After I wrote this post about the deficit commission yesterday, I had a chance to speak with one of the commission's staffers, which shifted my perspective somewhat. There is more to like in the proposal than I originally thought, but it still bakes conservative priorities into the budget, which is seriously problematic if this plan is supposed to be the basis for bipartisan agreement.First, my overall critique: Balance is the issue here. There are $616 billion in cuts to discretionary and mandatory spending between 2012 and 2015. Meanwhile, during that time, revenue changes will add $174 billion in deficit reduction. This is supposed to be, recall, a grand deal between those interested in cutting spending and those interested in using the tax code to help reach balance. A result that's two-thirds spending, one-third revenue isn't that, even realizing that a fifty-deal is not likely or feasible. This is not a very effective starting point.
That's not to rule out the ideas in the first tax-reform section; zeroing out tax expenditures and adding them back in with rate bumps is a smart way to find balance so long as expenditures like the Earned Income Tax Credit don't get zeroed out. In particular, eliminating the mortgage-tax deduction is an important step forward. Treating capital gains and dividends as ordinary income is also a smart idea. While we'll need to see a distributional analysis before we can say for certain, it's likely to make the tax code more progressive.
While there was not much creative taxation, like a carbon tax or a VAT, linking a gas tax to mandatory transportation funding is also a good government idea with the right incentives. There's also a tricky move that involves switching government inflation measures to Chained CPI. While that would reduce, initially, Social Security benefit increases, it would also compound growth in people's tax brackets. And, as a method of strengthening Social Security, raising the maximum taxable income to 90 percent of covered earnings is a good strategy.
But the tax-reform section includes this goal: "Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates." Why not dedicate the entirety of the savings to deficit reduction and reduce marginal tax rates when the deficit isn't a problem anymore? This is not a tax-reduction plan; it's a deficit-reduction plan. You don't see anything in the spending-cut section that says "dedicate a portion of savings to deficit reduction and apply the rest to health-care subsidies." That's because this plan only push's one party's priorities. And it's just not acceptable, especially given the likely permanency of some or all of the Bush tax cuts, that the price of bipartisan deficit reduction is...lower taxes. When I asked the committee staffer to explain the justification for the plan's controversial cap on tax revenue, he didn't have an answer for me.
My ultimate worry, though, is how this will be implemented. Changes in the tax code, Social Security, and Medicare are simply legislated. But the mechanism for spending cuts are caps on discretionary spending and defense spending. Splitting the two caps is a smart way to ensure Defense cuts go through, but when faced with a discretionary spending cap, though, it will be interesting to see if Congress follows through on the good government suggestions put forward by the commission, or attacks programs with the weakest political constituency.
Where I do see liberals like Jon Chait engaging this plan as a good starting point, I don't think they're seeing how it bakes a political advantage for conservative priorities right into the cake -- not just in the initial share of spending and revenue balance but also in the likelihood that each will actually be enacted. Chait even concedes that for liberals to support this plan, they'd need to change it -- "The smart answer is to signal conditional support." So I'm not sure why he's objecting to critics of the plan who argue the same thing, except as an exercise in political positioning.
Sure, there are plenty of good ideas in this report, and we shouldn't discount them, and certainly not until we see the real numbers underlying this plan. But arguments that liberals should like it remind me about Paul Ryan's response to critics of his controversial budget plan, who noted that it doesn't even cut the deficit as much as the Obama budget: "Adjustments can easily be made." Similarly, this plan is supposed to be the basis of a bipartisan deal, but it favors only one party's priorities. That's all well and good, but adjustments will have to be made.
-- Tim Fernholz
Erskine Bowles follows former Wyoming Sen. Alan Simpson on Capitol Hill in Washington Wednesday, Nov. 10, 2010. (AP Photo/Alex Brandon)
