Fiscal Commission releases recommendations
President Barack Obama’s Commission on Fiscal Responsibility and Reform released a draft of their recommendations (you can read it here or scroll to the bottom of the page) yesterday to mostly negative response from both Democrats and Republicans:
A draft proposal released Wednesday by the chairmen of President Obama’s bipartisan commission on reducing the federal debt calls for deep cuts in domestic and military spending starting in 2012, and an overhaul of the tax code to raise revenue. Those changes and others would erase nearly $4 trillion from projected deficits through 2020, the proposal says.
The federal tax on gasoline, now 18.4 cents a gallon, would increase by 15 cents between 2013 and 2015, so that revenue from the tax and similar user fees could cover all transportation and highway spending programs, and the funds set up for that purpose would no longer require money from the general treasury.
The proposed simplification of the tax code would repeal or modify a number of popular tax breaks — including the deductibility of mortgage interest payments — so that income tax rates could be reduced across the board. Under the plan, individual income tax rates would decline to as low as 8 percent on the lowest income bracket (now 10 percent) and to 23 percent on the highest bracket (now 35 percent). The corporate tax rate, now 35 percent, would also be reduced, to as low as 26 percent.
Even after reducing the rates, the overhaul of the tax code would still yield additional revenue to reduce annual deficits — a projected $80 billion in 2015.
But how low the rates are set would depend on how many tax breaks are reduced or eliminated. Some of them, including the mortgage interest deduction and the exemption from taxes for employees’ health benefits, are political sacred cows.
The co-chairmen of the panel appointed by President Obama to cut the U.S. deficit recommend raising the retirement age to 68. It is currently 67 years for retirees to receive full benefits. The panel leaders also propose reducing the annual cost-of-living increases in Social Security.
The increase to age 68 would be implemented by 2050 and then would increase again to 69 by 2075. A “hardship exception” would be provided for certain occupations where older retirement would be unrealistic.
Over at the National Review Online, Daniel Foster notes that the recommendations for Medicare include doing away with the “doc fix,” which was originally part of ObamaCare, and shifting costs to seniors.
Americans for Tax Reform noticed that the recommendations call a trillion dollar tax hike over the next 10 years, including a hike in the capital gains tax (not a good sign for investors), a 15 cent hike in the gas tax and an increase in the payroll tax cap. Perhaps the most frightening aspect is a call for an automatic tax hike if the budget is unbalanced.
Overall, it’s much better than I expected. In places where the proposal is specific, I generally like it. The tax increases mainly improving the structure of the tax system (e.g., eliminating stupid loopholes, getting rid of the AMT). Most spending cuts target stuff that ought to be cut.
One thing that seems to be missing is phasing in a higher age of eligibility for Medicare; the proposal only does this for Social Security.
The other limitation is that much of the document is way to vague: broad goals, rather than specifics.
And it’s far from obvious that Congress will adopt, or the President will sign, anything remotely along these lines.
He’s exactly right. It’s going to be nearly impossible to find something that all sides can agree on. Democrats and progressives aren’t going to go for the cuts to entitlement programs, which represent a clear threat to the fiscal future of the nation; and Republicans, conservatives and libertarians are going to balk at anything that increases taxes, which will bring us down competitively in the global economy.