Air. Please ask mr. Reid to not to be such an obstructionist and sit down and listen. Have a great day. Guest imitate a few days for that message out to get through from me. Theres a lot of concern about budget deficits. In the period after the downturn, budget deficits for in a range of 10 of the entire gdp, the entire economic output of the u. S. They have come down a little bit. Economists think to be sustainable, budget deficits have to be in the range of 3 of economic output or a lower. The focus of this effort to reduce deficits now is on getting them, in the federal budget deficit to the range of 3 or so. That is what i mean when i say policymakers are not trying to get rid of the budget deficits. Given the economic weakness, a little bit of deficit spending is probably not a terrible thing, at least in the eyes of some budget economists. I think there would be comfort in washington around 3 of gdp. Getting there is a big challenge. There are problems with medicare and Social Security. They are facing big deficit situations. Host what motivates the creation of deductions . What about the other incentives . Mortgage deduction it to encourage people to buy a home. Guest some of the deductions have been around forever, since the invention of the income tax. There has always been a deduction for interest that you paid. The government didnt think it could distinguish between mortgage interest and other kinds of interest. Less interest is deductible now. Some of the things are left over from the early days of the tax code. There is no magic about allowing people to deduct mortgage interest and not the interest they pay on their credit cards. Some of these things are hard to explain. Host does it incentivize home buying . Guest it does provide some if incentive for buying a home and is a large tax break and gives them an enormous benefits. It mostly provides an incentive for buying a bigger house. It seems to incentivize mcmansions. There is a fair question of whether that is something we should be spending that much money on. Host lets go to ohio, robert is a democrat. Caller yes, my question is this. A question comment. I have seen all these outbreaks been giving out. Supposedly they were created for an incentive for them to hire more people. They were given as four years and years. A majority of these companies did very little in hiring. They say they still need to do this. Why should we continue giving these tax breaks to these companies that are not following through with what they were supposed to do when it comes to hiring . Guest that is a good and a very hard question. There are lots of different factors that go into a companys decision to hire or not to hire. A bit short term problem we face is the huge uncertainty that exists over what is going to happen on tax policy. More and more of the tax system has been put on a shortterm basis. We face these big fiscal challenges congress would like to extend these tax breaks but there is not the money in the budget to do that. One of the biggest positive would be to get the tax bases on a positive footing and businesses would have more certainty Going Forward about what their own budget situation would be. That would allow them to make better decisions about hiring. They are thinking, we do not know what we have to pay next year so we are reluctant to hire. Your point is a good one. There is an incentive to hire people overseas. Hiring has gotten slow. It is a little uncertain. Host there is a recent story in the wall street journal with this headline. It also shows how a charitable contributions factor into peoples tax returns. About onethird of tax filers itemize, and more than 80 of those claim charitable deductions. How much does this really mean in terms of americans tax filings . This shows 4,434 as the average amount claimed for some common deductions. Guest it is a very big deduction, and a lot of people give a lot of money to charity. Heartwarming features of what can be a clinical area of coverage. But as i mentioned earlier, i am constantly impressed at how much a lot of people give, including those at the lower end of the income spectrum in particular. It is an extremely sensitive area for members of congress and for policymakers. I would not be surprised in the end if congress does much, if anything, to limit the availability of deductions for charitable contributions because it is so important to so many charities. And it is also something that you want to incentivize, i think, if youre a politician. Host and in the oped pages of the Washington Post writing about how terrible the donations are factoring in to the tax rate. And he talks about how a lot of industries are talking about how their deduction is the most important and should be preserved. Lets hear from bill in kentucky, a republican. Good morning. Caller i am a 67yearold senior. I would like to know why when they talk about obamacare, they are all talking about why it hurts business. But the people under 60,000, when that mandate goes into effect in 2014, there are those that are going to be heard. It is the lower and middle income that will be hurt by that. And this 2 Social Security and raise, Everybody Knows that Social Security is based on what you paid into it. When you pay 2 less into your Social Security retirement, five years down the road, these people 55 and up, their Social Security will be cut about 80 a month. A 100,000 per year person will be cut even more. All because of this payroll tax cut out of your paycheck. That is not a payroll tax cut. That is a cut from Social Security in 2010 and in 2012. No one is addressing these issues. Host we will get a response from John Mckinnon. But first of all, do you have any loopholes that you take advantage of . Caller i am a senior and i pay taxes on my Social Security and my pension. Host did you ever take a deduction for owning your own home or anything like that . Caller i dont own a home. Host ok, thanks. Guest he makes an interesting point. When obamacare is taking effect in the next few years, and there is a lot of uncertainty among businesses, Small Businesses in particular, that feel they are facing an expensive mandate to provide Health Care Coverage to their workers. They feel there is a backup system is being put in place to provide coverage to those workers and other folks who are not able to get coverage in the workplace. Theres a lot of uncertainty among businesses in particular about how it is going to affect them. That is part of the overall of the business community. If you are concerned about the burden that is going to create for individuals, i think that is really less of a concern, and particularly for those getting older. It is really not a concern at all. Medicare is still going to be there for older americans. No one is going to propose to get rid of it, although they do want to modify it. As to the changing rate on Social Security, that is of concern to many in washington. Many were very uncomfortable with this percentage break, because if the money is supposed to go into the Social Security trust fund and is not really going in there, Congress Said in a law that they would pay that money back in a trust fund. But there is suspicion on whether that is rarely ever going to happen. That feeds into their concern about what will happen to Social Security. Is it going to be changed in ways that affect the benefits . Host all of the calls to simplify the tax code, to streamline it, and that may certainly mean to itemize the credits of that take place on the tax returns. Guest the complexity of the tax system is a huge problem. Everyone from the irs on down to congress and the industry out there, if you will, the Financial Accounting industry, everyone recognizes is an enormous problem and causes people to pay a lot more than they otherwise would. Most people do not do their own taxes anymore because they are so complex. They rely on software that is kind of a black box. It is hard to know how the tax system works anymore. People do not have as much of an incentive to take a deduction if they do not know it is there. And the software is what they are depending on. Host does simplifying the tax code as necessarily mean lessening the deductions, cutting some of them out . Guest yes, it would. Inevitably complex dealing with the complexity of the tax system would mean getting rid of a lot of the deductions. Frankly, it may be so complex that it cannot be simplified in a meaningful way. Host lets hear from morgantown, va. , independent caller. Caller i am a college student. My peers, we do not see a big difference between the Democrat Party or the Republican Party that would make a big difference. I think the Democrat Party needs to push the president , or the Democrat Party to make these changes in the loopholes. For the top 1 . I just dont see any changes from the fiscal cliff that is coming up. Guest i think there are big changes coming up. I think the president has drawn a line in the sand and let republicans know he has no intention of allowing the tax rates for the wealthiest americans to be extended again. They were extended in 2010, but i feel there is a new resolve on the part of the white house to not let that happen again. Im not sure if all the rates will be increased as much as the president would like. It could be that they get bumped up by a point or two, instead of the 45 that he wants to increase them by. Four or five that he wants to increase them by. If nothing changes, then tax rates go up for everybody, which would be a very big change, but i do not think that is going to happen. Host here is a tweet. Christian churches are not the only ones affected by deductions. Holiday donations, how is that factoring into the fiscal cliff . Is there anything going on thats give them more of an argument . Are they coming to washington like everyone else to have their point of view heard it . Guest yes, they are lobbying hard to protect the important reduction that they now have for charitable contributions. Deduction that they our out for charitable contributions. I do not think that this will get resolved finally just in the next three or four weeks. The timing is something that they are working, like everybody else is. They are certainly arguing that this is a big moment and they do not want to lose their deduction now. But as i said earlier, i think a lot of these deductions will be made over a time of a year or so. This fight go on. Host maryland, democrats line. Go ahead. Caller thank you for letting me speak on your show this morning. I just want to make a statement about the tax reform. It is not really going to hurt the stock market. It is just going to affect the economy the same as gas prices or food prices going up on the poor and middle class. Life will go on. Just like life has gone on for the rest of the United States of america. But right now, i think the state of politics is very sad because theyre seen there seems to be more of a game to be played and positions, one party having the upper hand over the other. Not much is going to get done. And you have too many extremes on each side to make things a lot more difficult to run. And it makes it difficult on the president as well. Im optimistic that the president got reelected, but pessimistic on anything really changing. Have leased, anytime soon. At least, any time soon. Host and talking about actual change, if there will be a difference on january 1st or otherwise, in terms of taxes, politics, the fiscal cliff, John Mckinnon, are any of these expiring . As part of our fiscal cliff series, were looking at the bush tax cuts that are set to expire unless Congress Acts, and we are looking at spending cuts. Our deductions on the chopping block unless Congress Acts . Are they floating through unless they get rid of them . Guest by and large, most of them are permanent features of the tax code. Yes, the bush tax cuts include a lot of tax breaks, particularly for the wealthy. The Capital Gains and dividends what rates would go up. There are other breaks for the wealthy that would go away if we go over the cliff. There are also some breaks that would benefit working class americans. The child credit is the biggest example. Also, there is relief from what is known as the marriage penalty. This is a quirk in the tax system that causes people to pay what many believe is an unfair break just because they are married. The relief from the marriage penalty would go away and the child credit would go from 1,000 back to 500. That would have a Significant Impact on just regular working folks. Host jason joins us from rancho cordova, calif. And republican caller, go ahead. Caller four quick comments. Number one, we are talking about bill gates and Warren Buffett and driving some kind of benefit by setting up these trusts. Most of the people do this because they give all of their money away to charities and they know that this money, if left after their death, it will be taken over by the government and most like the squandered. Most of the money by these wealthy people is given away to people, to charity and to people that can really use it. I think they should be given some credit for that. Number two, they keep talking about the wealthy and the middle class. The wealthy people in this country, like carnegie, henry ford, john rockefeller, to me, they are responsible for creating the middle class. The middle class did not really exist before people like that came and created these big corporations and created the jobs that put america and where it was. Host we are just about out of time. But before we let you go, do you take deductions on your taxes . Caller of course. Host lets go to John Mckinnon and get a response. Guest i think youre making a valid point overall. Havenk thats some people criticized Warren Buffett in particular for advocating a a higher taxes on the wealthy when as you point out, he is very busy giving away a lot of his wealth to a foundation that is going to spend it instead of the Government Spending it after he passes away. I think that is a fair point to make. It points out the real importance of the deduction for charitable contributions, and just what a phenomenal source of benefits that is for foundations and private charities. Host John Mckinnon is a reporter for the wall street journal. He has been covering fiscal policy since 1999. Prior to that, he was with the journal in florida as a reporter based in tallahassee. Thanks for talking with us. And on tomorrow mornings washington journal, tom cole discusses the latest in the fiscal of negotiations. And then Georgetown University law Professor John buckley looks of the history of the alternative minimum tax and how it is being dealt with in negotiations. Plus, your tweets, phone calls and emails. That is live tomorrow morning on washington journal on cspan. A closeddoor briefing earlier today to outline the proposal of president obama for the so called fiscal cliff. What is the proposal . The top line would be about 2. 20 trillion in the budget control act. And they say compared to what the white house put out, the white house says it offers 4 trillion when using the same accounting as the white house, it would be about 4. 60 trillion over 10 years. Republicans say it would come from tax reform, but not to increasing tax rates. That has been a Sticking Point thus far in negotiations. You are talking about the bush tax rates . All of the bush era tax rates would be extended into next year and that would start the process for tax reform. It would be in the tax reform process that there would generate and they would generate 800 million 800 billion in revenue. And they say the 800 billion could be raised without raising tax rates, and this is something that is in dispute with the white house. The white house said there would be no deal unless republicans agreed to increase tax rates on the wall the next year. What do the republicans say about the debt limit, sequestration, automatic spending cuts, and changes to entitlement programs. Entitlement programs . That was not addressed. The white house offered to make permanent the changes. Republicans are not proposing to raise the debt limit at all. But if you ask their aides, they told us that the speaker would be open to increasing the debt limit, but he is sticking by his role that any increase must be accompanied by cuts and or reforms. It could be on the table. Entitlements, they are not laying out this was a big changes to medicare and medicaid. What they are saying is they want the 600 billion in health savings. They mentioned things that had been mentioned for about a year andahalf. Including way in the eligibility age waving the eligibility age for medicare from 65 to 67. And the wealthy will either pay more premiums, or receive less in that if its a ban to other american in benefits that other americans. The only change to Social Security that theyre proposing is something that has come up repeatedly in these negotiations, which is a change to the way the benefits year over year are calculated. Changes to the way inflation is calculated and the way that would reflect the Social Security, medicare, and a range of other policies. That is something that liberals have not opposed. It has been broached often in these negotiations. What is the gop presenting for spending cuts . Greggs that is not something they are specifically offering. The sequestered about 10 years and 1. 20 trillion. They are offering 2 trillion in the next 10 years. Everybody is talking about the way to replace the sequester is to find alternative cuts and other reforms th