If Congress does nothing to act on the expiration of the Bush Era tax cuts, many will see a modest rise in the amount of taxes they must pay. When planning for the future and trying to work a deal, Congress must balance cutting the deficit with economic recovery, as raising taxes would lead to a decrease in consumer spending, the principle part of Gross Domestic Product (GDP).
In the campaign this year, Mitt Romney championed limiting deductions as a way to make his proposed tax cuts revenue neutral. If applied to the fiscal cliff, we can use these same limits on deductions to increase the revenue that the government is able to collect. Capping total deductions at $50,000, according to the Tax Policy Center, would raise around $750 billion over a ten year period. Deductions would actually hurt the richest Americans the most, leaving middle class America unscathed. 80 percent of additional revenue would come from top earners in the 1%. Some deductions that are on the chopping block specifically appeal to rich Americans, as you can see in the table below of prospective plans. A tax break for corporate jets is such a deduction. Working with the deduction system could bring in even more money, though it would hurt more Americans in the process.
Another option is to increase personal income taxes to the pre-Bush tax cut levels. This would make a modest dent in the deficit, so more revenue is obviously needed.
All in all, we need a balanced approach on revenue increases just like we need a balanced approach on the whole fiscal cliff crisis. Congress needs to make sure that it is not unduly hurting anyone, especially the middle class and the poor. We're not out of the woods yet, with our economy in a sluggish recovery. Prudent fiscal policy is just what we need to continue or recovery and make a dent in our debt for the future.