Deficit Reduction Commission Plan

[Pangloss]

Interesting news today that the President's commission on deficit reduction, formed earlier in the year, is just about ready to issue its report. The commission is bipartisan, headed by a Democrat and a Republican:

 

The proposals issued Wednesday were from the commission's co-chairmen, Erskine Bowles, a former chief of staff to ex-President Bill Clinton, and Alan Simpson, a former Republican senator from Wyoming.

 

"I ask the American people to take a look," Simpson said. "This is not the usual stuff. It's all out there. We have harpooned every whale in the ocean."

 

Reaction to the proposal from the press today was overwhelming -- you'd have thought that the pair was advocating the immediate sale of every home in America and the immediate departure from cities to living in caves. But in fact the proposal only calls for a cut of $200 billion from military and domestic spending by 2015. It does allegedly produce $4 trillion in overall deficit reduction by 2020, but it mainly does that through tax increases of various kinds.

 

As examples of possible spending cuts, the report advises reducing overseas military bases by one-third, freezing federal salaries, eliminating a quarter-million nondefense government contractors, and doing away with all spending earmarks — pet projects put forward by lawmakers and approved with little scrutiny.

 

Regarding the tax changes:

 

The report aims to simplify the federal tax code while expanding the tax base, by eliminating all tax deductions including those for state and local taxes, dependent children and interest on mortgage payments.

 

The plan would increase taxes paid to the federal government by $751 billion from 2012 to 2020.

 

Doing away with the deductions would allow marginal tax rates to be simplified and reduced across the board. The lowest rate would drop to 8% from 10% and the top rate would go to 23% from 35%. The tax rate paid by corporations would be reduced to 26% from 35%.

 

Another recommendation is a 15-cent increase in the gas tax starting in 2013, with the revenue going toward transportation projects.

 

That bit about deductions and bracket changes is interesting -- some reasonable give-and-take there, which seems like it might even lead to some savings due to increased efficiency while lessening the direct impact on taxpayers.

 

But the proposed cuts were the main focus today, because they sent almost every single politician and special interest group scrambling for the nearest microphone. Check this one out:

 

The authors say their goal is making the system solvent and preventing a 22% cut projected in 2037. One option laid out is to increase the age at which full retirement benefits begin to 68 in 2050, and 69 in 2075. The proposal would allow a hardship exemption for people who are physically unable to work beyond the age of 62.

 

Now, full benefits kick in between ages 65 and 67, depending on the year of birth.

 

One member of the commission, Rep. Jan Schakowsky (D-Ill.), called the Social Security proposal "a nonstarter."

 

EGAD! It's a "nonstarter" to discuss raising the retirement age 40-65 YEARS from now?! OMFG!

 

And it gets worse:

 

Richard Trumka, president of the AFL-CIO, said: "The chairmen of the deficit commission just told working Americans to drop dead. Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people — Social Security and Medicare."

 

Rofl! Nice sound bite, but what a jackass. But this sure seems to underscore the point that it's going to be flat impossible for our elected officials to come together on serious budget cuts. What do you all think?

 

Most of these quotes are from an LA Times story which may be found here:

http://www.latimes.com/news/nationworld/nation/la-na-deficit-commission-20101111,0,5670646.story

[The Bear's Key]

Oh sure, as if church would ever allow tax-deductions to vanish. Which by the way means you and I pay for the donations indirectly via taxes even if we're not part of any church.

 

To remove tax-deductions entirely could screw nonprofits of all types certainly.

[Pangloss]

It kinda reminds me a bit of President Obama's problems in general, coming into office having to make sweeping decisions that were almost guaranteed to build a vast list of opponents in rapid order.

 

But that's also what I like about it. It pisses off everyone, but everyone shares responsibility for this problem, so that seems fair.

 

What I'm worried about is the plan everyone likes.

[The Bear's Key]

What I'm worried about is the plan everyone likes.

That makes no sense.

[Pangloss]

What I'm worried about is the plan everyone likes.

That makes no sense.

 

In other words, if a plan is proposed that everyone likes, it will probably suck ass at reducing the deficit. A bit of flippancy on my part, but as generalizations go it could well be accurate. Any way you cut it there's going to be fiscal pain in the future. Might as well spread it around, for example, as you say, by removing all deductions.

[mississippichem]

Everyone screams cuts during election season in tuff fiscal times. Too bad no one actually posses the stones to make the unpopular move and make the necessary to fix our fiscal situation.

I heard a conservative Harvard economist being interviewed on NPR the other day. He was commenting on the level of cuts that were needed to make our situation sustainable. Then the host asks him:

 

"How is President Obama going to reduce the deficit and curb spending without going after entitlements?"

 

The guy responded with a very clear,

 

"He can't."

 

Rep. Jan Schakowsky should realize that if we don't make the painful cuts now, there are not going to be any entitlements to cut in the future because the Chinese will stop buying our treasuries and our spending spree will be over permanently.

[The Bear's Key]

In other words, if a plan is proposed that everyone likes, it will probably suck ass at reducing the deficit.

That's not a good view to begin problem-solving with.

 

The mathematical odds of solving a problem -- and every one is solvable -- increases with each new attempt you give it. But if you don't even bother with it, then your odds of solving the problem approaches zero.*

 

So let's try it again, shall we?

 

If the plan offered a new Amendment to the Constitution requiring all levels of government to inform us of its spending and budgets in real-time -- via internet, email alerts, whatever our fancy -- lots of the waste is gonna vanish and people might enjoy such a level of transparency. How it's done matters, but the plan wouldn't suck....just the implementation of it might, but that'd likely be due more to political sabotage than a fault with the plan.

 

 

* Really true. I have direct and much experience in this. Wanna know how, just ask.

[mississippichem]

In other words, if a plan is proposed that everyone likes, it will probably suck ass at reducing the deficit.

That's not a good view to begin problem-solving with.

 

I think what Pangloss is saying is that the cuts need to be so deep, because the problem is so deep; that no one could possibly like the outcome and the outcome be a quantitatively effective cut of expenditures. The Bear's Key, I do like your idea though. I think there should be some kind of real time or pseudo-real time access to our governments spending habits. I think that would get rid of some waste. Voters these days want blood whenever they hear about nasty little spendthrifts.

[pioneer]

I would tax all campaign contributions to electred officials by treating campaigns as businesses. Obama raised neary a $1B for his campaign. as one example. I am not targeting him, but using him to just give an idea of the revenue possiblities. When something is free it is not appreciated as much as when you have to work hard for the money and then the government can come in and take it. Right now campaign money is a big tax free entitlement program. Whatever taxes the leaders feel is fair, for each tax bracket in the private sector, will also apply to their mad money.

 

Another idea that came to me was a tax rebate lottery. The way it would work is those who pay taxes have the option to buy one or more lottery tickets from the IRS. If they win, they are exempt from taxes that year. We can even have lifetime winners exempt from a lifetime of taxes. You just tweak the input-output revenues until new revenue is raised. People don't mind giving if they feel they may actually benefit by giving. But since it is a lottery the sun can shine on anyone.

 

Power and money, although connected work differently. The private sector needs to work in a competitive environment where profit is king. This means efficiency. If you are ineffiency that not only means less profit, but possible extinction.

 

Power is different, since more is always better. If one was going into battle, you will not take the smallest number of people to be cost effective. Rather bigger is better, since bigger means more power. The power structure in government is not in there to earn profit in a competive environment. They do not benefit by efficiency. They are given power, which means they benefit by bigger since bigger means more power.To reduce your staff in half and/or have half is much money to spend is contrary to the needs of power, since this would makes one weaker than his contemporay who gets to be ineffcient.

 

The idea is to change the psychological parameters of government so the idea of profit (efficiency) is more prestigious than power. The leaders need to feel incentive to use the small army instead of the huge army to storm the tiny village. The way you do that is with profit sharing, where the money anyone can save and still produce a high level of goods and services, becomes partly theirs.

 

As an analogy, with power you would bring this huge army with all the bells and whistles, so you look powerful, with all the bearer holding up you throne. But this may be way overkill but it makes you look very important. The other way is whatever you save by using fewer bells and whistles, we will put a fraction of that in your bank account. The weighed option is the guilded throne held by bearers or the new house for the family. By creating the cash incentive there will be internal competition until like the free market the government will be a lean mean service providing machine, without gilded thrones.

[john5746]

This proposal really puts into perspective the kind of sacrifices needed to seriously address the budget issues. I would hope this would provide a great backdrop to see the tax cuts for the wealthy. But, still many will not see, so I think they should provide two more basic proposals. The Republicans should come with one and the Democrats as well. But each proposal must assume the same assumptions, no improved growth should be assumed. Hopefully, that might make it easier to see the effects of tax cuts or keeping services that will continue increasing in debt.

[Pangloss]

That's not a good view to begin problem-solving with.

 

The mathematical odds of solving a problem -- and every one is solvable -- increases with each new attempt you give it. But if you don't even bother with it, then your odds of solving the problem approaches zero.*

 

I agree. Our politicians can't afford to be as pessimistic as I am right now. It's easy to laugh and poke fun, but when they do find a good compromise the people will have to support it, or it will fail.