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How To Solve the Fiscal Cliff Today

Yes, this is not a political site. But how can I not mention what I see as a very simple way to solve the fiscal cliff problem which makes everybody happy:

First of all let me preference by saying that the expiring tax cuts which are forcing both sides to sit down and try to hash out a compromise is a good thing for our government, which has been so badly partisan over the past few years. It was actually one of George W. Bush's better moves, in retrospect of course.

The key issue lies as raising taxes to the most affluent 2% of the country. The democrats see this as the solution to increasing tax revenue to offset deficit spending. The republicans are adamently opposed to this, not because they [claim to be] bothered by the higher taxes on the rich, but because the majority of small businesses file their taxes on the returns of the individual owner. Thus, a raise on taxes for the wealthiest 2% would also mean an increase on taxes for small businesses, which everyone agrees are a key ingredient to the success of the economy.

Yet what nobody seems to have noticed is that this downfall to the tax height, could be solved by exempting those tax hikes from being levied against businesses. This is relatively easy to do in at least two ways:

1) To provide some sort of avenue to incorporation which is quicker and easier than those currently in existence, which allow individual business owners to separate their personal income from a business income.

2) To tweak the tax code or provide a temporary addendum to the tax code, which refunds the portion of a business owners tax hike, back to the business.

In this simple scenario, those who work for big corporations and make more than $250,000 per year will still see a tax hike but should be able to afford to pay it (and if they can't, then they need to cut their lifestyle a little bit). And those who make $250,000 or more because they own a business which is making that money, will only be penalized on the portion that they keep for themselves which will generally be much less than $250,000.

Additionally, this will actually incent small business owners to put more money into their business, rather than their pocket and spark hiring or expansion.

Yes, we still need to cut spending and yes we still need to cut waste. That must happen (though we may differ on the breadth of spending cuts needed). But the tax hike dilemma can be solved.

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