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This letter was mailed on January 5, 2013

President Barack Obama                                      
White House
Washington D.C. 20500

Dear Mr. President,

I have a proposal for how you can deal with the upcoming push to continue to get a grand bargain, hopefully outside the context of the debt limit. The Republicans want to you to focus on cutting costs, saying that taxes have been decided. You should agree but only if all costs are looked at - those that involve the Treasury writing a check and those the involve the Treasury writing a back door check by telling a taxpayer he can reduce what he owes. We must focus on cutting all expenditures, those made by directly by appropriations acts and those made indirectly through the tax code.

There is no doubt that tax expenditures have been under discussion. But I have a proposal for how to do reframe that debate and implement changes that I have never heard discussed. It is an approach which would be much easier to understand, sell, and implement.

Everyone knows tax policy is hard and complex, but it can be made easier. If you have three goals: cutting spending made through the tax code (tax expenditures); making the tax system fairer and more progressive; and reducing or phasing out subsidies that have passed their useful life, here is a "relatively" simple way to achieve all those goals.

Eliminate all deductions by converting them into tax credits, unrefundable of course. Value those credits at 10%, which is the lowest tax rate. (That gives you some room to negotiate up on some if necessary.) Doing this will achieve many important things.

* It lowers the deficit by cutting wasteful costs we are making through tax expenditure without raising rates.

* It leaves every truly middle class tax payer, those earning within 50% of the income mean, in roughly the same place or better than they are today.

* It gives every taxpayer the same subsidy for doing the same thing. The wealthy will not get a back door check from Uncle Sam for 35% of the interest cost on their mortgage, while the working guys only get a benefit of 10% of their mortgage interest expense. The same for charitable deductions and all the rest. This cures an unacceptable unfairness in the code and runs counter to any legitimate public policy interest.

* It simplifies the code, eliminating the really complicated things like the recently reinstated Pease Plan which partially limits the value of deductions in an unnecessarily complex way.

* Finally it gives you a mechanism to phase out tax expenditures that have passed their time. If those phase outs are done at 1 to 2% per year per year will be as easy to tolerate as the phased out tax benefits enacted in the  Reagan years that eliminated for instance the deductibility of non-mortgage consumer debt.

Look, I know everything has complexities but those things can be worked out. I also know that institutions and people have a “not invented here” mindset that make them resistant to change. But this really can work. And once your your folks analyze it  you will see that I have only scratched the surface of the benefits it offers.

Now that I'm done with the proposal I’d like to give you a little background. My wife and I are retired public service employees. She was a middle school teacher. After service in the Army I got my law degree and worked mostly as a Federal employee as a Counsel for the House Agriculture Committee, Chaired by Tom Foley, as well as for several financial regulatory agencies, last serving as Deputy General Counsel of the Office Of Federal Housing Enterprise Oversight, which is now the Federal Housing Finance Agency. We are truly in the middle class earning less than half the $250,000 threshold that had been discussed in connection with the Bush tax cut expiration. I mention this to let you know that we would have been and still are more than willing to see our taxes go up. We know this country needs more revenue to pay for essential goods and services if there is any hope to for it to grow and build on the prosperity that was given us by our forebears.

Personally, we hoped all the Bush tax cuts would have expired, knowing that would have cost us several thousand dollars but ones we never knew we were missing in the nineties. I have spent a career dealing with economist and their charts and tables and respect their work, but I understand the limitations of that work are real. One need only look at how they totally under predicted the effects of the great recession when folks like me, who were tying to sell a house and seeing the swift and deep collapse of the market could readily see the impact it was going to have on not just housing but the entire overleaveraged financial system. It was clear to anyone not looking at recession charts of the last three decades that we were facing something much worse than what had been seen since the depressions. Conversely, those same experts have not accurately seen that now the rate of growth is increasing faster that they thought. Since they have been burned by under prediction in the past they don’t want to burned by over prediction now.

That is a long way to say we could generate far more tax revenue without hurting the economy than is being thought, and could use it for necessary expenditure as well as deficit reduction, which is going to be the key Republican mantra over the next four year. Not only that, higher revenue, with part used for more infrastructure spending as well as long term investment and the rest used for lowering with lowering the deficit will help us grow faster.

I have one final thought on Social Security and Medicare. I think the long term Social security issue could be solved by not only lifting the the wage tax cap but by making all dividends and capital gains subject to the full 12.4% rate. A version of this was done in the ACA for the Medicare tax. You could even add a new small benefit percentage in the calculation so the the super rich would see a bit of return on these contributions. I think you will find that this change would pretty much eliminate the projected Social Security shortfall. It would also have the salutary effect of getting the total tax rate on unearned income closer to par with the total tax rates paid on wages

I will leave you with this. I dedicated my life to public service as did my wife. We had proud and rewarding careers and we felt honored and privileged to help our country. While I am tussling a little with cancer now but am very fortunate because it is under control and possibly on the way to full recovery. I have been blessed to have a loving, supportive family, and fortunate that I have health coverage, without which I would have been bankrupted.

We live in a great country but since the eighties we have been making it less great by increasing income inequality, and living off the legacy of public expenditures made by our fore-bearers. As a consequence we are sadly seeing a less just, stable and economically dynamic country.

I am confident you are the Leader that can continue on the course to turn this around. I first really heard it in the Osawatomie speech, which was brilliant and moving. I continue to hear echoes of that speech to this day. I hope what I am proposing here will be yet another way for you to present concrete proposals that will further the necessary aims you have for our Nation.

Yours Very Sincerely,

Gary L. Norton
Durango, CO 81303

I added a small postscript inviting him for a visit to our house in a beautiful part of the country. He hasn't been here but Michelle has and he should just ask her.

Originally posted to September 17, 1787 on Sat Jan 05, 2013 at 09:23 AM PST.

Also republished by Social Security Defenders.

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Comment Preferences

  •  Tip Jar (5+ / 0-)

    Further, affiant sayeth not.

    by Gary Norton on Sat Jan 05, 2013 at 09:23:13 AM PST

  •  I really like your idea (1+ / 0-)
    Recommended by:
    Gary Norton

    of subjecting dividends and capital gains subject to the full 12.4% rate in addition to raising the payroll tax cap.

    He that chooses his own path needs no map. Queen Kristina of Sweden.

    by Boppy on Sat Jan 05, 2013 at 09:29:00 AM PST

  •  Gary - your SocSec idea is flawed (6+ / 0-)

    Below is a comment by coffeetalk which she just published in another diary and states the case better than I could.

    "People who say, "just have people pay SS tax on all income" demonstrate a lack of understanding of the system that FDR put in place.

    Technically, it is not a tax.  It is wage insurance.  You can insure the amount of wages you get up  to a certain amount, and your retirement benefits are based on the amount of wages you insure.  If you insure $50,000 in wages, that is what your retirement benefits are based on, regardless of whether you have no other assets or whether you have $10 million in assets.  The "cap" is a cap on what you can insure, and a corresponding cap on the amount of retirement benefits you get.  If you had people able to insure hundreds of thousands of dollars in wages, you'd be paying very very very big SS checks to some very very rich people .  Those rich people would probably be fine with that, but it's a huge political problem.  

    If you don't pay SS "taxes" (like, for example, public school teachers here in Louisiana, who have a separate retirement program) you don't get SS retirement benefits, no matter how much or little other income or assets you have.  

    FDR specifically designed SS to be a "you get what you pay for system so that it could not be criticized as "welfare for the elderly, what he called a "dole"  

        He insisted that the New Deal's centerpiece reform, Social Security, be financed not out of general Treasury revenues, but by a contributory tax. "No dole," Roosevelt said repeatedly, "mustn't have a dole."

    It was the genius of FDR that lets seniors today say that they are entitled to Social Security because they paid for it all their lives.  If it's just "a dole" or welfare, then there's it's far easier drastically cutting benefits, or even eliminating it, because it's simply government generosity, not something they "paid for."  You can't have it both ways.  Either it's something seniors paid for (in which case payouts are based on what you paid in) or it will be seen as welfare, or "the dole" as FDR put it.  And welfare programs have far, far less public support.  

    The only problem with SS is that the cap used to cover about 90% of all wages, and now it's down to about 83% (if I remember correctly).  You can raise the cap enough to cover 90% of all wages -- and raise retirement benefits correspondingly -- and I think that would put SS on a solvent basis for a long long time.  

    by coffeetalk on Sat Jan 05, 2013 at 09:17:53 AM PST"

    I'll add one more concept to coffeetalk's comment. SocSec taxes have never been collected on investment income because investment income does not stop when we retire and therefore does not need to be "insured". SocSec is wage insurance, not an income redistribution program.

    "let's talk about that"

    by VClib on Sat Jan 05, 2013 at 09:34:53 AM PST

    •  It is not flawed it is a deliberate change from (1+ / 0-)
      Recommended by:
      musiccitymollie

      wage insurance to income insurance. And as I indicated the benefit formula would also have to be changed by adding small incremental increases for benefits based on unearned income above the wage thresholds. This is eminently doable. Plate it is simply a matter of thinking differently, just as the administration I thought differently when it decided to add a requirement for Medicare premium payments on unearned income in the ACA.

      It is time for people to get beyond the boxes they have been in and think of new ways to achieve the goals we want which are into make the overall tax system more equitable and more progressive. This is just one way of shoring up Social Security for the future without impacting those who have historically paid the most into it, wage earners, and received the least.

      Needless to say I did not want to go into a 500 word exegesis on the subject to the president and certainly not here. But those who understand the issues truly do understand these things can be done if there is a political will to do it. So the only question is whether this type of approach is politically more palatable then the other options which are being discussed, which I and most of the progressives App Store, such as raising the Medicare age limit or Social Security age limit for changing the indexes.

      Further, affiant sayeth not.

      by Gary Norton on Sat Jan 05, 2013 at 10:09:38 AM PST

      [ Parent ]

    •  I am so so tired of this argument (3+ / 0-)
      Recommended by:
      Gary Norton, Lucy2009, whaddaya

      Lead or get out of the way.

      They are going to change Social Security.  Accept it.  It's a done deal.  Obama is drooling at the possibility of being the President who started the end of Social Security.

      We can either save Social Security by making it more progressive, or we can cut benefits, ensuring the program's eventual end.  Those are the only possible outcomes of this debate.  I choose making it more progressive.  And I dispute the notion, as a bald faced lie, that lifting the cap on income taxed while retaining the cap on benefits changes the fundamentals of the program.

      "Power concedes nothing without a demand; it never has and it never will."—Frederick Douglass

      by costello7 on Sat Jan 05, 2013 at 12:52:22 PM PST

      [ Parent ]

      •  Agree but you can do both. Lifting (0+ / 0-)

        the contributions cap while adding a new, let's sat 0.5% additional level for the benefit formula will keep the structure the same while generating far more revenue for the system that will go out in higher benefits. These are not big prelims. A little computer program will show where a good balance is.  At the end of the day I think it would be great to have a SS benefit of $5,000 for someone who contributed $20,000,000.

        Further, affiant sayeth not.

        by Gary Norton on Sat Jan 05, 2013 at 01:13:49 PM PST

        [ Parent ]

      •  The fundamental cornerstone of the SocSec system (0+ / 0-)

        the more you, and your employers, contribute the higher your benefit. You can't change that without ending SocSec as we know it.

        "let's talk about that"

        by VClib on Sat Jan 05, 2013 at 06:11:45 PM PST

        [ Parent ]

        •  Read my suggestion/ (0+ / 0-)

          Further, affiant sayeth not.

          by Gary Norton on Sat Jan 05, 2013 at 07:42:54 PM PST

          [ Parent ]

        •  The fundamental cornerstone of Social Security (0+ / 0-)

          is that everybody pays in and everybody takes out.  Direct Means Testing, which many Dems favor, would change that.  Lifting the cap on contributions while retaining the cap on payouts would not.

          I used to run a business (a small news and commentary publication) and we established, as our "fundamental cornerstone", that the people (employees) were more imporatant than the product.  At some point, though, the principle became more important than the people.  And, once we recognized that that had happened, we had to make adjustments.  Social Security?  Same thing.  You're clinging to a principle that, if it isn't adjusted, is going to hurt real people.  And THAT was certainly never the intention of the program.  I submit that your formula is a recipe for the end of the program while lifting the cap on income subject to Social Security taxes and maintaining the cap on benefits is a formula for saving it.

          "Power concedes nothing without a demand; it never has and it never will."—Frederick Douglass

          by costello7 on Mon Jan 07, 2013 at 08:47:07 AM PST

          [ Parent ]

    •  well put. (1+ / 0-)
      Recommended by:
      Gary Norton

       My mother taught me the history.  She felt that the upper level had to have a serious stake in SS or they would turn against it.  The conviction was made stronger when she saw Reagan cut her pension.  Raising the cap is a very reasonable way to go.  The SS payouts are on a curve that benefits the lowest paid workers a little more, by even so, those near the capitol still receive more income insurance.  

      Gary' s idea to make deductions tax credits instead however is really good.  A serious tax equity issue.  Poorly educated folk have a hard time understanding what a fraud the "deduction" system really is---5 for me, cause I am rich, 1 for you because you are poor.

      It could lead to a cap on credits for extravagances like 25,000 foot homes, and suchlike.

  •  I am not convinced that all of your (1+ / 0-)
    Recommended by:
    Gary Norton

    proposals comport with my own notions, though this is a thoughtful and worthy presentation that merits consideration and discussion.
    Thanks.

  •  I think you're right that there may need to (1+ / 0-)
    Recommended by:
    Gary Norton

    be some 'out-of-the-box' thinking on this matter (of Social Security and Medicare reform).

    I'm a staunch defender of our social insurance programs, but I'm realistic enough to acknowledge that the PtB WILL cut them, and most likely, deeply.

    I feel compelled to fight against all three of the cuts recommended by Bowles-Simpson.  However, the two most regressive (raising the FRA and the Chained CPI) are of the greatest concern to me.

    I dislike means-testing, but some Dem politicians favor means-testing Medicare, and IMO, it is not a stretch to suppose that they can rationalize the same for Social Security.

    Here's an excerpt and link from Politico, regarding means-testing Medicare:

    SENATE DEMS WARM TO MEANS TESTING – A growing number of Senate Democrats seem to be OK with expanding Medicare means testing in a fiscal cliff deal, but that alone won’t cut Medicare costs enough to satisfy Republicans. Democrats don’t seem willing to entertain other prominent ideas for entitlement cuts, and even liberal Democrats fear means testing is a slippery slope to deeper Medicare cuts. Still, if this is the major concession Senate Democrats have to give, then it seems they can live with it. “I don’t generally like means testing but I can see that as something in a final deal,” said Ohio Sen. Sherrod Brown, a liberal Democrat and close ally of organized labor. The idea got a chillier reception in the House, though, where Minority Leader Nancy Pelosi said the Democrats “already addressed the issue of entitlements” in the ACA.
    I think that a 1/2% raise in the payroll tax should be considered, across the board.

    And, of course, we need to raise the cap to cover 90% again.  I differ from Bowles-Simpson, in that I believe that the raising of the cap should take effect immediately.  (And not be SLOWLY phased in until year 2050.)

    I'd love to think that we can stop all cuts to Social Security.  But, realistically, we'll be lucky if we can even help shape the debate.  Which is not to say that we shouldn't fight the cuts, with everything we've got.

    Thank you for your diary.

    Mollie

    “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

    by musiccitymollie on Sat Jan 05, 2013 at 11:33:06 AM PST

    •  Medicare is already means tested. Premiums (0+ / 0-)

      Increase as income goes up. If memory serves, $350k income gives you a premium three times the standard.

      SS is also means tested. There is a three tier formula for computing benefits. As your contributions increase a lower percentage is applied. That can be continued with even lower percentages for unearned income.

      Further, affiant sayeth not.

      by Gary Norton on Sat Jan 05, 2013 at 11:49:46 AM PST

      [ Parent ]

      •  Yes, Medicare is already means tested in a (1+ / 0-)
        Recommended by:
        Gary Norton

        very limited fashion, but President Obama has proposed much deeper cuts in both his 2012-2013 Budget, and in his proposal to the Super Committee.

        I have posted links to these two documents here repeatedly, showing his proposed new cuts via mean testing.

        Presently, only approximately 5% of the 'wealthiest' Medicare beneficiaries are paying additional or higher Medicare premiums.

        The President's proposals raises this to 25% of Medicare beneficiaries, which dips into much lower income beneficiaires.

        And of course, this is the same policy that Lindsey Graham has endorsed repeatedly on the Sunday talk shows.  So I can't imagine that it won't pass in this next round of "deals."

        The Administration has endorsed Bowles-Simpson, (or as his Chief-of-Staff Jack Lew put it--the President endorses "all six pillars" of the Bowles-Simpson The Moment of Truth proposal) which changes the "bend points" for the Social Security formula, drastically reducing the monthly benefit for Social Security beneficiaries.

        I can't imagine that we won't see all three--Chained, or Superlative CPI, 'means-testing"--now being called 'affluence testing' by Alan Simpson, and last, but also likely IMO, the raising of the FRA.  

        I expect that one to come right before he leaves office, since it is one of the most contentious, and easily understandable, of the three proposed cuts (per B-S).

        Again, thanks for the diary.

        Mollie

        “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

        by musiccitymollie on Sat Jan 05, 2013 at 01:39:08 PM PST

        [ Parent ]

        •  Please come back when all those things don't (0+ / 0-)

          Happen :-)

          Further, affiant sayeth not.

          by Gary Norton on Sat Jan 05, 2013 at 02:10:05 PM PST

          [ Parent ]

          •  Touche. Seriously, if the progressive community (1+ / 0-)
            Recommended by:
            Gary Norton

            can educate folks as to "just what is at stake," [which means that they need to know what Bowles-Simpson is prescribing] maybe we can stop this run-away-train.

            Believe me, no one hopes that this is possible, more than I.

            Mollie

            “If a dog won’t come to you after having looked you in the face, you should go home and examine your conscience.” -- Woodrow Wilson

            by musiccitymollie on Sat Jan 05, 2013 at 02:21:30 PM PST

            [ Parent ]

  •  Wonder why all the comments are on the SS (0+ / 0-)

    Suggestion, which was just an add on, and not the income tax discussion, which is the main point and where most of the money is. That would be a huge revenue booster without raising tax rates and a big move toward progressivity.

    Further, affiant sayeth not.

    by Gary Norton on Sat Jan 05, 2013 at 02:20:04 PM PST

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