Fiscal Commission Release Recommendations

[Andy Rooney]

http://tpmdc.talkingpointsmemo.com/2010/11/deficit-commission-co-chairs-simpson-and-bowles-release-eye-popping-recommendations.php

 

 

Index the retirement age to longevity -- i.e., increase the retirement age to qualify for Social Security -- to age 69 by 2075.

 

Index Social Security yearly increases to inflation rather than wages, which will generally mean lower cost of living increases and less money per average recipient.

 

"Increase progressivity of benefit formula" -- i.e., means test part of Social Security benefits by 2050.

 

Increase the Social Security contribution ceiling: while people only pay Social Security taxes on the first $106,800 of their wages today, that's only about 86% of the total potentially taxable wages. The co-chairs suggest raising the ceiling to capture 90% of wages.

 

Tax reform:

 

 

The co-chairs suggest capping both government expenditures and revenue at 21% of GDP eventually.

 

In their first plan, called "The Zero Plan," they suggest reducing the tax brackets to three personal brackets and one corporate rate while eliminated all credits and deductions. Without any credits or deductions (including the ETIC and mortgage interest deductions), the 3 tax rates would be 8, 14 and 23 percent.

 

In their second plan, they would increase the personal deduction to $15,000, create 3 tax brackets (15, 25 and 35%); repeal or significantly curtail a number of popular tax deductions (including the state and local deduction and the mortgage interest deduction); and eliminate other tax expenditures.

 

The third plan would force Congress to undertake comprehensive tax reform by 2012 by raising taxes for each year Congress fails to act.

 

All their proposals limit Congress to collecting taxes on income made within the United States, reducing or eliminating taxes on American expats and revenues companies earn abroad.

 

They also suggest raising the federal gas tax "to 15 cents per gallon" [sic] in 2013. (The federal gas tax is currently 18.4 cents per gallon, indicating that the co-chairs may have intended to say by 15 cents per gallon)

 

Medicaid/Medicare cuts

 

 

Force more low-income individuals into Medicaid managed care.

 

Increase Medicaid co-pays.

 

Accelerate already-planned cuts to Medicare Advantage and home health care programs.

 

Create a cap for Medicaid/Medicare growth that would force Congress and the President to increase premiums or co-pays or raise the Medicare eligibility age (among other options) if the system encounters cost overruns over the course of 5 years.

 

Discretionary spending cuts

 

 

Eliminate all earmarks.

 

Eliminate the Office of Safe and Drug-Free Schools.

 

Freeze federal worker wage increases through 2014; eliminate 200,000 federal jobs by 2020; and eliminate 250,000 federal non-defense contractor jobs by 2015.

 

Eliminate subsidized student loans, in which the government makes interest payments while the student is in school.

 

Establish co-pays in the VA medical system and change the co-pays and deductibles for military retirees that remain in that system.

 

Eliminate NASA funding for commercial space flight.

 

Require the Smithsonian museums to start charging entrance fees and raise fees at the national parks.

 

Eliminate funding to the Corporation for Public Broadcasting -- which many conservatives suggested in the wake of the firing of former NPR contributor Juan Williams.

 

Reduce farm subsidies by $3 billion per year.

 

Create a Committee to eliminate unnecessary programs to the tune of $11 billion by 2015.

 

Merge the Department of Commerce and the Small Business Administration and cut its budget by 10 percent.

 

End "low-priority" Army Corps of Engineers programs to the tune of $1 billion by 2015.

 

Cut the State Department's overseas budget by 10 percent by 2015; reduce the proposed foreign aid budget by 10 percent in 2015; and cut voluntary contributions to the United Nations by 10 percent in 2015.

 

Eliminate the Overseas Private Investment Corporation, which provides subsidized financing and political risk insurance for U.S. companies' investments abroad.

 

Cut $900 million in fossil fuel research funds.

 

Force airlines to increase their contributions to airline security costs and allow them to increase per-ticket security fees.

 

Defense spending cuts:

 

 

Double the number of defense contractor positions scheduled for elimination from 10 percent of current staff augmentees to 20 percent.

 

Reduce procurement by 15 percent, or $20 billion.

 

Eliminate the V-22 Osprey program.

 

Cancel the Marine Corps' Expeditionary Fighting Vehicle program.

 

Halve the number of F-35 Joint Strike Fighters in favor of F-16s and F/A-18Es.

 

Cancel the Marine Corps F-35 program.

 

Cancel the Navy's Future Maritime Prepositioning Force.

 

Cancel the new Joint Light Tactical Vehicle (JLTV), the Ground Combat Vehicle, and the Joint Tactical Radio.

 

Reduce military forces in Europe and Asia by one-third.

 

Send all military children based in the U.S. to local schools.

 

The report also recommends tort reform as a way to reduce Medicare and Medicaid expenditure

[Gene Frenkle]

http://tpmdc.talking...mmendations.php

At first glance, most of that sounds pretty good.

[DC Tom]

At first glance, most of that sounds pretty good.

 

Some of the defense cuts are short-sighted and ill-considered. (E.g., you can't "just cut" the USMC F-35 program - it's nowhere near that easy.)

[Magox]

At first glance, most of that sounds pretty good.

It does, too bad the far left and right won't come to an agreement of anything that will resemble this. It will take a strong US President with enough political capital behind him to make the case to the American electorate and members of Congress for these sort of necessary austerity measures.

[Peace]

It's not perfect but I support it 100%. Do it do it do it.

 

Now is the time to write letters people. This will be DOA unless people rise and let their critters know we won't fire them if they do this.

[RkFast]

Someone smarter than me (everybody) explain how cutting the mortgage interest deduction doesnt kill "the American Dream" of home ownership deader than Dillinger. Becuase getting that deduction is the ONLY way most can afford a home where I live.

Edited November 11, 2010 by RkFast

[Magox]

Someone smarter than me (everybody) explain how cutting the mortgage interest deduction doesnt kill "the American Dream" of home ownership deader than Dillinger. Becuase getting that deduction is the ONLY way most can afford a home where I live.

There certainly would be a lot of pain in the short to mid-term forecast if the this mortgage deduction were to be eliminated, without a doubt. However, there is a strong correlation between rates of home ownership and excesses in the housing market.

 

1. Spain 85.3

2. Greece 83.6

3. Ireland 77.0

4. Italy 75.5

5. Belgium 72.9

6. Luxembourg 70.8

7. United Kingdom 70.6

8. United States 67.5

9. Portugal 65.0

 

 

This stat is a list that was comprised back in 2003, and I know for a fact that the homeownership rate went higher during the housing bubble.

 

So what can we learn from this list? I made the argument a while back that there has been a housing and credit bubble that was a couple decades in the making. US housing policy is a large contributor to the housing ownership bubble that we had and still have.

 

If you look at this list, you will see that 7 out of the top 9 in this list all had a housing bust. Is there a correlation? Yes, but does it automatically indicate causation? No. But if you look at housing policies in each one of those countries, they all promoted homeownership through one means or another.

 

You really could make the case that pro homeownership policies began during the Great Depression with the creation of Fannie Mae. When you couple Fannie Mae's more generous and accomodative mortgages that were being offered along with the beginning of the baby boomer phase when families were looking to house their new families, it is quite clear to me that there is a direct link of a dramatic spike of homeownership (which many of these homes during the financial crisis were used as fuel for the credit boom) to the bust that we went through. Homeownership was as low as 45% in 1940, by 1980 it reached 65%. Of course at that time we were going through the peak of inflation, rates soared and that number dipped back down to 63%, then of course it went back up to near 70% during the peak of our housing and credit bubble. You can see these charts on hoover.org

 

I am not making the case that large homeownership is why the bubble was burst, the case that I am making is that the bubble was made even larger because of US homeownership policies. Also, I am not saying that US homeownership policies is the sole reason for the excesses we have in US homeownership, what I am saying is that it is a CONTRIBUTING reason to excess US homeownership. There is a clear distinction between the two. Many people took equity out of their homes at peak levels. So even though many of these people bought their homes well before the year 2000, they still contributed to the credit/housing/banking bust by taking equity out of their homes at overinflated prices. Some of those people defaulted on their loans, which of course contributed to banking losses. This in fact did CONTRIBUTE to the housing/credit bubble. The larger the bubble, the larger the bust, the larger the bust, the more carnage that was left.

 

There are other ideas to lessen the pain in eliminating the mortgage deductions. First you can phase it out, and then replace it with a homebuyer savings account scheme where the government provides matching contributions to encourage access to homeownership. This is something that was proposed by the OECD. Also if we were to pursue this deduction we would have to have a major overhaul in the tax code.

 

Anyway, if you look at that list I find it more than coincidental that those countries that have high housing ownership along with pro housing policies were the countries worst hit by the Financial Crisis.

 

If you look at Germany, they have a home ownership rate of 42%. Also, they don't have homeownership subsidies like here in the U.S or like their neighbors in Europe. If you look at Germany, just about all the damage they incurred during the global credit/housing bust, was collateral damage, not one that was domestically induced.

 

I believe the evidence is overwhelming.

Edited November 11, 2010 by Magox

[Peace]

Obama is telling people not to criticize it but rather listen. He knows this thing won't make it out committee and he'll have called the Republican bluff on being serious about deficit reduction. He's of course right because some of the first critiques are coming from the right.

 

Only a political tidal wave from the electorate will move this past committee.

[IDBillzFan]

He knows this thing won't make it out committee and he'll have called the Republican bluff on being serious about deficit reduction. He's of course right because some of the first critiques are coming from the right.

 

Actually, you're pretty wrong on that last point.

 

The progressive left is on fire about this, while the right is at least taking a "wait and read it" approach.

 

To be honest, I suspect they released this while Obama was overseas to gauge reaction...much like Axelrod coming out of the closet at HuffPost yesterday to announce Obama is ready to extend all the Bush tax cuts. The progressives are still changing their underwear after watching the election results, so I wouldn't be surprised that all of this is being dumped on the progressives now while Obama is gone and their underwear is already sufficiently soiled. The reality is, without a majority on the commission approving this, it's nothing more than some ideas being throw out for discussion.

 

Labor unions and liberal Democrats lit into the preliminary proposal, which the two chairmen touted as the first serious plan to tackle the country’s growing debt.

 

Speaker Nancy Pelosi (D-Calif.) said it was “simply unacceptable.”

 

“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,” she said in a statement.

 

AFL-CIO President Richard Trumka said the chairmen had told “working Americans to ‘Drop Dead,’” while Rep. Raul Grijalva (D-Ariz.) faulted the report for cutting Social Security benefits while reducing corporate and upper-income taxes.

 

Republicans reacted cautiously to the report, released a week after the GOP scored a huge victory in a mid-term election dominated by concerns about federal spending. Incoming House Budget Committee Chairman Paul Ryan (R-Wis.) and two other Republicans on the commission released a statement calling the proposal “provocative,” but commending the co-chairs for moving the debate forward.

[Keukasmallies]

I have no problem doing my part by accepting the Social Security, Medicare, etc. cuts that impact me AFTER I receive assurances that the fiscal gymnastics that created the problems that give rise to the need to make cuts have been identified and stopped.

[Peace]

Actually, you're pretty wrong on that last point.

 

The progressive left is on fire about this, while the right is at least taking a "wait and read it" approach.

 

I prepared a great response that apparently crashed the board. I'll just assume you now agree with me.

[DC Tom]

Obama is telling people not to criticize it but rather listen. He knows this thing won't make it out committee and he'll have called the Republican bluff on being serious about deficit reduction. He's of course right because some of the first critiques are coming from the right.

 

Only a political tidal wave from the electorate will move this past committee.

 

Listen, but don't criticize? Then why bother listening?

 

So far, from what I've heard, EVERYONE hates these recommendations. So they can't be all bad.

[bills_fan]

Someone smarter than me (everybody) explain how cutting the mortgage interest deduction doesnt kill "the American Dream" of home ownership deader than Dillinger. Becuase getting that deduction is the ONLY way most can afford a home where I live.

 

 

They are not killing it. Right now, it only applies up to $1 million principal balance on the mortgage. They are proposing to reduce the deduction to $500k principal balance rather than $1 million. Anything over 500k you would not get the interest deduction.

 

As with most of these things, I wish there was a cost of living adjustment for living in high cost areas like SF, NYC, LA so that the intent of the proposal, to curtail the deduction for those who do not really need it would apply evenly across the board. A 500k house in Buffalo may be only for top earners, but its a middle class house on long island or westchester. Keeping it at $1 million for high cost areas (which have already been defined by Fannie/Freddie with respect to conventional loans) and I could support this proposal.

[Peace]

DOA. Cowards.

 

T

he Web site of Americans for Tax Reform, which is led by the influential antitax activist Grover Norquist, warned Republicans bluntly, “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.”

 

Republicans would also be looking over their shoulders at the growing ranks of the Tea Party. Ryan Hecker, from the Houston chapter, said it would be “a big mistake” for Republicans to go along with tax increases. “I think that is something that would not sit well with members of the Tea Party,” he said.

[Magox]

DOA. Cowards.

 

T

Grover Norquist is a tax cutting zealot. But if you think that what was proposed is going to be more of a problem from the right than the left, then you are kidding yourself. From what I have read and heard (for instance Paul Ryan this evening on CNBC) the conservatives are more in favor of the proposals that was thrown out there than the left. The left will be the bigger problem.

[Peace]

I didn't say that the right will be a bigger problem. Just that they are enough of a problem to screw this up. You've seen it here. Someone says new taxes to help fix the deficit and the world caves in. Here you have a proposal that is 3:1 cuts to taxes in addressing the deficit and still Republicans might cave. They need to leave tax raises on the table and work to get this done.

[Magox]

I didn't say that the right will be a bigger problem. Just that they are enough of a problem to screw this up. You've seen it here. Someone says new taxes to help fix the deficit and the world caves in. Here you have a proposal that is 3:1 cuts to taxes in addressing the deficit and still Republicans might cave. They need to leave tax raises on the table and work to get this done.

None of this will happen until we have a strong president that has enough political capital behind him that can sell the American public and members of congress that this is what has to be done.

[Peace]

None of this will happen until we have a strong president that has enough political capital behind him that can sell the American public and members of congress that this is what has to be done.

 

Obama could submarine his second term in a fight to get this passed.

[DC Tom]

Obama could submarine his second term in a fight to get this passed.

 

Doubt he would, though. He hasn't stopped campaigning since he took office; I can't see that changing just over this report.

[Magox]

Obama could submarine his second term in a fight to get this passed.

I don't believe so, the lefties will still vote for him in large numbers (maybe at 90% capacity compared to the last election), the blacks will vote for him no matter what he does, the hispanics will still overwhelmingly vote for him (considering the rights rhetoric against illegal immigration) and if he got tough on spending the independents would start to move more in his direction.

 

He won't do it, he doesn't have what it takes. The Unions are the major roadblocks to getting a meaningful deficit reduction plan.