Rhyme & Reason on the Fiscal Cliff

If rational ladies and chaps
In Congress agree to put caps
On deductions from taxes,
Then revenue waxes,
With deficits waning, perhaps.

But merely increasing the revenue,
For sustainable budgets, would never do.
Our care for the aged
Must now be re-gauged,
If balance long-term we endeavor to.

To establish a little more surety
For Medicare and Social Security,
We must compensate
For our slowing death rate
By raising the age of maturity.

The Congress may not be remiss
In horsetrading that against this,
For to hope there is reason
That Washington's seizin'
Escape from the Fiscal Abyss.

Over the weekend, Dr. Goose was seized by optimism when he read Greg Mankiw's latest blog post regarding the resolution of the fiscal cliff. In a post entitled "How To Raise Tax Revenue From The Rich Without Increasing Tax Rates," Prof. Mankiw writes:

According to the Tax Policy Center, if we cap itemized deductions at $50,000 and keep tax rates as they are today, we would raise $749 billion in tax revenue over ten years. Moreover, according to the TPC's distribution table, 96.2 percent of the extra revenue would come from the top quintile, with 79.9 percent from the top one percent.

This elegantly simple modification to the tax code, which was also floated by Mitt Romney during his presidential campaign, could be the core of a compromise on the federal budget. The quid pro quo would be a reduction in the growth rate of spending by "gradually but significantly increasing the age of eligibility for Medicare and Social Security." Of course, there's more to it than this, and the devil, as always, is in the details, but it does give one hope to see a simple framework on which reasonable people can come together.

In a related point, I like the term "austerity bomb" as a more descriptive alternative to "fiscal cliff" for describing what will happen if no budget deal is reached.