Posted on 11/11/2010 5:44:36 AM PST by SeekAndFind
We are both pleasantly surprised and modestly encouraged by the program outlined by Erskine Bowles and Alan Simpson, the co-chairmen of the president’s deficit-reduction task force. There’s no VAT in sight, nor is there unrealistic happy-talk about balancing the budget through a federal Taylorism campaign or symbolic assaults on the unholy trinity of waste, fraud, and abuse. Instead, there is a serious series of concrete proposals for constraining entitlement costs, simplifying the tax code, and putting a leash on future federal expenditures. Whereas the Obama-Reid-Pelosi triumvirate had put the country on the road toward a national debt topping 200 percent of GDP — with $1 trillion a year in interest payments alone — the Bowles-Simpson program would stabilize the debt and begin reducing it. The program would keep the debt to 40 percent of GDP in 2037 and would bring annual deficits down to a more manageable 2.2 percent of GDP by 2015, and 1 percent in the following years.
The plan has serious defects, the main one being that it establishes a historically high level of federal claims on the economy — with government revenue equal to 21 percent of GDP — as the new normal. But it is a good start, and it represents the sort of bipartisan starting point that even the most Tea Party–steeped Republican insurgents could begin with while remaining true to their core conservative values. That is not something we’d expected to write about a proposal produced by a go-along-get-along Republican retiree and Bill Clinton’s old chief of staff.
There is no getting around the fact that the plan contains a very large tax hike in the form of abolishing such familiar and cherished exemptions as the mortgage-interest deduction. Mr. Bowles estimates that the program is three-quarters spending cuts and one-quarter tax hikes. But in giving up the complex menu of special-interest tax write-offs, the Bowles-Simpson proposal greatly simplifies the tax code and enables an across-the-board reduction of tax rates — leaving three tax brackets at 8 percent, 14 percent, and 23 percent — with additional savings accruing to taxpayers in the form of lower IRS-compliance costs. We would have preferred two brackets, more generous tax treatment of investments (including investments in children), and deeper reductions in, if not the abolition of, the U.S. corporate-income tax as well — American companies pay the world’s second-highest rate — which could contribute significantly to growth in both employment and economic output. And while the mortgage-interest deduction should indeed be phased out, that is a policy that should be implemented with the utmost care: It will likely further reduce housing prices, a necessary development that should happen — but happen slowly, lest we set off a new round of crises in the securities markets.
The proposals for entitlement reform are likewise painful but necessary: raising the age of eligibility for Social Security and reducing future benefits payments under that program and Medicare. A steeper and more straightforward means-testing approach would be welcome, as would the addition of voluntary Social Security add-on accounts that would give retirees more control over their own futures.
There is an ideological oddity in the proposal’s treatment of discretionary-spending cuts in that it creates two arbitrary categories, defense and non-defense, and insists on separate cuts to each. Specific defense programs may be ripe for reductions or reform, but Pentagon spending is not at historically high levels — or even at historically high peacetime levels — unlike much of the rest of the federal government. It would be more sensible to establish a single target for reductions in all discretionary spending and then to proceed as our national priorities dictate, since there is no reason to presume that the Pentagon must be the target of specific directed cuts when Washington offers such a target-rich environment. If abolishing the Small Business Administration saves a brigade or two, that may very well be a trade worth making, and national defense remains one of the few core federal priorities in which policy cannot be subordinated to strictly budgetary concerns. If federal departments are to be singled out for cuts, we recommend the Departments of Energy, Labor, and Education. (The USDA’s byzantine agribusiness-welfare program already is in the crosshairs.)
Mr. Simpson says too much when he claims that he and his co-chairman “have harpooned every whale in the ocean and some of the minnows.” There are plenty of fat fish in the federal sea, and at least one Kraken: The Bowles-Simpson proposal studiously avoids mention of Obamacare, which, most budget realists appreciate, promises to add trillions of dollars to the national debt over the years, particularly if, as expected, its spending targets are exceeded while other fiscal mechanisms — specifically, cutting doctors’ Medicare payments by 21 percent or more (as promised by separate legislation) and imposing the “Cadillac” tax on expensive health-care plans such as those enjoyed by President Obama’s union constituents — are put off. The law of the land has for years called for precisely the same Medicare cuts that the new legislation alleges to require, and each year Congress has declined to administer that bitter pill to America’s physicians. Sensible health-care reform — and Obamacare is not it — will be necessary to ensure the long-term solvency of American government. Which is to say, Republicans should regard this as a starting point, not as the finish line. But Mr. Bowles and Mr. Simpson have performed a public service by beginning the conversation on mature and realistic footing.
Here’s Larry Kudlow’s take ....
http://www.nationalreview.com/kudlows-money-politics/253035/deficit-commission-right-track
My first cut at the Bowles-Simpson deficit-commission recommendation is that it basically moves the ball in the right direction. It goes after entitlements, domestic and defense discretionary. It puts some kind of freeze on federal hiring and salaries. It lowers the corporate tax, flattens the personal tax, and gets rid of a bunch of tax-expenditure loopholes.
However, it should be much, much tougher on spending. By 2015 the baseline should be lowered by at least $500 billion, if not more — not just $200 billion.
And there should be a much more aggressive, true, flat-tax reform, with no more than two brackets of 15 and 28 percent, and preferably one bracket somewhere south of 20 percent. Plus, capital gains and dividends, which would go up under the commission, should be abolished altogether, along with the estate tax. And corporate tax reform should have a lower top rate and should include full cash expensing for new investment in plants and equipment.
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There should be a minimum income tax that everyone has to pay. When one removes 50% of the populace from the rolls this is what happens. More and more I am leaning to abolishing the income tax and go to a national sales tax.
Carpe diem presumptive Speaker of the House.
Almost none of these proposals will ever go into effect, especially after the GOP has taken control of the House. This is merely a BS plan put into the wind by the Dems so they can try to hang blame on the GOP when very little of this sees the light of day. The Dems anticipated getting an ass-kicking a long time ago and started this commission BS as a long-term strategy to critize the GOP in 2012.
It appears to be an half-step in the right direction, but it contains too many tax increases and too few spending cuts.
“There should be a minimum income tax that everyone has to pay.”
You got that exactly right. Still, I think eliminating most (or all??) deductions will go a long way toward that. I hope the deduction for charitable contributions goes.(Yes I tithe, and will continue to do so) Then perhaps our ministers will stop being tongue tied on the issues of the day for fear of offending the gvmt and losing their tax free status.
I do think these proposals go a long way toward addressing our problems and are MUCH better than what I expected from this commission. Ireally thought this was a cover for Obama and the left to impose a VAT on us.
I'm not certain how you interpret a top tax bracket of 23% as a tax increase. Perhaps it is because it eliminates a number of common deductions, presumably for mortgage interest, state and local taxes and maybe dependent children. Like it or not we need to end these economic distortions, they simply lead to too much mortgage debt, too much state and public skrewl spending, especially in fiscal basket cases like CA, NY, NJ and IL, and tax burden shifting. I say bring on the “tax increase.”
What I want someone, anyone, to say is something on the order of: "If we are to have an income tax, then everyone shall pay a tax on their income". How about some sort of basement level tax? And eliminate the practice of paying people through the EIC. What the hell is that all about? I have first hand knowledge of tip-dependent labor earning in excess of $60k/year paying zero in income tax and receiving a check from the government. That is f'n insane.
RE: This is merely a BS plan put into the wind by the Dems so they can try to hang blame on the GOP when very little of this sees the light of day.
FYI, Paul Ryan, one of the Republican Young Guns who created the widely praised FISCAL ROADMAP was part of this task force.
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To be honest - I dont agree with the gasoline tax, but many of these proposals are very good and need to be done.
I applaud this commission by and large.
As far as the mortgage thing - that can be tweeked but they are proposing lower overall rate in return which is a good thing.
I noticed the AMT got the ax, certainly a gesture towards the coastal living left and their inflated salaries.
What was discouraging was seeing all the congress-critters on the news start to pick it apart. The Republicans should man up and insist on holding to this proposal.
Spot on, Irish. Any plan having support and/or encouragement from Larry Kidlow and Paul Ryan, and opposition from Jan Schakowsky must be a pretty darn starting point.
They couldn't call it "deficit reduction" if there's a tax rate reduction mitigating the elimination of the mortgage deduction. I assumed that they would just plan to abolish it and claim all of those deductions as government revenue.
Don't get me wrong. I kind of believe in the idea, if there is a corresponding reduction in tax rates. All of these itemized deductions are just the government's way of picking the winners and the losers.
Wow would you go about eliminating it, though? Is this something that you would need to phase out over the course of, say, 10 years? Assuming that most interest is paid at the front end of mortgages, this would soften the blow. Say, Year 1: 90% of mortgage interest is deductible, Year 2: 80%, etc. Would this work?
“There should be a minimum income tax that everyone has to pay”
Agreed. EVERYONE needs to be part of the solution. If you live, and work, in this country you should pay SOMETHING. How many 10’s of millions of Americans pay $0 Federal income tax?
Like it or not, eliminating a deduction or credit is a tax increase! And, it’s not the mortagage deduction that leads to too much debt, any more than cars or guns cause deaths - it’s stupid people.
Now, we might have to eventually put those in the equation, but there are SO many other SPENDING cuts that must first be made before Americans are asked to contribute another penney to D.C.’s inefficiency.
You are very naive or don't question the mantras that Rush Limbaugh and Sean Hannity repeat ad infinitum. Even draconian cuts in discretionary spending wouldn't impact the structural deficit much. We need draconian cuts, entitlement reform and a broader, simpler tax code. Sorry to break it to you, but that means higher federal taxes. We need to raise taxes in a way that won't negatively impact our economic competitiveness, and what Bowles and Simpson have come up with in this proposal is pretty much the best deal we can ever hope for. Listen GOP and T.P.: don't look a gift horse in the mouth. POTUS has laid this one on our laps on a silver platter. It's time to hoist him, Nanny P. and Reid on their own petards.
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