President Obama, in one of his boldest leadership moves to date, appointed a bipartisan deficit reduction commission some months ago. We have known little about what this commission might propose until the first report was released on November 11th. What is interesting is that members of both parties howled and screamed at various parts of the proposal to deeply cut red ink from our nation’s spending. The plan targets $200 billions in spending cuts by 2015. Proposals include the elimination of all earmarks for pet projects, cutting the federal work force by 10% and reducing Pentagon procurement by 15%. These are great starters. Included, as well, is a plan to gradually increase the full retirement age for Social Security to 69 years around 2050. (I can assure you something like this must happen at some point and those who deny it are playing blind man’s bluff for political reasons!)
This commission is co-chaired by Erskine Bowles (photo left), a former Clinton chief of staff, and Alan Simpson (photo below), a former Republican senator from Wyoming. It has been reported that the commission had to work very hard to build trust and then come up with this initial report. (More is still forthcoming.)
On the tax side the commission offered three options. Each of these plans has an impact upon tax rates in some way and the best one actually calls on Congress to enact tax reform by the end of 2012. This third plan would reduce itemized deductions until a new tax system is in place and raise the gasoline tax by 15 cents a gallon by 2013.
President Obama hopes this commission’s final plan will provide a basis for bipartisan support for change while it also covers members of Congress from various interest groups who will react to some parts of the proposal, as we saw last week in the response to the release of initial ideas.
I read the plan, so far as it was reported, and found things that would impact me both positively and negatively. I do not care that much about the personal impact so long as I can see that the Congress and the President are serious about tax reform and serious budget cutting. You do not have to be an economist to know that we have to cut spending or we will have massive financial problems very soon.
The response to the initial published report was predictable. Nancy Pelosi called it “simply unacceptable.” Senator Bernie Sanders of Vermont called the plan “extremely disappointing and something that should be vigorously opposed by the American people.” AFL-CIO president Richard Trumka said: “The chairmen of the deficit commission just told working Americans to ‘drop dead.’” Congresswoman Jan Schakowsky (D-Ill) called the plan to raise the age for Social Security gradually a “nonstarter.” I wait with proverbial baited breath to hear how she plans to solve this problem other than by ignoring the problem and thereby bankrupting the system with more political promises. Partisans on both sides found things to oppose but Democrats were the loudest in their early criticism. Republicans will fight to not trim military spending if things hold true to form. And Senator Jim DeMint, a major leader in the tea party movement, says there is no need to trim Social Security. What? And Republicans are serious about cutting government? DeMint explains: "If we can cut the administration waste, we can cut hundreds of billions of dollars a year at the federal level." My response is very simple: this is simply not true. The man is playing politics, Republican style. Much more is needed to rein in our spending problems than a "cut in administrative waste."
Scott Hodge, president of the non-partisan Tax Foundation, a research group, said, “There’s enough pain in here that it will either send people running in all directions or bring them together for possible agreement.” Alan Simpson (photo right) asked for patience and added: “We didn’t leave anybody out of the cross hairs. If you’re going to do this, you can’t just pick and choose.” The most vocal critics of the plan, which would cut $3 for every $1 raised through higher taxes are Democrats, proving that they still think raising taxes is the single best answer to our fiscal problems.
People say to me we need to replace the entire Congress. We all know this will never happen. Even if we did this it would not solve our spending problems if you know how Congress works. This proposal strikes me as very promising. All the details might not be right yet but it is at least serious. Everything I’ve heard from the members of Congress, at least up to this point, is anything but serious. I wonder if all those who voted to reduce spending are serious enough, now that the election is over, to really promote such a proposal to our leaders. I also wonder if there are enough really courageous leaders to tackle our fiscal problems with determination and courage. I have serious doubts but if we continue down the road we are on I am quite sure we will bankrupt the government. The states of Illinois, California and New York, among others, are all but bankrupt already. Texas, on the other hand, is in far better shape. Why can’t ordinary people see this and do something about it?
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You may notice that the latest agreement increased expenditures (unemployment benefits) and reduced taxes (extended the “Bush” tax reductions for all). I suppose that it has a priority item for each side.
As I recall, the logic of conservative tax reductions were that if you reduced the income, government would have to shrink. But it did not. Not enough congress people were willing to shrink anything significant.
The current Republican talk seems to be about how small business would be hurt if taxes went up on people making above $250K. Every “small business person” I know would be happy if they had taxable income of that amount.
I listen to Rush and wonder how many jobs he will create with the money that he does not pay in increased taxes. Or how many he would cut if the taxes go up? I think that he should have to open every show with a disclaimer, “The tax increase might take $xxx,xxx.xx from me and thus anything that I say against it may be influenced by this effect on my personal finances.”
This is a great insight into the situation politically and also humanly in terms of the disclaimer. Rush earned over $50 million last year. I have no opposition whatsoever to his earning as much as he can but I do think him disingenuous about the benefits of the tax cuts unless he invests in business creation himself.
I believe markets and morality need to be linked or we are done as a culture long term. One party wants to tamper with markets while the other seems to want to wage questionable wars and false paradigms that show little concern for those who really need the help a generous modern society can give within surrendering the freedom of free enterprise to a European-style statism.
I guess I should have put another x (or perhaps xx) into my amount of money Rush might have to pay if taxes on high earners went up.
There are some web sites that show the amount of the “wealth” and the % of the population that controls it for many countries around the world. We are not up to Mexico, but we are getting close (based on numbers that are now several years old)–and maybe after the last few years we are quite close. I’ve been to Mexico and I don’t want us to be like that.
I am convinced that “the talkers” give no credit to “the poor” for the sales taxes, self employment taxes, payroll taxes, property taxes and the like. They only cite the figures that half of us don’t pay income taxes “and that’s not fair.” It does not sound fair until you look at the total tax load–that gives no deductions–on so many.
Is that $200 billion a year in savings and $200 billion a year from that year on? Unfortunately that is not even enough. By then the national debt will be what, nearly $20 trillion? The problem is that the government really has absolutely no long term plan to wipe out the debt. They are just hoping they can pay off the interest, find new takers on treasuries when the old ones expire, and hope the GDP steadily increases which in effect lowers the debt. But that is best case scenario. The time America should have really attacked the debt was during the dot.com bubble, but I fear now it is too late. Not wanting to sound too pessimistic, I hope it gets fixed. I just don’t see how.