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The Preliminary Deficit Commission Report

By Da King Published: November 11, 2010

We finally have a preliminary report from Obama's Deficit Commission, and...it doesn't eliminate the deficit. Well, shucks. What it does do is propose $4 trillion in deficit reduction over 10 years (Obama's budgets are projected to add $9-10 trillion in debt over 10 years). The Deficit Commission is proposing $2 trillion in spending cuts, $1 trillion in tax increases, means-testing Social Security, and raising the Social Security retirement age to 69 by the year 2075 (and it's rumored Republicans want to completely eliminate Social Security by the year 2457, so watch out for those evil sob's).

Jake Tapper of ABC News has a rundown of the Deficit Commission report, as follows:

The report states that the US government needs to eliminate all “excess spending –defense spending, domestic discretionary spending, entitlement spending, & spending in the tax code.” Because of the “fragile” economic recovery, the commission recommends not commencing with any spending cuts until FY 2012.

The report looks at Social Security spending, saying that the government should make the “benefit formula” for Social Security more progressive – meaning benefits would target those who need them the most. Social Security would reduce payments to upper income recipients, and the retirement age would be increased based on the average American’s greater longevity, increasing the age to 68 by 2050 and 69 in 2075.

The commission proposes three options for reforming the tax code:

Three packages that do different things including increasing the gas tax, eliminating tax expenditures; and cutting tax credits for the oil and gas industries.

One, called the zero option, would:

Consolidate the tax code into three individual rates and one corporate rate;
Eliminate the AMT, Pease, and PEP;
Eliminate all $1.1 trillion of tax expenditures -- requiring income tax to be paid on the money you spend on health insurance coverage, charitable contributions, mortgage interest deductions and employer contributions to employee 401(k)/pension plans;
Dedicate a portion of savings to deficit reduction and apply the rest to reduce all marginal tax rates; and
Add back in any desired tax expenditures, and pay for them by increasing one or all of the rates from their zero-expenditure low.

A second, based on tax reform work by Sens. Ron Wyden, D-Ore., and Judd Gregg, R-NH, would:

Establish three tax rates for individuals –15%, 25% and 35%
Triple the standard deduction to $30,000 ($15,000 for individuals)
Repeal the AMT, PEP, and Pease;
Repeal state & local tax deductions and miscellaneous itemized deductions;
Limit mortgage deductions to exclude 2nd residences, home equity loans, and mortgages over $500,000;
Limit charitable deductions;
Reduce the corporate tax rate to 26%; and
Eliminate and modify several business tax expenditures, including domestic production deduction and energy tax preferences for the oil and gas industry.

A third option, called the tax reform trigger:

Calls on the Senate Finance and House Ways & Means Committees and the Treasury Department to develop and enact comprehensive tax reform by end of 2012;
Puts in place across-the-board “haircut” for itemized deductions, employer health exclusion, and general business credits that would automatically take effect in 2013 if reform is not yet enacted. The triggered haircut would increase over time until tax reform is enacted, limiting the proportion of deductions and exclusions individuals could take to around 85% in 2015 with corporations only able to take some proportion of their general business credits; and
Gradually increases the gas tax to fund transportation spending, increasing it by 15¢ per gallon beginning in 2013.

The co-chairs of the Commission offered an example of $200 billion in possible cuts including:

rolling back discretionary spending back to FY2010 levels for FY2012, requiring a 1% cut in discretionary budget authority every year from FY2013 though 2015
budgeting ahead of time for disaster funds;
limiting transportation spending;
freezing for three years all federal salaries, bonuses, and other compensation, including freezing all noncombat military pay at 2011 levels;
reducing by one third all overseas bases;
reducing Congressional & White House budgets by 15%;
cutting the federal workforce by 10%;
slowing the growth of foreign aid; and
eliminating all earmarks.

Other cost savings would come from:

eliminating $3 billion in farm subsidies per year;
requiring federal workers to contribute ½ the cost of their pensions instead of 1/14th;
reducing civilian & military early retirees’ cost of living adjustments; and
ending payments to states and Native American tribes for abandoned mines.
Health care costs would also be addressed.

The cost of the Medicare “Doc Fix” – which Congress passes periodically so as to avoid steep reductions in payments to doctors who accept Medicare – would be absorbed in other ways besides deficit spending, the commission recommends: “by asking doctors and other health providers, lawyers, and individuals to take responsibility for slowing health care cost growth.” This would be done by paying doctors and other health care providers less, among other tactics.

The Commission embraces tort reform - Enact specifically capping non-economic and punitive damages -- which it says would “reduce the cost of defensive medicine.”

As for other health care savings, the Commission co-chairs recommend strengthening the Independent Payment Advisory Board and eliminating the trigger that could kill IPAD in 2019. For government plans such as Medicare, Medicaid, and CHIP, health care spending would be limited to growing at a rate of the Gross Domestic Product plus 1%. If that savings is not realized, premiums could be increased, or a “robust” public health care option could be created.

As Tapper mentions in his article, there is something for everyone to like and hate in this proposal, which to me sounds rather like bipartisanship.

Liberals are having none of it:

"This proposal is simply unacceptable," said outgoing House Speaker Nancy Pelosi, D-Calif. "Any final proposal from the Commission should do what is right for our children and grandchildren’s economic security as well as for our nation’s fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare. And it must strengthen America's middle class families--under siege for the last decade, and unable to withstand further encroachment on their economic security.”

AFL-CIO chairman Richard Trumka said that “the chairmen of the Deficit Commission just told working Americans to ‘Drop Dead.’ Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare…This deficit talk reeks of rank hypocrisy: The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.”

Someone should explain to Pelosi that it's actually the exploding debt runup that threatens her granchildren's economic futures, not balanced budgets. Then again, if Pelosi understood that, or anything really, she wouldn't be Nancy Pelosi.

Some conservative groups don't like it either:

The conservative group Americans for Tax Reform issued a statement saying "this commission is merely an excuse to raise net taxes on the American people. Support for the commission chair plan would be a violation of the Taxpayer Protection Pledge which over 235 Congressmen and 41 Senators have made to their constituents."

"The report deceptively calls their net tax hikes 'spending in the tax code,' ATR said in a statement. "There is no such thing, unless you assume the government has a right to all your money, and when they cut your taxes this is the same thing as 'spending money on you.'"

I'm no fan of tax hikes, buuuut...we have to do something. The status quo is simply not sustainable. Just this once, conservatives might have to get off their ideological high horse and compromise (boy, it hurt me to say that). The commission's tax increases would not go into effect until 2012, an acknowledgement that we don't want to raise taxes until economic recovery has taken place.

Overall, I consider the Deficit Commission's report to be weak. I can't believe it took them nine months to come up with this. I could have done better in one month. It shows we are still not that serious about balancing our budget, becoming fiscally responsible, and paying down our debt. I also believe the Commission's suggestions have almost NO chance of being implemented. The reaction of the aforementioned liberal leaders alone virtually guarantees they will block it. We may have to vote more liberals out of office to save our country, unless Obama can talk some sense into them. Sadly, our bold leaders at the White House registered a "no comment" on the report. Maybe they are waiting to see how it polls, considering the results of the last election.

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