code.
"All of this is just games that they're playing…this isn't a meaningful deal," Brook tells The Daily Ticker. "What they're negotiating is insignificant from the economy's perspective."
Brook says the proposals from the president and Speaker Boehner would increase taxes for the "most productive people in the economy…who actually invest… actually create jobs… and actually can boost the economy and get it going."
What's needed, says Brook, is "real tax reform" — lower rates and a simplified tax code without deductions and exclusions including the mortgage tax deduction. "The government should not be in the business of incentivizing to own a home rather than rent a home," he says.
On the entitlement side Brook favors much bigger cuts than what either the president or the speaker has proposed.
"They're talking about cutting $1.2 trillion of spending over 10 years," he notes. "That's $120 billion on a $16 trillion deficit." Longer term the problem is much bigger, "between $60 and $120 trillion of unfunded liabilities."
Given these numbers, Brook says the proposed reforms of Social Security and Medicare are just "tinkering at the margins" and "insignificant" for the economy. "The real cliff is in the future when we actually have to start paying these unfunded liabilities," says Brook.
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