Former Reagan Assistant Secretary of the Treasury, Paul Craig Roberts has it pretty well dialed in:

Is the “fiscal cliff” real or just another hoax? The answer is that the fiscal cliff is real, but it is a result, not a cause. The hoax is the way the fiscal cliff is being used.

The fiscal cliff is the result of the inability to close the federal budget deficit. The budget deficit cannot be closed because large numbers of US middle class jobs and the GDP and tax base associated with them have been moved offshore, thus reducing federal revenues. The fiscal cliff cannot be closed because of the unfunded liabilities of eleven years of US-initiated wars against a half dozen Muslim countries--wars that have benefitted only the profits of the military/security complex and the territorial ambitions of Israel. The budget deficit cannot be closed, because economic policy is focused only on saving banks that wrongful financial deregulation allowed to speculate, to merge, and to become too big to fail, thus requiring public subsidies that vastly dwarf the totality of US welfare spending...

www.paulcraigroberts.org/

The fiscal cliff cannot be closed

Hey, let's close that cliff! What a crock of conflated claptrap.

Talking about revenue is a waste and distraction, but both sides are happy to engage in that because it diverts attention from the spending, which is the real problem. It's no different than in Salem or at the local level. No sane politician is going to turn off the tap that helps them stay in power.

I'd like to get rid of the payroll tax / income tax muddle. I understand why it's there, but it seems that things can be much more transparent.

I'd like to see the payroll taxes go away, with a transition to an all-income-tax system with a fairly big personal exemption and only a few brackets -- one of the brackets should be for over $500,000 for couples filing jointly.

If we were doing things all over, I'd get rid of the mortgage interest deduction. That said, we can't get rid of it now. Too many people have made huge long-range plans and investments based on an implicit promise that the mortgage interest deduction was set in stone. Any politician who tries to go back on that promise will get tarred and feathered.

Andrew is right on. This is first and foremost a spending problem. Nothing else can make a difference unless and until we stop the madness.

Simplify? But then the code will be transparent and I won't be able to somehow fund my offshore "IRA" with over $100 million!

Seriously, short term we need to raise rates and work on both expenditures and entitlements. My vote (and my candidtae won) is for a little more butter and a lot less guns. Long term, maybe some "simplification," but so many pieces of the economy are built on the complexities and the myriad of deductions that the ship needs to turn gradually to avoid drowning some of the passengers.

Did you really think they'd simplify the tax code Jack? No way, half the government signed a pledge not to raise taxes so they could get the deep pocket campaign money. How are they supposed to go back on that deal without complexity to shield them?

Nothing will get done. The right has taken military cuts and taxation off the table. Totally irresponsible.

The federal budget deficit is fundamentally a problem of rising health care and health insurance expense. If we spent on health care at the same level (expressed as a percentage of GDP) as every other developed country, there would be no federal budget deficit, even with a few wars going on here and there. The longer-term solution to budget deficits is health care reform.

For many years, beginning in 1983, payroll taxes generated large surplus revenues in both Social Security and Medicare. The surpluses were used primarily to finance lower tax rates (down from almost 40% to 35%) for the top income brackets, and lower capital gains and dividend taxes. Let's say that again another way: working people were paying extra so that the well-to-do could pay less. It's well past time for the takers who were on the receiving end of that give-away to step up and pay their share.

The tax code is as it is because there's too much government. Big palyers have lobbyists because they need to protect themselves and they can afford to. Obamacare waivers, anyone (that's a tax, for SCOTUS tole us so). Warren Buffett, if he really thinks he's not taxed enough, can pay more. If he wants to. Which I doubt. Cutting (promising to) taxes in the sweet bye and bye? That's why GHW Bush was a one-term Pres.

Warren Buffett doesn't want to pay more taxes. He wants YOU to pay more taxes. Income is taxed at a higher level than the returns on his investments (i.e., his existing wealth), and he's not suggesting that we change THAT. As usual, now that he's got his, he's all for pulling up the ladder, making it more difficult for anyone else to accumulate wealth by taxing the hell out of their income while he banks multi-millions in investment returns every year.

But it wouldn't matter if we confiscated every dime he owns, and every dime everyone else is making. It would fund the government for a few months at best--and we couldn't do it a second time because it wouldn't be there. We have a spending problem, not a tax problem, but nobody in power wants to address that.

For once I agree with half of what Allan L. says. He's absolutely right that we're spending way too much on healthcare. Unfortunately Obamacare does nothing to reduce healthcare spending except to ration it.

The dirty little secret behind the current fiscal dilemma is that the so-called "Bush tax cuts for the rich" were really tax cuts for the middle class. According to the CBO, between 2000 (the last year of the halcyon Clinton tax rates) and 2008 (the last year of the so-called Bush tax cuts for the rich), the share of total federal tax liabilities paid by the top quintile increased from 66.0% to 69.2% while the share paid by the middle quintile dropped from 9.8% to 8.9%. During the same period, the individual income tax share for the top quintile increased from 80.6% to 94.6% while the share for the middle quintile dropped from 5.7% to 2.2%.

Solution to taxing/spending:

Everyone who earns––however they earn it—pays a flat tax but with one allowed deduction, capped.

Remove the cap on maximum earnings subject to FICA. Raise eligibility age to more reasonably reflect increased life expectancy.

Consolidate the six federal departments that provide various public assistance programs and tighten means-test requirements.

Revisit Affordable Care Act––after, say a year––to tweek what will most likely be problematic tax and punitive elements.

Bring the majority of ground troops home from Europe, Asia, Central and South America, etc., maintaining only a “reaction” force in critical areas. Unify military services similar to those in Canada. Stop building political “pork” projects that military services can’t use and don’t want.

Dream on!

Thank you Mr. Holmer for the link to those informative data. If there is a tax problem in this country (I think there is though not as big as the spending problem) the way back to sanity is to increase EVERYONE's taxes. At the same time, defense spending must be cut and entitlements need to be reined in. This tax the rich mentality is the means to denial of the depth and scope of our country's immense fiscal crisis. Tragically, the populous has re-elected a President (because Sandra Fluke's boyfriend is too cheap to buy birth control or whatever) who doesn't have the intellect to understand the crisis nor the stomach to take it on. Party on people. Enjoy it while it lasts.

"It's well past time for the takers (circa 1983 onward) who were on the receiving end of that give-away to step up and pay their share."

Agreed. We should tax the retired 70 to 90 year old folks (who were 40-60 back in 1983) to the maximum, but they have more wealth than income. So we should confiscate (or repatriate?) a large percentage of their wealth. Kinda of pre-death-tax. And then we should tax the 60-70 year old folks the same way.

"Party on people. Enjoy it while it lasts."

Heck yeah Rick. Capping FICA and then whining about SS being insolvent is the height of silly.

I think your plan would work. Flat can be good as long as the floor (standard deduction) is set at the living wage (we can debate what that is). I find it absurd to tax people that cannot provide for themselves, if that makes me a huge lefty then so be it. I happen to think a tax code with a living wage level standard deduction will decrease dependence on federal 'socialist' programs. I'm pretty sure I'm right.

Also the rate should be set to a number that actually pays for government spending. If people don't like that rate, then start cutting things. No agreement on what to cut, then no rate cut. Period. Projected Spending = Projected Revenue except in emergency borrowing situations (of which there were only 3 in the last century). Right now the average jo isn't impacted by federal spending, so why care?

One thing though, the retirement age. Even if people live longer, mid 60's is about the age that things really start to slow down and get tough. Having the option to retire then just makes sense to me. Besides, once these boomers die off things will balance out again...at least that's what Bill Clinton said...so who knows. My point is that life expectancy and work capacity are not always linked.

Sorry for the wall of text.

"The federal budget deficit is fundamentally a problem of rising health care and health insurance expense. If we spent on health care at the same level (expressed as a percentage of GDP) as every other developed country, there would be no federal budget deficit, even with a few wars going on here and there. The longer-term solution to budget deficits is health care reform."

I've said the same, though I'm less sure that's entirely true than I am that Obamacare will be and is making it worse.

Federal tax revenues are at 15.8% off GDP -- a historic low. And GDP itself is below productive capacity. High unemployment means extra federal money going out for unemployment benefits, medicaid and such. So it's partly a spending problem, and partly a revenue problem. Taxing the upper-income brackets more doesn't close the gap, but it won't hurt the economy either. (If low taxes on the rich helped the economy, we wouldn't be where we are now.)

I guess Allan must want to restore all the Clinton tax rates. (If low taxes on the middle class helped the economy, we wouldn't be where we are now.)

I didn't mind the tax rates under Clinton, and I wouldn't mind them again. The problem is this: as any sensible, rational economist will tell you, higher taxes on the earnings of the middle class will take money out of commerce thereby reducing private sector spending. Higher taxes on the rich, not nearly so much.

If our government had not been buying votes through the good years we'd have room to borrow through the down years.

But nooooo we just had to have our cake and eat it too.