Deficit Commission Calls For Shared Sacrifice, To Be Shared By The Middle And Working Classes

Last Updated Nov 14, 2010 11:17 AM EST

"Unacceptable" is what outgoing House Speaker Nancy Pelosi called the recommendations of the bipartisan deficit commission, convened by President Obama to come up with a way of reducing the huge debt that current government policies are loading onto the future of the U.S. economy.


My first thought was that her reaction seemed, what's the word -- strident? After all, the commission had members from both major parties.

But then I got around to actually reading the proposal, and much of the PowerPoint deck really is stacked against the middle class, while giving tax relief to the upper income groups. Certainly not a shared sacrifice. I doubt we will hear much more about it, which is a shame, because as a nation of individuals, and as an economy, and as a political system we need to act soon to bend down the government spending curves and reduce our aggregate debt.

The Economist wrote a great summary of the proposal, including this:
[The commission] proposed sweeping tax reforms and spending overhauls to cut the deficit to 2.2% and stabilise the debt at 69% of GDP by 2015. The deficit would be 4.3% in 2015 and the debt 90% in 2020 under Mr Obama's most recent budget, the Congressional Budget Office reckons.

The draft plan would make the tax system more efficient while boosting revenue by lowering the top income tax rate to as low as 23%, from 35% now (and 39.6% if George Bush's tax cuts expire) while shrinking many tax credits and exemptions, such as for mortgage interest. The corporate rate would drop and the petrol tax would almost double.
And here's a link to the report itself.

The conservative Heritage Foundation seemed to like the proposal, on balance:
First, the co-chairs do not kick the can down the road but lay out some tough choices for cutting spending. Second, the co-chairs did not propose a value-added tax, or VAT.
Progressive columnist Paul Krugman of The NY Times is critical, no surprises there:
The goals of reform, as Mr. Bowles and Mr. Simpson see them, are presented in the form of seven bullet points. "Lower Rates" is the first point; "Reduce the Deficit" is the seventh.
So how, exactly, did a deficit-cutting commission become a commission whose first priority is cutting tax rates, with deficit reduction literally at the bottom of the list?
Krugman also reminds us of some of the budgetary vulgarity expressed by former Wyoming senator Alan Simpson (one of the commission heads).

Here are some of my impressions:
  • Cutting defense -- absolutely. We have been spending on the defense for the rest of the world for years. Trouble is, lots of big U.S. companies employ a lot of people and make lots of money doing it.
  • Reforming Social Security -- three cheers. We have to increase contributions, and raise retirement ages, but gradually, and not in a way that punishes the working man and woman. Just as the 1983 commission did.
  • Tax reform -- Wait a minute there. The proposal calls for flat taxes and old-style supply-side tax cutting, that believes when you cut taxes on the wealthy everybody wins. Sorry, folks -- there was a time and place for big cuts in tax rates, in the 1980s, when inflation had distorted the tax system. But our taxes are much lower now, and the upper income people of this country, who have gotten most of the benefit of the miracle expansion of the last 30 years, need to carry their weight on the tax side.
  • Gasoline tax -- it's about time, both for reducing energy usage and funding new infrastructure.
Call me cynical, but I suspect that the commission's emphasis on tossing out the mortgage interest deduction (not to mention the deductions for state and local income taxes) is simply a tactic to turn the middle class against the whole proposal.

That said, the mortgage interest deduction is a target for tax cutting -- as I have written before, it benefits upper income people disproportionately, and doesn't provide assistance where it should, to lower-income people trying to buy their first homes.
  • Medical Care -- This stuff is too complicated for me to figure out where the policy is headed, but as a self-employed person who has to find his own insurance, and just paid $100 for batch of generic antibiotics for a case of bronchitis, I know the system is out of whack.
Here's a side thought to keep in mind, when contemplating how honorable it will be to cut back excessive government spending. Excess, both within and without government, has been part of what has made our economy so big over the years: business with the government makes up one-fifth of sales at Cisco Systems, and one-third for Dell, reports the Financial Times.

But we really need to get spending in line. Erskine Bowles, the chief of staff for President Clinton, called it a cancer. I see the steps to be taken as more careful and gradual than that -- more like someone trying to lose 30 pounds to correct their high cholesterol and blood pressure. Steps that are too drastic might harm the patient irreparably, but putting things off for some indefinite tomorrow will not accomplish anything, and lead to an early crisis.
  • John Keefe

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