Friday, November 12, 2010

Strange Deficit Reduction Strategies

Leaked reports from the Bowles-Simpson deficit commission make me feel certain that nothing much is going to happen on this front. Why? Because the commission 1) is committed to holding down tax rates for rich people and 2) has no ideas at all about how to restrain health care costs. There is NO WAY to balance the budget without 1) raising taxes and 2) holding down health care costs. Ergo, there is nothing serious here.

Most of the news leaks have focused on cuts to future Social Security payments: raising the retirement age to 69, using a lower measurement for cost of living adjustments, etc. Which is weird because, you know, Social Security is not part of the main federal budget. It has its own, separate budget, which is not really in bad shape at all; it could easily be made solvent for the next 20 years with very minor tweaks. (And forget budgeting for more than 20 years; the future cannot be predicted that far out.) The looming entitlements crisis is almost entirely about Medicare, and the commission has nothing to say about health care costs.

As for taxes, Paul Krugman gives this summary:
what the co-chairmen are proposing is a mixture of tax cuts and tax increases — tax cuts for the wealthy, tax increases for the middle class. They suggest eliminating tax breaks that, whatever you think of them, matter a lot to middle-class Americans — the deductibility of health benefits and mortgage interest — and using much of the revenue gained thereby, not to reduce the deficit, but to allow sharp reductions in both the top marginal tax rate and in the corporate tax rate.
I am truly baffled by this intense desire to cut the top tax rates. My view of this is historical: the US economy has never been better than it was in the late 1990s. Therefore, the tax rates that prevailed in the late 1990s are compatible with the maximum feasible rate of economic growth. My deficit reduction plan would start with returning all tax rates to where they were before George W. Bush came into office. That would raise my own taxes, but I am willing to accept that, especially if big cuts in defense and "homeland security" spending are part of the deal.

As long as Republicans remain the party of lower taxes for rich people and no cuts to Medicare, all talk about the deficit is just a sham. And no, I will accept no charges of hypocrisy on this one. There are a few things I think we should spend more on (public transportation, clean energy) but I support all kinds of cuts to the budget; if I were podesta of this commune, I could balance the budget within a decade, no problem at all. There would be howling, but as podesta, I could handle that. Whether our elected leaders can is another question entirely.

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