Streams

Bargaining Down the Federal I-O-U

Thursday, November 11, 2010

WNYC
folded dollar holes The federal deficit will rise close to $1.5 trillion in 2010; the government will borrow 41 cents of every dollar it spends. (flickr: EricGjerde)

Welcome to Politics Bites, where every afternoon at It's A Free Country we bring you the unmissable quotes from political conversations on WNYC. On today's Brian Lehrer Show, Felix Salmon, finance blogger for Reuters, analyzed the draft proposal to reduce the ballooning federal deficit written by the two chairmen of the bi-partisan Deficit Reduction Commission.

Reducing the federal deficit was a popular and successful campaign promise this year for Congressional candidates. But how to do it has never been a simple formula — mathematically or politically.

When President Obama appointed 18 members to a bi-partisan deficit reduction commission earlier this year, it was a signal that he was taking the issue of a gaping deficit very seriously. On Wednesday, the commission's two chairmen, Democrat and former Clinton White House Chief of Staff Erskine Bowles and former Republican Senate Whip Alan Simpson released their blueprint to reduce the deficit by $4 billion over the next ten years. It as immediately met with cries of derision by a big bi-partisan group: pretty much everybody.

Their proposals aren't official — formal recommendations agreed upon by the commission are due on December 1 — but Bowles' and Simpson's range of ideas managed to bother both liberals and conservatives for different reasons. The proposals include:

  • Raising the age to receive full Social Security benefits from 65 to 69 (62 if you prove you can't work), but this wouldn't happen until around 2075 (Big sigh of relief for those of us born before 2005).
  • Limiting the mortgage interest tax deduction to homes under $500,000—or eliminating it altogether.
  • Eliminating the child tax credit.
  • Adding a public option to health reform.
  • Placing caps on malpractice awards.
  • Taxing more health insurance plans as cadillac plans.
  • Cutting the number of troops serving in Europe and Asia by a third.
  • Cutting the military budget overall by $100 billion dollars by 2015.
  • A pay and benefits freeze for the pentagon civilian workforce.
  • Raising the gasoline tax by 15 cents a gallon.
  • Raising the social security payroll tax for higher income earners but lowering the corporate tax rate to 26 percent.
  • Lowering the top personal income tax rate to 24 percent.

And many more politically unpopular, though perhaps effective, ideas.

Salmon says that the core problem comes down to the fact that the American population is growing and aging, and therefore more and more people each year are over 65 and eligible for Medicare, the biggest government expenditure by far. Unless taxes are raised to keep pace with that growth, he says it comes down to simple mathematics, and the deficit will expand.

There's this idea that simply cutting government waste here and there you can make a big dent in the deficit, and you can't. That's simply never going to be workable.

Salmon took issue with the fact that none of these proposals take on the lion's share contributor to the long-term deficit—Medicare expenses. Overall, Salmon isn't holding his breath for anything substantive to come out of the commission, because he says it will be almost impossible to get 14 of its 18 members to agree on anything.

Unfortunately what we've already seen is that this commission is NOT going to come to Congress with a proposal of lots of things that should be done. This commission is not going to come up with a proposal at all! There's no way this commission is going to be able to agree on anything which is why we're reduced to looking at what two guys, who happen to be the chairmen of the commission, think might be a good idea.

He also found that some of the proposals directly contradicted with other federal proposals being bounced around in Congress—in particular expiration of the Bush-era tax cuts, which has been talked about as a way to reduce the deficit. If those tax cuts are allowed to expire, top income earners would pay 39 percent instead of 36 percent income tax. Yet in Bowles' and Simpson's plan, the top personal income tax rate would be just 24 percent. Salmon thinks that's a bad idea.

Why also would they put a cap on the total amount of revenue that the government would be allowed to raise in taxes? They're saying that the government is never allowed to raise more that 21 percent of GDP in taxes, as though limiting the income is a way of reducing the deficit. That doesn't make any sense to me at all.

What do you think? Vote on some of the proposals in Brian Lehrer's Informal, Unofficial, Thoroughly Unscientific Opinion Poll.

Brian, for one, gives his kudos to Republican Chairman Alan Simpson and Democratic Chairman Erskine Bowles "for this audacious display of walking past politics to address a major national problem as if we were one nation." Read more from Brian if you vote in the poll!

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