Quick Takes on the Deficit Panel

The National Commission on Fiscal Responsibility and Reform released a draft report of the spending cuts and tax increases they believe to be necessary to reduce the deficit. Politicians and pundits from both the Left and Right oppose it, but here are a select group of opinions on the report:

Lori Montgomery of the Washington Post reports politician reactions:

Still, the reaction was harsh in some quarters, particularly among liberals who have vowed to protect retirees from any reduction in benefits. House Speaker Nancy Pelosi (D-Calif.) called the plan “simply unacceptable.”

Speaker-in-waiting John A. Boehner (R-Ohio) declined to comment, saying he would discuss the plan with his three representatives on the panel. But Republican anti-tax activist Grover Norquist was not happy and warned that Republicans who support the proposal would be breaking their pledge not to raise taxes.

Ezra Klein points out that the Commission has no authority in the first place:

Here is the most important fact about the proposal released by the co-chairmen of the National Commission on Fiscal Responsibility and Reform: It is not the commission’s report. And here is the second most important fact to remember: The commission itself does not have any actual power. So what we’re looking at is a discussion draft of a proposal to balance the budget authored by two people who don’t have a vote in either the House or the Senate. In a town thick with proposals for balancing the budget but thin on votes for actually passing such proposals, it’s not clear what the purpose of this one is.

Robert Reich, former Secretary of Labor under President Clinton, sums up why recovery is more important than austerity:

As to solution, the report mentions but doesn’t emphasize the biggest driver of future deficits – the relentless rise in health-care costs coupled with the pending corrosion of 77 million boomer bodies. This is 70 percent of the problem, but it gets about 3 percent of the space in the draft.

The report suffers a more fundamental error — the unquestioned assumption that America’s biggest economic challenge is to reduce the federal budget deficit.

The size of the budget deficit (and cumulative debt) is meaningless without reference to the size of the economy. What looks like a big debt 10 or 20 years from now may turn out to be small if growth has been rapid in the intervening years. By the same token, a seemingly small future debt can become unmanageable if the economy tanks, or barely grows at all.

In 1945, the nation’s debt was 120 percent of GDP. That proved to be no problem in later years, not because the debt shrank but because the U.S. economy soared.

Our biggest problem isn’t the size of pending federal budget deficits or debt but an anemic recovery that may drag on for years. And unless we’re careful, budget-deficit mania may further slow economic growth – thereby making future debts even less manageable.

Stan Collender of Capital Gains and Games notes how the report was poorly conceived:

The plan calls for a substantial reduction in federal employees.  A reduction in employees generally results in the government relying on more outside consultants to get the work done but, in addition to the recommended reductions-in-force, Bowles-Simpson also calls for a significant cuts in the use of contractors.

The combination of those two seems to indicate that the now smaller number of federal employees will have to do everything that was done before, that is, that they will have to be much more productive. But Bowles-Simpson also calls for a three-year freeze on federal employee salaries and that almost inevitably means an increasing number of federal workers will quit.   That will reduce rather than increase productivity as new and less experienced workers replace the more senior folks who will have left for greener pastures.

In other words, Bowles-Simpson projects substantial savings based on the expectation that a less experienced and much smaller federal workforce will be more productive and just as effective than the more experienced and larger workforce it replaces.  That makes absolutely no sense.

Bowles-Simpson seems to have been put together backwards.  Instead of starting with a plan about what the federal government should no longer do and then determining the savings from the smaller number of employees that would be needed to do what’s left to be done, with limited exceptions the plan focuses on the reduced workforce but makes few assumptions, suggestions, or recommendations about what services the government should no longer provide.  The assumptions it does make don’t appear to justify the cuts in the number of employees and contractors.

Paul Krugman criticizes the income tax cuts and the raising of the retirement age:

There is no — zero — evidence that income taxes at current rates are an important drag on growth.

Oh, and they’re talking about raising the retirement age, because people live longer — except that the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.

Kenneth Silber of the FrumForum notes the need fora  more dramatic tax overhaul than the one being proposed:

Missing from the document are any options that would shift the tax burden from income to consumption, something much needed in an economy that’s habitually long on consumption and short on long-term investment. Why not consider a VAT or other consumption tax as a full-on substitute for the income tax? That kind of reform would not be chipped away at so easily in future years.

Similarly, the proposal suggests a small but gradually increasing gas tax to fund transportation spending. There’s no mention of a broader carbon tax, which would address environmental and national-security issues as well as raise money. If you want to maximize the national security benefit, consider adding an oil import fee. If we’re going to have a new federal gas tax, let’s have a serious energy tax overhaul.

Henry Clay of the FrumForum remarks on the conservative opposition for modifying the home mortgage interest deduction:

Last week, in anticipation of the report, Mark Levin ripped the idea of modifying the home interest mortgage deduction.  Remember when conservatives opposed the idea of ‘spreading the wealth,’ social engineering, and the federal government meddling to promote home ownership?

Well, what exactly does Mr. Levin think the mortgage deduction is?

It is social engineering by the federal government to promote home ownership through an inefficient manipulation of the tax code.  It is extremely regressive, helping those with the largest mortgages, and the opportunity to itemize, the most.  By allowing for the deduction of interest on home equity lines of credit, it literally requires renters, and even lower and middle income home owners, to subsidize the consumer purchases of the wealthy.

Oh, and for good measure, it is brought to you by a special interest that benefits monetarily from the inflated home prices that invariably result from the deduction.

I guess not all ‘spreading of the wealth’ is created equal.