Republican congressional leaders and President Obama sharply disagree over how to deal with the impending “fiscal cliff.” But a successful plan shouldn’t be that hard to put in place. Here are six ways Washington can avoid the “fiscal cliff.”
Everyone agrees Congress should fix the Alternative Minimum Tax. It originally applied to wealthy earners to limit deductions and expand taxable income, but because it hasn’t been adequately adjusted for inflation, more and more middle class families are being affected by it as well.
In addition, we should cap deductions for those with incomes above $250,000, either with a hard dollar cap such as $35,000 or at a 28 percent rate. At a 28 percent rate, a $1,000 deduction that would normally reduce one’s tax bill by $350 would instead be worth a little less: $280.
This limits backdoor spending through the tax code but doesn’t threaten any particular deduction. It raises revenues from the wealthy, a key Democratic priority, without raising rates.
Congress and Obama should agree to enact these two tax provisions now but implement them in 2014 so as not to undermine a fragile recovery.