The co-chairs of the President’s Deficit Commission have issued a report in advance of the full commission report, making proposals for trillions of dollars worth of deficit reductions. Erskine Bowles and Alan Simpson have made some recommendations that really do show how hard this task is going to be. I have attached a copy below. Just some of the recommendations drawing fire from both right and left.
1) Raising the retirement age for Social Security as well as changing the way cost of living increases are calculated.
2) “Reforming” some aspects of our tax system by dropping rates, including the corporate rate, as well as eliminating some tax deductions that are very popular, including the mortgage interest deduction.
3) A whole bunch of discretionary spending would be slashed, including farm subsidies and defense.
4) Some revenue would be raised, including hiking the ceiling on earnings subject to the Social Security tax from $106,800 to $190,000.
The Chairs estimate that by 2040 spending as a percentage of GDP would be reduced under their plan to 20.5%, stopping the potential rise to 32.9% they estimate will happen without action. Taxes will also be hiked as a percentage of GDP, from today’s 18% to about 21%.
The reaction has been sure and swift. Speaker Nancy Pelosi said the report was “unacceptable”. From Politico:
“This proposal is simply unacceptable,” she said. “Any final proposal from the Commission should do what is right for our children and grandchildren’s economic security as well as for our nation’s fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare. And it must strengthen America’s middle class families — under siege for the last decade, and unable to withstand further encroachment on their economic security.”
The President of the AFL-CIO said the report told middle class Americans to “drop dead”. From the AFL-CIO blog.
Today’s preliminary report from the federal budget deficit commission, says AFL-CIO President Richard Trumka, “tells 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. Some people are saying this plan is just a “starting point.” Let me be clear, it is not.
The right did not react as furiously, but still said that any increase in total taxation would be unacceptable. The Heritage Foundation, Grover Norquist, and Republican members of the Commission came out against any plan that would raise revenues. And the potential for defense cuts has roiled the Republicans almost as much as the call for some modifications to Social Security have roiled the left. Politico wrote a story about a “civil war” on the right over possible defense cuts. (The fact that Rand Paul spoke favorably about defense cuts was here just a few days ago.) Tom Coburn and Paul are lining up as true deficit hawks on the right. (Well allright Coburn has been a real hawk for some time) From the “civil war” story.
“Peace through strength can’t be accomplished through a waste of money,” Oklahoma Sen. Tom Coburn told POLITICO earlier this week. “We’re buying stuff we don’t need.”
Coburn has proposed freezing Pentagon spending, which has nearly doubled since 2002. He’d then conduct a major audit, to be followed by $50 billion in cuts. Coburn has the support of some tea party favorites such as Sen.-elect Rand Paul from Kentucky, who said Sunday on ABC’s “This Week” that he also would seek cuts at the Pentagon.
And going back to the left of course Paul Krugman vaporized the Commission as a tool of corporate interests and the top earners.
Actually, though, what the co-chairmen are proposing is a mixture of tax cuts and tax increases — tax cuts for the wealthy, tax increases for the middle class. They suggest eliminating tax breaks that, whatever you think of them, matter a lot to middle-class Americans — the deductibility of health benefits and mortgage interest — and using much of the revenue gained thereby, not to reduce the deficit, but to allow sharp reductions in both the top marginal tax rate and in the corporate tax rate.
The New York Times wrote a responsible editorial, avoiding the hysterical pronouncements and indicating that if nothing else the report showed how deep of a hole we have dug ourselves into.
Pretty long post eh? Well I think the New York Times editorial got it just about right. The bomb throwers from both sides should get it straight. There is no easy way out here. The report highlights the major pain that needs to be imposed in order to solve the problem. And I say that knowing that I do not agree with all of their findings. But for those that disagree there is an obligation to suggest SOLUTIONS that work, and stay away from silly rhetoric. Lets get down to business and put our house in order, before forced austerity does it for us. And everyone should understand that in a democracy, with both sides having the power to wreck an agreement, there must be compromise. The fact that both sides are howling must mean there is some good work in there somewhere.
Washington Post story on the report is here.
Heritage Foundation criticizes from the right.
debt-commission-chairs-draft
Bill Manzi.com 