Nov. 23 (Bloomberg) -- Over the past year, we were among the most active and vocal advocates of President Barack Obama (Tilson) and Mitt Romney (Scaramucci) in New York’s financial community.
With the U.S. 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. It is time to stop playing political games and start working together to address the crucial fiscal problems and the many other critical issues we face.
The U.S. is running enormous and unsustainable budget deficits -- exceeding $1 trillion in each of the last 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, which would re-establish the U.S. as a nation moving toward fiscal rectitude, 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 -- everyone is in favor of shared sacrifice until it’s his or her turn -- so allow us to make some.
Let’s start with having the wealthy pay more in taxes. We don’t like the idea of our taxes going up, of course, but we emphatically reject Grover Norquist’s simplistic and unrealistic no-tax-increase-under-any-circumstances pledge.
For a deal to happen, somebody has to go first and say, “I’m willing to do my fair share -- in fact, more than my fair share -- as part of a grand bargain that will rein in our deficits and put this country on a more sustainable path.”
Who better than people like us, who are doing very well, to be the first ones to step forward? Our conversations with virtually everyone among our fellow wealthy Americans lead us to believe that there is widespread willingness to do so -- as long as it’s part of a comprehensive deal.
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, should also be paid on all income (including unearned income) above $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 20-25 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 Governor Romney and ourselves, should be taxed as the regular income that it is. This is one of the most egregious loopholes in the entire tax code.
Some argue that even if these tax increases are carried out, they won’t be enough to eliminate the budget deficit. True, but think of the math this way: For every $1 billion not raised from the wealthy, that’s equal to having 1 million average American families each pay an extra $1,000 in taxes.
That would be real hardship for a lot of families that, unlike ours, are struggling to make ends meet. In addition, it’s highly unlikely that President Obama and Democrats in Congress would agree to a budget deal in which tens of millions of people are asked to make sacrifices unless the very wealthiest people in society make meaningful financial contributions.
As for deductions, rather than trying to tackle sacred cows such as the mortgage-interest deduction one by one, we endorse the proposal by Governor 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. Everyone who paid into the system should get something back, but the amount should be based on need. The government can no longer afford to provide a safety net to people who don’t need it.
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. Medicare and Medicaid are already means-tested, so it makes little sense to raise the age of qualification because everyone is now covered under Obama’s health-care law anyway. And payroll taxes for health care are already uncapped, so 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.”
We are probably going to anger just about everyone with our ideas, but, to use one of John F. Kennedy’s favorite quotations: “The hottest places in hell are reserved for those who, in times of great moral crisis, maintain their neutrality.” We hope America’s political leaders think similarly.
(Whitney Tilson is the managing partner of T2 Partners LLC, the hedge fund, and is a member of Patriotic Millionaires. Anthony Scaramucci is a managing partner of SkyBridge Capital LLC and was one of the national finance chairmen for Mitt Romney’s presidential campaign. The opinions expressed are their own.)
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