The deficit-reduction commission headed by Erskine Bowles and Alan Simpson applied a core principle in its work: Putting the country’s finances in order must not harm the poor and vulnerable, or increase poverty, or widen income inequality. That is worth keeping foremost in mind as the White House and Congress confront challenges involving the debt ceiling and the “sequester,” the latter Washington-speak for $1.2 trillion in spending reductions.
The bipartisan Bowles-Simpson panel complied with its principle, in part, by aggressively closing “tax expenditures,” the $1.1 trillion a year in tax credits, deductions, exclusions, subsidies and assorted breaks. This relief disproportionately flows to households at higher incomes. The most affluent one-fifth receives two-thirds of the benefits, the wealthiest 1 percent collecting one-quarter.
By taking this approach, the commission crafted a plan that, projected over 10 years, proposed roughly a dollar in additional revenue for every dollar in spending cuts.
Such balance and fairness hardly appears at work as President Obama and congressional leaders pursue their plans for deficit reduction. The recent package of tax increases for high-income households involves an added $600 billion for the decade, or a fraction of the spending cuts already enacted or on the table.
In the aftermath, Republican leaders on Capitol Hill declared that any further shrinking of the deficit must come from spending reductions alone. On the question of additional revenues, Mitch McConnell, the Senate minority leader, declared: “That debate is over.”
That is not to say Republicans reject tax reform. Many still applaud the idea. Too few see it as an option for raising revenue. They prefer cutting spending more deeply to offset the revenue gains. The trouble is, such exclusive reliance on spending cuts results in a greater burden for deficit reduction falling on the poor and vulnerable, not to mention the middle class. The same concern surfaces when John Boehner, the House speaker, talks about matching spending cuts to the increase in the debt ceiling.
Consider an instructive example from Robert Greenstein of the Center on Budget and Policy Priorities, a Washington think tank. He explained that child-care subsidies come in two forms. One involves direct spending for low- and moderate-income working parents. The other takes the form of the Dependent Care Tax Credit, benefits flowing to middle- and upper-income households.
Greenstein added that the spending element is limited, just one in six low-income families meeting the criteria. The tax credit? It is open-ended. All qualifying families get it. In other words, here is an example of how a tax break could be narrowed to aid in deficit reduction and spare those in need of assistance.
Practically everyone understands that curbing entitlement spending is essential to repairing the country’s finances. That means taking aim at Medicare and Medicaid. Yet to rely exclusively on spending reductions ignores a hard reality, baby boomers retiring, drawing heavily on the two health-care programs. The Bowles-Simpson commission grasped as much, generating savings — yet not in violation of its core principle.
Already the president and Congress have proposed deep and shortsighted reductions in essential elements of the federal government, such as education, research and development, public works and law enforcement. Now cut further, risking key priorities, burdening the poor and vulnerable? Not when tax reform provides an avenue for making deficit reduction smart, fair and effective.