faces not one but two looming fiscal crises. The first is the so-called Fiscal Cliff, with
all of the temporary tax cuts expiring on December 31, and the sequestering of
defense and domestic spending taking place in 2013. The second is the need to raise the statutory
debt ceiling, which if it does not happen will cause the United States U. S. to default on its debt.
The prospects for any kind of agreement are dim at most. Republicans will simply not approve or vote for any tax increase of any kind. And without a tax increase the deficit problem will not be attacked and the Democrats will not be in agreement on a deal. But one idea from the Romney campaign could bring about an agreement that both sides could accept.
That idea is to limit the amount of itemized deductions a taxpayer could take. The genius of this is that it does not single out any one deduction and arouse the opposition of the beneficiaries of that deduction. For example eliminating the mortgage interest deduction would be strongly opposed by the real estate industry. But simply limiting total deductions without specifying which one would be affected has tremendous appeal. It would raise revenue without raising tax rates, and would be progressive.
The problem with what Mitt Romney proposed is that at the same time he was limiting deductions he was enacting a massive tax cut for the wealthy. So combine the deductions limitation with a small cut in tax rates that does not nearly offset the higher revenue and you have a situation where both sides could claim victory. Republicans could say they forced through lower tax rates, and Democrats could say they made the tax laws fairer and more progressive.
This bargain could be done, if the political leadership of both parties was serious, committed, imaginative and willing to put public good above partisan politics. In short, something that has no real chance of happening.
And so with almost all economic problems in 2012, there is not a lack of understanding or logic standing in the way of a solution. It is a lack of political will. Everyone knows what to do, no one will do it.