The two co-chairs of the National Deficit Commission, Democrat Erskine Bowles and Republican Alan Simpson, have released what they call a draft plan to the 18-member commission. The proposals are profound, serious, and politically risky.
According to the Wall Street Journal:
“According to the draft, the plan identifies $200 billion in discretionary-spending cuts by 2015, with half the savings from reductions to spending by the Pentagon. It would place limits on tax breaks for homeowners by removing deductions of interest on second homes, home-equity loans and mortgages worth more than $500,000.
“For businesses, it would lower the corporate tax rate but remove a number of deductions currently available. It would make permanent the research-and-development tax credit.
“The federal gasoline-tax rate would start to increase from 2013, increasing by 15 cents a gallon at that stage.
“Federal subsidies to agribusinesses would begin to be slashed by $3 billion a year.
“On Social Security, it would gradually increase the retirement age when people can start receiving benefits to 68 at around 2050 and to 69 by 2075.
“It would combine a cut in benefits with an increase in taxes levied on wealthier seniors’ benefits.
“The savings would be phased in over time and include a freeze on salaries and bonuses paid to federal employees for three years, at a savings of $15.1 billion by 2015.
“It would propose cutting the federal work force by 10% for a further savings of $13.2 billion by 2015.
“It would seek to rein in federal spending on health care, both by introducing further proposed changes, including reform of tort law, and by seeking to slow the growth of the Medicare program.”
To say that the proposals will be controversial would be to put it mildly. The draft document appears to be somewhat light on tax increases; there seem to be no increases in income tax rates, even for the wealthy, and quite heavy on spending cuts. Tax simplification seems to be a dominant feature of the draft proposal. The draft document even makes a serious attempt to handle entitlements. Many of the discretionary spending cut proposals are likely to be controversial as well.
Mind, if cutting the deficit was easy and without political peril, there would have been no need for a bi-partisan commission to attempt to find a solution. However, the sticking point is that the draft document will likely change a great deal as the full commission deliberates on it. Then neither Congress nor the President will be under any obligation to follow all or even any of the final recommendations.
Deficit commissions have come and gone and have had very little effect on government spending. The famous Grace Commission, established during the Reagan administration, made its own series of recommendations that was largely ignored.
The trick is to have a Congress willing to restrain spending in a sensible manner and eschew tax increases that would stifle economic growth. Then there needs to be a president who will either support the spending cuts or at least acquiesce to them. The last time that happened was during the Gingrich Revolution Congress, in which the federal budget actually went into surplus. Then the Republican Congress became domesticated, the dot com bubble burst, and 9/11 happened.
The ultimate goal, therefore, is to not only bring the budget into surplus, but to do it consistently over time, so that the national debt can be reduced thus.
Source: Panel Chairmen Recommend Cutting Federal Spending by $200 Billion, Corey Boles And Martin Vaughn, Wall Street Journal, November 10th, 2010
Draft Document for Discretionary Spending Savings, Fiscal Commission