Obama’s Fiscal Commission: The Good and Bad | Cato @ Liberty
Posted November 11, 2010on:
Another report on the Deficit Reduction Commission “leaked report). the report itself is due out December 1st. I personally agree with all that has been recommended and feel they haven’t gone far enough. However there is flack coming from all sides. BB
Posted by Chris Edwards
The co-chairs of President Obama’s National Commission on Fiscal Responsibility and Reform released a draft report yesterday on how to reduce federal budget deficits.
Despite the liberal savaging the report is taking as some sort of conservative plot, its proposals are really center-left in orientation. That said, there is some good stuff in the report, which will be useful for incoming Republicans looking to tackle the budget mess.
Good Ideas and Positive Directions
The report provides a menu of possible spending cuts for incoming Republican members of Congress to consider, particular Tea Party members, who proposed to cut the budget during their campaigns.
The report proposes to reduce spending from 25 percent of GDP currently to 21 percent over the long run. That’s a good start, but we need to pursue deeper cuts, as discussed on www.downsizinggovernment.org. After all, federal spending was just 18 percent of GDP in President Clinton’s last two years in office.
I like that the report suggests a broad array of budget cuts, including defense, nondefense, and entitlement programs. Everything needs to be cut, including programs traditionally defended by both liberals and conservatives.
The report proposes to cut $200 billion from discretionary spending by 2015 from Obama’s proposed spending that year of $1,309 billion. That’s a 15 percent cut. However, the word “cut” needs to be qualified because discretionary outlays were $1,041 in the pre-stimulus year of 2007, and they were just $615 billion in the pre-Bush year of 2000.
The report recommends an array of Medicare and Social Security cuts. That’s great, but the report doesn’t include the fundamental structural reforms—such as Social Security individual accounts and Medicare vouchers—that are needed to reduce costs and provide benefits to the broader economy, such as boosting savings and improving health care quality. (YES! YES! YES! BB)
The direction of the proposed tax reforms is positive. The co-chairs propose to reduce or repeal narrow deductions and other special tax benefits, while reducing marginal tax rates. The idea to treat capital gains and dividends as ordinary income, however, reveals a faulty understanding of the proper tax treatment of capital. (I hope people read this carefully because it is a two prong deal: ONE: cut out the deduction that cause us all so many head aches every year and really give the edge to those who can afford a cadre of accountants to see that they get every deduction they can possibly qualify for. TWO: Lower the tax rates for everyone! This is worth far more than deduction for me certainly and for my children so I would say that is the majority of Americans ) BB
The report proposes to cut the corporate tax rate from 35 percent to 26 percent, while moving to territorial treatment for foreign investment. It suggests making “America the best place to start and run a business and create jobs.” That’s a laudable goal, but to fulfill it we need to bring the rate down to, say, 15 percent. ( Companies are leaving the country in droves because of the taxes. The higher wages and perks paid to American workers have a small bit part in this stampede from our country especially where unions dominate the company. So is it better to have high wages and no company to work for or is it better to have lower wages and a job?) BB
The report’s goal of reducing the damaging buildup of federal debt is laudable. Government overspending is the nation’s primary fiscal problem, but spending financed by debt creates an array of problems that are additionally troubling.
Bad Ideas and Shortcomings
The report proposes to raise taxes by $1 trillion over the next decade. But the federal budget crisis is caused by overspending not undertaxing. The election results showed that most Americans understand that, but the message hasn’t penetrated the beltway yet. (We keep forgetting that 60% of the population pay NO taxes. BB)
The report’s discretionary spending cuts are timid. For example, farm subsidies are cut by just $3 billion, just a fraction of their annual cost of about $20 billion. Farm prices and farm incomes are at high levels these days, so now would be a good time to repeal farm subsidies completely. (YES! cut out farm subsidies entirely. Farmers have always hated these subsidies because they allow the government to tell farmers what to raise. The only “farmers” who like the subsidies are the big mega farms that are actually large corporations. they make out like bandits. These subsidies were started b y FDRoosevelt to help the small farmers in the 1930’s. It is long past time to drop them all together. BB
The report characterizes tax deductions and exemptions as “spending in the tax code.” That is becoming common parlance in Washington, but it is incorrect. Yes, the mortgage interest deduction and other narrow benefits distort the economy and ought to be abolished, but they also reduce the flow of revenues to Washington, which is a good thing.
The report makes faulty and naïve arguments often heard from centrists about government “investments.” While we need to cut spending, we also need to “invest in education, infrastructure, and high-value R&D” the report says. But why does the federal government need to be involved in education? Why can’t we privatize infrastructure investment? If certain R&D is so “high-value,” wouldn’t the private sector do it? (I am sick of the government “investing” my money when if they would just get out of the picture and if the investment is good then the private sector will do the investing. Most government investment are bad and wouldn’t get anyone to invest in them from the private sector. BB
Along the same lines, the report calls for the creation of a “Cut-and-Invest Committee” to move spending from “outdated” programs to “high-priority long-term investments.” That’s just naïve. The government will never be an efficient allocator of resources, and that’s why we need to shrink it, not just make it run better.
Finally, the commission should have placed more emphasis on fundamental restructuring of government, and not just spending trims. This is true with the entitlement proposals. But also with areas such as infrastructure spending—we don’t need higher gas taxes and government spending for infrastructure, we need privatization. (YES! BB)