Cutting Obama’s Monster Deficits Down To Size
There’s something for everyone to hate in the deficit-cutting plan by the co-chaimen of the bipartisan National Commission on Fiscal Responsibility and Reform, but there’s also a lot to like, too.
Whether or not the plan receives the supermajority 14 votes from President Obama’s 18-member commission may be irrelevant in the end. It contains the seeds of some much-needed tax cut proposals to grow the economy, suggestions to slow down the growth of Social Security and other entitlements, and a way forward to place a “tight” cap on the growth of domestic discretionary spending and eliminate 200,000 workers from the federal payroll.
While the national news media’s focus has been on the panel’s mission to come up with spending cuts, one of its strongest deficit-fighting proposals takes a page out of Ronald Reagan’s supply-side book to cut the top marginal income tax rate to between 23 percent and 29 percent — and the 35 percent corporate tax rate down to 28 percent — by eliminating corporate welfare and other tax breaks.
Not only would the commission’s plan sharply cut the corporate tax (the second highest corporate rate in the industrialized world), it would stop taxing overseas profits of U.S-based global companies.
These tax reforms, as U.S. economic history has shown, would unlock a tsunami of capital investment, business expansion, jobs and higher incomes that will significantly boost tax revenues which will reduce borrowing and help to shrink and eventually eliminate the deficits.
House Republican Leader John Boehner, who is in line to become the House speaker, and other GOP conservatives, have embraced the idea of closing loopholes in the tax code to bring down the tax rates and simplify the monstrously complex tax system.
Former Rep. Vin Weber of Minnesota, a congressional leader in Reagan’s supply-side revolution of the 1980s, is urging Republicams to endorse the idea again, along with the commission’s proposal to lower the marginal tax rates.
“I’m telling Republicans to acknowledge that a positive argument has come out of the deficit commission. Let’s say yes to something,” Weber told the Washington Post.
But there are also a number of provisions in the commission’s tax and spending proposals, which underwent some minor revisions in the past several weeks, that would not only retard economic growth, fail to cut spending deeply enough, or are nonstarters. Among them:
— Doubling the federal gas tax to 15-cents a gallon is going nowhere in the new Congress, especially when regular gas at the pump is $3 a gallon or more, and the Republicans’ election war cry was “no tax increases period.”
— Taxing capital gains and dividends as ordinary income under this plan could actually raise taxes on both and further lock up capital investment and risk-taking. If anything, neither one should be taxed, but at the very least the rate should be further reduced.
— Mortgage interest deductions are a sacrosanct part of the tax code and it is hard to see Congress buying into the commission’s $500,000 cap on a primary residence. It would be a backdoor tax hike on the wealthy.
— Imposing “tight” caps on agency budgets sounds promising, but the commission wimped out on this one, and a near-freeze on the Pentagon budget is especially irresponsible in a still very dangerous world.
Where are the proposals to privatize costly, needless and waste-ridden federal enterprises like Freddie Mac, Fanny Mae and Amtrak?
The panel’s plan calls for a ban on earmarks, the pet spending projects that lets lawmakers use the U.S. Treasury as their private checking account. And cutting the federal payroll by 200,000 workers through attrition is…. well, a start. But where is the list of agencies and programs that should be abolished altogether?
The Corporation for Public Broadcasting, farm subsidies, Small Business Administration, Community Development Block Grants, and the Economic Development Administration, to name a few.
But the chairmen set forth some longterm steps to keep Social Security solvent for presumably decades to come: Gradually raising the retirement eligibility age to 68 by 2050 and 69 by 2075, and using a less generous formula to set cost-of-living increases. But raising the cap on income subject to the payroll tax will no doubt be hotly debated.
The original plan unveiled earlier this fall by the panel’s co-chairs, Erskine Bowles, former White House chief of staff under President Clinton, and former Sen. Alan Simpson, Wyoming Republican, has undergone some tinkering since then.
Spending cuts have been increased a bit. The caps on medical malpractice suits, to bring down health care costs, were dropped. Instead, they proposed changes in how the awards are made.
Unfortunately, the commission acknowledges that despite all of their efforts, the plan would still leave the budget deficit — expected to hit $1.3 trillion by the end of this fiscal year — at $421 billion in 2015.
That figure was reached through what is known as “static analysis” which scores income tax cuts as revenue-losers. When President Kennedy proposed cutting income tax rates across the board (yes, even for the wealthy) in the 1960s, all the experts testified that they would worsen the deficit. By the end of the decade the budget was running a surplus.