The deficit reduction commission’s draft proposal

After an extended hiatus, Sharon has returned to blogging again:

How to Balance the Budget

Barack Obama’s bipartisan commission has released an outline of its recommendations to reduce the national debt.

The plan calls for deep cuts in domestic and military spending, a gradual 15-cents-a-gallon increase in the federal gasoline tax, limiting or eliminating popular tax breaks in return for lower rates, and benefit cuts and an increased retirement age for Social Security.

Among the popular tax breaks to disappear is the home mortgage deduction, the child tax credit and the earned income tax credit.

Liberals like Echidne are wringing their hands at the idea of the home mortgage deduction going away because–gosh–rich people don’t care about home mortgage deductions.

Take the mortgage deductions for an example. They have always been a bit tricky to justify from an equality point of view, because they give a tax cut to those who can afford to buy rather than to rent and because the size of the price reduction they create is larger the more taxes you would otherwise pay.

But removing that deduction will also have odd equality effects: It’s the middle classes who depend on that deduction to buy a house. The rich don’t need it to be able to afford to buy.

Reducing or eliminating the mortgage deductions, combined with tax cuts of the types shown here, will do — what? They must mean a move towards a larger relative tax burden for the middle classes, unless public spending is really really slashed.

Well that’s not really what would happen. To start with, people shouldn’t be buying houses for the mortgage deduction, and if you can’t afford the house, that deduction isn’t going to help. Secondly, anyone who thinks rich people don’t care about tax deductions is either blind, stupid, or willfully ignorant. Rich people take all the deductions they can get, just like middle class people. Isn’t that why liberals were so anxious to raise the tax rates?

Of course, the commission’s proposals gore everyone’s ox, whether you are a tax-and-spend liberal or a military-lovin’ conservative. And there’s no account here of how these severe changes in taxing and spending would affect the economy. It will be interesting to see the debate to come.

See more opinion here.

If you read the New York Times’ story that Sharon linked, you’ll find that the draft proposal has some pain for everybody. But when you actually go to the draft proposal, you’ll find, in big red letters, DRAFT — DO NOT CITE, on the upper right hand corner of every page.

The various draft proposals are presented in the form of bullet points, broad strokes with no defined substance given to subject them to analysis and debate.

Now, I can agree with most of the bullet points, but I have one huge, huge caveat.  The draft proposal calls for tax reform, with the lowering and simplification of some rates in exchange for the elimination of various tax deductions, and significantly lowered spending.  Other taxes would be increased, and revenue is to be capped at around 21% of GDP.  Thing is, spending is to be capped at 22% of GDP.  That, right there, is a proposal for eternal deficits!  Either taxes should be capped at 22%, or spending capped at 21%; my preference is for the latter, of course, but either is better than what the commission proposed.

The bullet points call for significant spending cuts in a lot of areas.  I have no problem with the idea of spending cuts for the military, as long as they are cuts which represent reality.  The Soviet threat is now gone, so we can certainly do with fewer aircraft carrier battle groups and strategic bombers.  The size of the Air Force and the Navy can be reduced and the Air Force ought to be reintegrated back into the Army; it was part of the Army prior to 1947.

On the other hand, the Army and the Marine Corps are bearing the brunt of the war against Islamism, and the needs of those services should be met without parsimony.

One provision strikes me as madness:

Reform military retirement system to vest after 10 years (not 20); defer collection until age 60.¹

Hmmm: did I cite something I was specifically told DO NOT CITE? :)

There’s nothing wrong with beginning vestment after ten years, but the second part would impact recruiting big-time. Right now, an eighteen year old can enlist, and if he serves well, retire at age 38, beginning to collect his pension. Most servicemen who do this go into second, civilian careers, and do quite well. Deferring collection until age 60 means that the service members who retire after twenty years could have 22 years to wait until they receive their pensions. This proposal is wholly unfair to a special group of people who volunteered to put their lives on the line.²

One of the things that concerns me is the history of our brave representatives in Congress, when it comes to keeping their promises. In 1989, the elder President Bush, worrying about the large deficits, agreed with the Democrats’ proposals for a significant tax increase — despite his “Read my lips: no new taxes!” campaign promise in 1988 — to be coupled with significant spending cuts. President Bush agreed to the tax increases, but the spending cuts were not forthcoming. I do not oppose the idea of increased taxes to eliminate the deficit, in principle, but I just plain do not trust the Congress to cut spending.³ As much as I hate huge, omnibus spending bills, it seems to me that the legislation to change taxes ought to be part of the same bill which cuts spending; if not, we’ll see increased taxes, but no cuts in spending.

The commission’s final proposal is supposed to be presented to the President in December, a Christmas present of sorts. But the commission rules, that 14 of the 18 commission members must agree to it before it can be sent to Congress, probably mean that nothing will happen, nothing will get done. And the promises of Harry Reid and Nancy Pelosi, that the Congress would vote on it during the lame-duck session, are folly: regardless of what the lame duck session votes on the proposal, it will have to be enacted, through real action, by the next Congress, not the current one.
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¹ – Draft proposal, page 38
² – Given that service members who signed up before this proposal could be enacted would be grandfathered into their service contracts, you’d have the situation of some service members retiring at pension at age 38 and receiving their pensions immediately, and others, a year younger, retiring at 38 and getting nothing for 22 years.
³ – I distrust the Republicans on this only slightly less than I distrust the Democrats.

7 Comments

  1. As it turns out, the NYT just did their own budget puzzle.

    Somehow, I suspect the wingnuts around here will still lack the courage to put numbers to their fantasies.

  2. Phoe’s link is good. It’s unclear where they get their numbers, but they seem reasonable. Here’s my solution, which I somehow got to without capping Medicare spending at GDP+1 (which is, by far, the biggest cost saver).

  3. One quibble with that simulator – it doesn’t calculate the savings in 2030 from creating a surplus in 2015 and using that to pay down the debt (thus reducing spending on interest payments).

  4. Excellent link. Jeff, I don’t know about the GDP+1 idea. Older folks (pre-65) are the ones losing their jobs, therefore will be less able to afford the post-65 medical expenses. Perhaps there is a compromise that can be struck.

    The chart shows that there are cuts in the medical arena and adjustments in taxes that can provide significant decreases in our deficit spending.

    Few of our friends on the right appreciate that ObamaCare has a 500 billion cut for Medicare in the next ten years.

  5. Perry – what’s interesting to me is that you can actually still keep the retirement ages at 62 and balance the budget. If you un-click those options from my solution, you still balance, just with less padding.

    One proposal I didn’t see was means-testing for Medicare benefits. I wonder how much that would save.

    And our friends on the right did notice the cuts to Medicare Advantage (which is the additional Medicare coverage available to wealthy seniors) – they just think it’s a bad thing.

  6. Have you noticed that the people who have been whining the most about balancing the budget don’t seem to be constructively participating here…?

  7. To your point, Phoenician, is a quote from today’s excellent Slacktivist post:

    America’s long-term structural budget problems involve some Very Large Numbers, but the arithmetic is still quite simple. Nibbling at the edges of the deficit by attacking earmarks or discretionary spending or the proverbial sacred trinity of “waste, fraud and abuse” is pointless and ineffectual. Those things are a tiny sliver of the federal budget and people who pretend to care about deficits while focusing mainly on such things are not people worth listening to.

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