Stop Giving the One Percent Tax Breaks on Beachfront Vacation Homes

As Obama and Romney prepare to debate the economy, here's a quick breakdown of how a new report says we can save trillions of dollars.

Tomorrow night President Obama and Mitt Romney will face off in Denver for the first of three planned debates. Wednesday’s forum will be devoted to domestic issues, which means viewers can expect a bit of immigration, a dash of energy and a sprinkle of health care—all served up with a heaping pile of the economy.

Romney will no doubt blast the incumbent for his failure to reduce the deficit (let alone halve it as the President pledged to do when he took office). On Sunday at midnight, the government’s 2012 fiscal year came to an unceremonious end with the federal kitty $1.3 trillion in the hole (the same as it was in 2009 when Obama took office, and the fourth year it has topped $1 trillion). The President has since tempered his projections and now says he will trim the combined national debt (which surpassed $16 trillion last month) and deficit by $4 trillion through a mix of taxes on the wealthy and spending cuts.

But don’t expect much more than finger pointing from Romney. The former Massachusetts governor’s plan to fix the economy has a hollow ring to it—probably because it’s an empty shell, constructed from the discarded remnants of tried-and-failed policies, and held fast with partisan glue. When it comes to specifics—like how he plans to cap federal spending at 20 percent of GDP and boost defense spending at the same time without raising a single tax—the candidate is, well, evasive.

“The devil’s in the details, the angel is in the policy,” he cryptically told 60 Minutes‘ Scott Pelley in September.

Romney is right about one thing: When it comes to digging the United States out of debt, the devil is indeed in the details. Trimming trillions of dollars off the nation’s annual grocery bill requires a painstaking, line-by-line analysis of every dime the government spends on the one hand, and every nickle it doesn’t take in due to its overly complex tax code on the other. Is either candidate up to the task? I’m not convinced. Luckily someone has done it for them.  On Monday, the nonpartisan group Taxpayers for Common Sense released a comprehensive report that details some 130 specific steps for trimming more than $2 trillion worth of government spending over the next decade. The plan is designed to stave off the so-called “fiscal cliff”—a series of automatic spending cuts and tax increases embedded in the August 2011 budget and debt limit deal that will kick off on January 2, 2013.  Here are three reforms that the group says can trim a total of $1.12 trillion over 10 years. Mr. Obama? Mr. Romney? Pay attention.

Reform Agriculture Subsidies

(We’re looking at you, corn!)
Savings of $106.7 billion
According to Taxpayers for Common Sense, reforms to just five agricultural programs can save a total of $11.8 billion in 2013. Ending two programs in particular—commodity crop subsidies and federal crop insurance could save taxpayers more than $100 billion over the next 10 years. Agricultural subsidies were instituted during the New Deal and expanded during the Cold War, but since then most of the money has gone to a handful of agribusinesses. Between 1995 and 2011, a total of $277 billion in taxpayer dollars was funneled to the agricultural sector in the form of federal subsidies, 75 percent of which went to support a handful of crops—namely corn, soybeans and wheat—while only a fraction went to producers of vegetables and fruits. Critics say such skewed subsidies are not only an unnecessary waste of money, they are also helping fuel the nation’s obesity epidemic. The $11-billion-a-year crop insurance program, meanwhile, pays about 60 percent of farmers’ premiums, no matter how large the farm, and sends billions to crop insurance companies and their agents. (For the record, the President’s 2013 budget includes cuts to the agricultural subsidies to the tune of $32 billion over 10 years.)

Limit the Use of Defense Service Contractors

Savings of $372 billion
According to TCS, the Department of Defense spent $248 billion on service contracts in 2010 alone—more than it spent on all uniformed and civilian military personnel combined. The annual cost of DoD service contracts has risen three-fold since 2000, and “there is evidence that many service contractors are performing inherently governmental functions,” the group noted. The military now outsources dozens of functions once carried out by enlisted personnel—including food services, transportation and construction—often through no-bid contracts given to a handful of insider companies with ties to government officials. According to a report issued last spring by the Project on Government Oversight, since former Defense Secretary Robert Gates accelerated the outsourcing of the Pentagon, the DoD has spent more than $1.5 trillion dollars on service contractors, and in return has seen fraud and abuse skyrocket. In its final report to Congress, the Commission on Wartime Contracting determined that at least one out of every six dollars spent on defense contracting in Iraq and Afghanistan—or more than $31 billion—has been lost to fraud, waste and abuse.

Modify the Mortgage Interest Deduction

Savings of $645 billion
Few people would argue that giving the middle-class a tax break to write off the mortgage on their house is a bad thing; but what about wealthy individuals who buy million-dollar vacation homes? The mortgage interest deduction—which is currently one of the largest individual tax expenditures—will cost Americans about $93 billion to subsidize in 2012. It also happens to be regressive, which means the more money you have the more you benefit. The write-off can be applied to vacation homes and second residences—like that house in the Hamptons (even if you rent it out part of the year). According to figures compiled by the Tax Policy Center, about three-quarters of the total annual kickback from the mortgage interest credit goes to the top 20 percent of earners. Critics say that not only does the write-off help underwrite beachfront property for the “one percent,” but it also helped fuel the housing crisis by providing an added incentive for real estate speculators to take out more debt. Of course scrapping the deduction all together would hurt millions of middle-income homeowners, which is definitely not a good thing. But Taxpayers for Common Sense says Congress could reduce the annual burden by as much as a third simply by limiting its application to homes valued at under $500,000.