Over the past year, we were among the most active and vocal advocates of President Obama (Tilson) and Mitt Romney (Scaramucci) in New York’s financial community.
With the election over, we went on national television together recently to discuss the fiscal crisis, which both of us think is the greatest long-term challenge facing the country. To our great surprise, we found that we are largely in agreement on most big issues.
If we can agree, then our political leaders should be able to as well.
The United States is running enormous and unsustainable budget deficits – exceeding $1 trillion in each of the past four years – and our national debt now exceeds $16 trillion. There is no way to address this crisis without a comprehensive budget deal that both reins in spending and increases revenue, meaning that both parties will have to deal with their third rails: entitlements for Democrats and higher taxes for Republicans.
Such a grand bargain would have three major elements: higher taxes on wealthy folks like us; a reduction in loopholes and deductions, again primarily affecting the wealthy; and slowing the growth of entitlements, mainly Social Security and health care, which will affect a far broader swath of Americans.
Although there has been much discussion since the election about the general outlines of a deal, we have seen few concrete proposals. Allow us to make some.
Let’s start with having the wealthy pay more in taxes. We don’t favor raising tax rates, but believe that Social Security taxes, which are currently levied on income only up to $110,100, making them highly regressive, also should be paid on all income (including unearned income) of more than $1 million, starting in 2013. The limit would go down by $100,000 each year such that there would be no cap whatsoever after 10 years.
In addition, we believe the tax rate for capital gains and dividends, currently 15 percent, should be raised to between 20 and 25 percent. Finally, while some of our friends might not speak to us again for writing this, carried interest, which is the primary source of income for private fund managers such as Romney (and for us), should be taxed as the regular income that it is. This is one of the most egregious loopholes in the entire tax code.
As for deductions, rather than trying to tackle sacred cows such as the mortgage-interest deduction one by one, we endorse the proposal by Romney to put a hard cap on income-tax deductions at, say, $35,000.
Finally, we need to address entitlements – especially Social Security and health care, which consume more than half of the federal budget. Regarding the former, in addition to raising more revenue by removing the income cap, we need to gradually raise the age of eligibility to 70 years old; after all, people who reach age 65 today live, on average, five years longer than they did when Social Security was created in 1935.
Lastly, Social Security has to be means-tested.
An even tougher problem is the explosive growth of health care costs, which now exceed 17 percent of gross domestic product, more than 50 percent higher than those of any other country in the world. The solution here rests on reining in the total growth of health care costs – a tremendously difficult and complex task. Of course, we need to combat frivolous lawsuits and the large amounts of fraud, waste and unnecessary care, but we also need to have tough conversations about how much we can spend in certain areas, without silly talk of “death panels.”