Let's Just Deep-Six the Gang of Six Deficit Plan
Do we have a winner? The "Gang of Six" plan to cut the deficit, named after the group of senators that hatched it, has many of the ingredients Democrats and Republicans need to make a deal: It's bipartisan, chock full of spending cuts and generates some revenue.
Is it fair? Sorry, bad joke. Still, President Obama likes it, and for now House Republicans aren't gagging themselves with a spoon. That means the plan might offer enough to both sides to provide a basis for the kind of "grand bargain" that is all the rage these days, if only as a way to keep the debt ceiling from covering us in plaster.
Here's a summary of what the plan would do:
- Slash spending by $3.7 trillion over 10 years, reducing the nation's publicly held debt in 2021 from a projected 77 percent of GDP to 70 percent
- "Immediately" reduce the deficit by $500 billion through a mixture of spending cuts and revenue growth
- Raise $1 trillion in revenue over 10 years, including $133 billion for infrastructure investment
- Impose caps on health care, education and other forms of discretionary spending
- Change the tax code so there are only three individual brackets -- 8-12 percent, 14-22 percent and 23-29 percent -- while also eliminating the Alternative Minimum Tax
- Establish a single corporate tax rate of 23-29 percent
- Cut Social Security benefits by changing how the retirement program calculates inflation
- End an insurance program for people with long-term illnesses passed under the Affordable Care Act
Although many of its provisions remain unclear, including its precise impact on Medicare and Medicaid, the Gang of Six blueprint closely mirrors last year's Simpson-Bowles deficit-reduction plan. One improvement is that this latest proposal could raise more revenue -- perhaps as much as $2 trillion -- if you assume Congress will allow the Bush-era tax cuts for high income-earners to expire.
Is the plan balanced, as its advocates maintain? No, at least no more than most of the other deficit-reduction schemes that have been put forward. It envisions more than $3 in spending cuts for every $1 dollar in revenue. And the plan would cut tax rates for the richest Americans (Lloyd Blankfein, come on down!) and corporations, while hacking into health care and retirement benefits for people of more modest means (pass those sacrifices around, everyone.) As economist Dean Baker writes:
The plan calls for substantial cuts elsewhere in the budget which are likely to cut into the incomes of large segments of the population, especially the sick and the elderly. The cuts it proposes to the military are just over 1 percent of projected spending over the next decade.The $3.7 trillion questionIn short, this is a plan that should be expected to please the wealthy since it will mean large reductions in their tax liability in the decades ahead. On the other hand, most of the rest of the country is likely to feel the effects of lower Social Security, Medicare and Medicaid benefits, in addition to other cuts that are not yet fully specified.
MoneyWatch's Mark Thoma raises another pesky question -- would the Gang of Six plan, you know, help the economy? He thinks not. Given the weak economic demand and slow private investment, lopping off $500 billion in public spending over the next several years would be a "huge mistake," Thoma says. Adds the University of Oregon economist:
Unfortunately, instead of a specific, detailed proposal that deals realistically with long-run issues without putting the recovery at risk, the Gang of Six plan is a relatively vague proposal for future cuts that threatens to undermine the ability of the economy to return to full employment. The vagueness is driven by the impending deadline to raise the debt ceiling. Both sides are looking for cover, and vagueness avoids the need to make tough choices.