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Markets have enjoyed the recent optimism surrounding the fiscal cliff.But the deadline is inching closer and Republicans and Democrats still have different demands.
As Congress breaks for Thanksgiving, Gluskin Sheff’s David Rosenberg has put together his own 10-point plan to fix the fiscal mess:
- Do not raise top marginal tax rates on income and capital. This will perversely distort the incentive system. It is not good enough to say the Bush tax cuts were always meant to be temporary – anything that has been around for a decade is pretty well deemed to be permanent.
- Broaden the tax base. Limit deductions. This is the way to make the tax system more progressive and more efficient.
- Reduce corporate tax rates. This will help make the overall revenue neutral and help build incentives to invest, which in turn creates jobs.
- Means-test entitlement programs. Raise contribution rates, again with progressively a primary goal too. As for Social Security, it is time to raise the eligible retirement age, especially considering that life expectancy is rising by just under one year every decade, and especially since life expectancy is no longer 60 (try 75) as it was when the program was initiated in 1935.
- Reforms to immigration that allow foreign students to live and work after graduation. This will help ease the skills shortage besetting small manufacturers. Generating more taxpayers is a better policy than raising tax rates on the most successful entrepreneurs.
- Promote oil and gas development (leasing on public lands; encourage more pipeline expansion; encourage more shale gas development).
- A national sales tax. Better to tax conspicuous consumption that incomes (Canada has done both this and entitlement reform by the way. It can be done.)
- Simplify and clarify financial regulation (as Roger Ferguson put it in the WSJ, “be careful not to create a one-size-fits-all regulatory environment that could lead to instability”).
- A full-scale war on health care costs. According to the WSJ, three-quarters of the net $10 trillion in the nation’s debt will be due to spiraling costs of Medicare and Medicaid. Incentives to contain costs are essential – no more of this fee-for-service. You can’t work on the deficit and not work on this – only 20% of the budget is discretionary, after all.
- A greater shift in resources towards education and R&D. This will do a far better job in stimulating sustainable job creation than maintaining a system that mobilizes finite taxation resources to the housing market. It would take at least as much political courage to phase out mortgage interest deductibility as it would to implement a national VAT.
Note: The 10-point plan is quoted verbatim.
SEE ALSO: The Ultimate Guide To The Fiscal Cliff >
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