Wednesday, November 10, 2010
This is a document released by the co-chairs of the Deficit Reduction Commission, Alan Simpson and Erskine Bowles, so it does not necessarily reflect the final report that will be released in less than a month. But it does reveal the broad contours of the discussion that will take place between the President and the new Congress that will arrive in January. It is, of course, possible that the commission will come together around a compromise version of these proposals, and submit them to the lame duck Congress for more rapid action, such as, for example, the specific recommendations related to Social Security and Medicare (addressed elsewhere towards the end of this article by David Dayen), but this now looks unlikely.
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 plan would reduce projected Social Security benefits to most retirees in later decades — low-income people would get higher benefits — and slowly raise the retirement age for full benefits to 69 from 67, with a hardship exemption for people who physically cannot work past 62. And it would subject higher levels of income to payroll taxes, to ensure Social Security’s solvency for the next 75 years.
The plan would reduce Social Security benefits to most future retirees — low-income people would get a higher benefit — and it would subject higher levels of income to payroll taxes to ensure Social Security’s solvency for at least the next 75 years.
But the plan would not count any savings from Social Security toward meeting the overall deficit-reduction goal set by Mr. Obama, reflecting the chairmen’s sensitivity to liberal critics who have complained that Social Security should be fixed only for its own sake, not to balance the nation’s books.
The federal tax on gasoline, now 14.8 cents a gallon, would more than double 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.
Lost in the emphasis upon Social Security and Medicare is the overall supply side orientation of the proposed policies: reductions in the top rates of taxation, reductions in government expenditures and employment, enforced through spending caps, with 75% of the proposed deficit reduction accomplished through spending cuts and only 25% attained through tax increases, with many of those regressively imposed through a fee for service, cost sharing approach, as outlined by Dayen. One needn't rely upon Marxist economists to discover that the implementation of these measures is likely to increase the deficit instead of reducing it, disciples of Keynesians like Paul Samuelson will do. Reductions in expenditures by both the government and middle and lower middle income consumers will transform the deficit into a moving target than can never be reached, with each reallocation of revenue from them to supply side investors accelerating the growth of the deficit beyond the savings attained by cuts in expenditures.
But this is probably the intention. For circumstantial proof of this proposition, we need only wait to see if the Bush tax cuts are extended for everyone, including the exhorbitantly costly ones provided to the top 2% of the population, the ones that everyone acknowledges will significantly increase the deficit. If they are, we can conclusively say what we have always suspected, that concern about the deficit is a public relations effort on behalf of elites to further concentrate wealth and power within themselves. Apparently, they are confident that they can manipulate the social unrest that is likely to result from the economic stagnation that will ensue if these proposals are adopted in any meaningful respect.