Image via WikipediaReport Gathers Negative CommentsThe National Commission on Fiscal Responsibility and Reform (“Debt Commission”) has issued a draft report by its Co-Chairmen Erskine Bowles and Former Senator Alan Simpson (R-WY). As the co-chairmen said, it is not likely to be well-received by all.
Democratic House Speaker Nancy Pelosi [of California] called the targeting of Social Security and Medicare “simply unacceptable,” and Republican Representative Jeb Hensarling of Texas expressed opposition to proposals to raise taxes. [1]Business and Media Institute, in an article, points out that of the three major broadcast evening news programs, only CBS reporter Chip Reid mentioned that the report calls for tax increases of $961 billion over 10 years as estimated by Americans for Tax Reform.
The BMI article noted that “ATR slammed the report saying, ‘It confirms what everyone has known – this commission is merely an excuse to raise net taxes on the American people.’” [2]
The plan is calculated to reduce the federal deficit by $3.8 billion over 10 years. It arguably falls well short of what is needed, since we would still have massive deficits and very high national debt. But the political will to reduce the deficit substantially seems to be lacking, because it would interfere with important benefits.
AFL-CIO President Richard Trumka said the chairmen had told “working Americans to ‘Drop Dead,’” while Rep. Raul Grijalva (D-Ariz.) faulted the report for cutting Social Security benefits while reducing corporate and upper-income taxes. [3]Spending Cuts Are Necessary, Higher Taxes Are Not
What’s missing in Trumka’s and Grijalva’s analyses is the concept that “reducing corporate and upper-income taxes” is precisely the thing that would help more “working Americans” get back to work. Union members are going to find an increasingly difficult marketplace for the products and services they provide if more and more people are out of work because of the unfavorable and uncertain tax picture.
Also, it is not safe to assume that raising taxes and cutting out popular deductions will increase revenues. Increased revenues will result from policies that encourage business expansion and hiring, especially lower income tax rates that are not offset by tax and fee increases elsewhere. Increased net taxes don’t free up capital. Also, the proposal to tax capital gains at ordinary income tax rates will slow, not encourage investment. If you want less of something, tax it.
But significant spending cuts are essential to any improvement in the deficit picture. Deficits and debt in the range we’re seeing today cannot continue for many years. At current spending levels, debt service alone takes up a very large share of the budget. The spending cuts mentioned are good, but not enough. Defund NPR and PBS. Yes, fine.
Welfare can be cut extensively. It has been recently increased dramatically. We could get back to 2008 levels and further. The biggest sacred cows are Social Security, Medicare, and Medicaid. These items represent unfunded liabilities in the tens of trillions of dollars, and the Social Security Trust Fund will never be adequate because it is basically worthless. My suggestion is to phase out these programs over a period of 25 to 30 years while grandfathering in current recipients and people who are scheduled to receive benefits fairly soon. Younger people should be advised to provide for their own retirements and health care.
The commission report calls for increasing the retirement age and trimming certain benefits over a long period of years.
Of course, the trouble with any plan, the Debt Commission’s or any other that covers a lot of years, is that there’s no assurance that it will be carried out beyond the current Congressional term if enacted into current law. Any future Congress can greatly change or scrap the program or any part of it. So for future officials, it’s simply a suggestion.
Steps That Will Definitely Help the Economy
The report seems to have been timed for, as Rush Limbaugh suggested, the lame-duck session of Congress. It is seen by some (including me) as an excuse to raise taxes, but it is also more than that, in that it seriously proposes substantial spending cuts. If America is to avoid a financial collapse certain things need to be done:
1. Significantly reduce spending, including entitlements.
2. Hold the line on taxes. If businesses were assured of a level tax burden, especially if the tax code could be simplified so that compliance costs would be lower, there would be much more incentive to hire people.
3. Pull back on intrusive regulations. These regulations are really just another kind of tax, considering the time and money required to comply.
4. Substantially cut the size of government, eliminating some Cabinet departments and large programs.
Remember:
To effectively reduce the deficit and national debt, we must improve the economy.
Conclusion
The Hill article reports,
The White House reserved judgment in a statement that said the president would not comment until a full commission report is released.I think Bowles may be correct in characterizing the report as a “strong starting point.” [5]Congress and the Administration, sometime soon, must take responsibility for getting spending under control and stopping the lemming-like stampede to the edge of the cliff.
It’s unclear whether that will even happen. The commission report must be agreed by 14 of the 18 members to win approval, and some liberals on the panel criticized the chairman’s proposal. [4]
Otherwise, the laws of economics and finance will take over and we’ll see not only a bad economy, but a currency collapse and the degrading of our standard of living. There is time to avoid that and turn things around. Economic growth and job growth can happen fairly soon, but not with endless spending and new taxes.
The National Inflation Association said all Americans will be millionaires due to hyperinflation. Are they right? Remember Zimbabwe. The Fed is already monetizing the debt, i.e., beginning to pay it off with newly-printed money. That’s what their $600 billion “QE2” plan is about. Until some new collapse actually hits, it may seem like no action is needed. But things are not always what they seem to be.
[1] Heidi Przybyla and Brian Faler, “Deficit Plan Matches $3.8 Trillion Math With Tough Politics,” 11/11/2010, Bloomberg.
[2] Julia A. Seymour, “‘Explosive’ Debt Commission Recommendations Include $961 billion Tax Hikes,” 11/11/2010, Business and Media Institute.
[3] Alexander Bolton, “Pelosi, political left rip proposal from debt commission chairmen,” 11/10/2010, On the Money blog, The Hill.
[4] and [5] Ibid.
Photo: Portrait of Mr. Erskine Bowles. Public domain.
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