New York Mayor Michael Bloomberg called for eliminating the 2001 and 2003 tax cuts for the wealthy and farm and energy subsidies, and ending what he called “tax loopholes” on carried interest enjoyed by hedge fund partners.
“All income groups have to be part of the solution,” the mayor said in an economic-growth speech today in Washington. “Allow the Bush tax cuts to expire at the end of 2012, not just for high-income workers as the president has proposed, but for all tax brackets.”
In advocating that the U.S. return to higher income-tax rates set by President Bill Clinton, the independent mayor of the most populous U.S. city said rising deficits and political inaction have paralyzed business and discouraged investment.
Under current policies, the national debt will grow to $21.5 trillion from $10.3 trillion in 10 years, or $72,000 per U.S. resident, the mayor said. That crisis may best be averted through a combination of taxes and reduced spending on health care and Social Security as outlined by President Barack Obama's fiscal commission headed by former Senator Alan Simpson, a Republican from Wyoming, and Erskine Bowles, once Clinton's White House chief of staff, Bloomberg said.
“The spending cuts in Simpson-Bowles, plus Clinton-era tax rates, plus closing some tax loopholes and ending wasteful subsidies would save $8 trillion and effectively bring our budget into balance by 2021,” Bloomberg said.
Supercommittee's Goal
The billionaire mayor, 69, founder and majority owner of the financial information and news company Bloomberg LP, called upon a bipartisan congressional supercommittee currently examining ways to reduce the budget deficit to exceed its $1.2 trillion goal for spending cuts and revenue increases. The committee's recommendations are due Nov. 23.
“The time has come for members of the supercommittee to embrace the spending cuts in Simpson-Bowles largely in their entirety, including their Social Security reforms,” Bloomberg said.
Simpson and Bowles released a statement today calling the mayor's speech “a very timely and much-needed call to end the Washington stalemate and find meaningful solutions.”
At a bipartisan forum sponsored by the Center for American Progress, a policy research group affiliated with Democrats, and the Republican-oriented American Action Forum, Bloomberg also called upon Obama to be more forceful.
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“I recognize that allowing the Bush tax cuts to expire is not a step the supercommittee is likely to take,” Bloomberg said. He urged Obama to veto any further extensions, “throw politics aside and lead -- not follow -- the conventional wisdom.”
Social Security's eligibility age should be raised gradually over the next six decades as part of several cost- cutting moves, he said.
Last week, at the suggestion of U.S. Senator Michael Bennet, a Colorado Democrat, Bloomberg hosted a dinner at Gracie Mansion, the mayor's ceremonial home, for a bipartisan group of senators and New York City business leaders.
“We had a very frank discussion about the economy and how Washington is handling it,” Bloomberg said. “Generally speaking, major American companies are not short on cash. But one of the big reasons they are not investing is that they are short on confidence in the federal government's ability to manage macroeconomic policy.”
Position Changed
Bloomberg's support for an end to the tax cuts enacted by President George W. Bush represents a change from his position last year, when he favored a two-year extension, the mayor said. His changed point of view came upon deciding that fairness outweighed any effect it might have on New York City residents, Bloomberg said.
“Many of the people who would be affected are my constituents,” Bloomberg said. “I'll probably be getting a few phone calls later today.”
Eliminating the special tax treatment that fund managers get on carried interest and regarding it as ordinary income would raise $18 billion over 10 years, Obama has said.
It would affect general partners in private equity and hedge funds who may or may not contribute capital to the firm and get most of their earnings as a share of the profits from the assets under management. This so-called carried interest is taxed at the capital-gains rate of 15 percent, and not as ordinary income, which has a tax rate as high as 35 percent.
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The scheduled expiration of the Bush-era tax cuts in 2013 would mean that the tax rate on capital gains would revert to 20 percent from 15 percent. Dividends would again be taxed as ordinary income with a top rate of 39.6 percent, instead of 15 percent now.
Individuals earning more than $200,000 in 2013 and married couples earning more than $250,000 would face a 0.9 percent payroll tax increase and a 3.8 percent tax on a portion of net investment income, both linked to the 2010 health-care law.
Further in 2013, millionaires and other high-income taxpayers face a scheduled return of limits on itemized deductions and personal exemptions.
Republicans in the House of Representatives have begun discussing whether to extend dozens of tax breaks that expire Dec. 31, including benefits for corporate research and for U.S.- based banks' overseas operations. A one-year extension of expiring provisions that have been routinely moved forward would cost the Treasury more than $30 billion in forgone revenue, congressional budget analysts have said.
‘Yell and Scream'
“Opponents will yell and scream about taxes and cuts destroying the economy,” Bloomberg said. “But the same people said the same thing in 1993, when President Clinton and Congress adopted those rates as part of a major deficit-reduction plan. And I think everyone would agree that turned out pretty well.”
Failure to adopt a comprehensive plan of spending cuts and taxes equaling a lot more than the supercommittee's $1.2 trillion goal risks continued economic stagnation, Bloomberg said.
“Every CEO and business leader that I speak with says virtually the same thing: They are not going to make major investment decisions until they know how Washington intends to grapple with our huge deficits,” Bloomberg said.
“The best economic stimulus is fiscally responsible, long- term deficit reduction that sends a clear signal to the private sector about Washington's commitment to economic stability,” he said.
