Another duo suggests ways to balance the federal budget

Another week, another bipartisan report on eliminating the federal budget deficit and trimming the national debt — this one from former Sen. Pete Domenini (R., N.M.) and Democrat Alice Rivlin. Here, from their op-ed published in today’s Washington Post, are the highlights:

To ensure a more robust recovery, we propose a one-year “payroll tax holiday” for 2011, suspending Social Security payroll taxes for employers and employees. We also would phase in the steps to reduce deficits and debt gradually beginning in 2012, so the economy will be strong enough to absorb them.

We would stabilize the debt held by the public at less than 60 percent of gross domestic product, an internationally recognized standard; reduce annual deficits to manageable levels; and balance the “primary” budget (everything other than interest payments) by 2014.

We would dramatically simplify the tax system, establishing individual tax rates of 15 and 27 percent (from the current high of 35), cutting the corporate tax rate to 27 percent (from 35 today), ending most deductions and credits while simplifying the rest, and ensuring that nearly 90 million households no longer have to file returns. To reduce the debt, we would supplement our spending cuts with a 6.5 percent “debt-reduction sales tax.”

We would strengthen Social Security so it can pay benefits for the next 75 years by gradually raising the amount of wages subject to payroll taxes; slightly reducing the growth in benefits for the top 25 percent of beneficiaries; raising the minimum benefit for long-term, low-wage workers; indexing benefits to life expectancy; and changing the calculation of cost-of-living adjustments to better reflect inflation. We would not raise the age at which senior citizens can begin receiving benefits.

We would control health-care costs — the biggest driver of long-term deficits — by reforming Medicare and Medicaid while, starting in 2018, capping and then phasing out the tax exclusion for employer-provided health care. We would reform medical malpractice laws and help address the health costs tied to rising obesity by imposing a tax on high-calorie sodas.

We would freeze domestic discretionary spending for four years and defense spending for five, both at 2011 levels, and then limit their future growth to the rate of growth in the economy.

Finally, we would cap domestic and defense discretionary spending (with tight exceptions for true emergencies) and trigger across-the-board cuts if the caps are breached; enact a strict pay-as-you-go statutory rule for tax cuts or expansions of entitlements; and enact long-term budgets for major entitlements while creating a Fiscal Accountability Commission that would recommend policy changes every five years if entitlements are exceeding their budgets.

At first glance, I don’t like this plan as much as the Bowles-Simpson plan introduced last week. Adding a consumption tax on top of an income tax is a certain recipe for becoming a high-tax nation. History teaches us that the chances of the new, lower income tax rates staying low are poor, and that the sales tax would rise inexorably from the initial 6.5 percent.

It would also take some pretty bulletproof legislation to make sure the sales tax proceeds only went toward debt reduction. And even then, the target for the public debt of 60 percent of GDP would be above historical levels. That makes for a pretty weak target.

There are some similarities between the two proposals, including cuts to farm subsidies and tax deductions. But overall, for now, I think the Bowles-Simpson plan looks like a better starting point.

I also wanted to point out an online tool that illustrates that deficit-cutting is actually pretty easy. It’s on the New York Times’ website, and it offers you a menu of spending cuts and tax hikes to bridge the expected budget gaps in 2015 and 2030.

Even though the spending cuts were rather limited — there’s no option to cut entire federal bureaucracies, for instance — I was able to put the budget in surplus rather painlessly: more than $6.50 in spending cuts for every $1 in additional taxes. And even those additional taxes are more of what I consider a tax reform: the Bowles-Simpson plan for cutting or eliminating deductions and credits while lowering marginal rates.

Here’s my list of choices, and you can plot out your own budget-balancing act here.

32 comments Add your comment

Ragnar Danneskjöld

November 17th, 2010
10:28 am

I see little to commend the Domenici – Rivlin plan. The cure for socsec is ever-higher taxes? Not much deep thought there. One year tax holiday? Sure, that will make Walmart hire a lot of people. Coca=cola tax? Now we are in the realm of the frivolous.

Freeze defense spending – who cares if the Chinese or Iranians attack? Looks like the plan was dreamed up by big-government spenders who justify their existence by telling us how to live our lives.

Jefferson

November 17th, 2010
10:34 am

Again, vodoo don’t work.

Hillbilly Deluxe

November 17th, 2010
10:42 am

and that the sales tax would rise inexorably from the initial 6.5 percent.

There’s truth in that. I can remember when we paid 3% Sales Tax, here in Georgia. Now with all the local add-ons, etc., it’s 7% most places. That’s more than double, any way you look at it.

carlosgvv

November 17th, 2010
11:25 am

If our elected officials really considered themselves servants of the people, having a balanced budget would not be a problem. Unfortunately, the only people they are interested in serving is themselves and you may be certain their personal estates will always be substantial.

retiredds

November 17th, 2010
12:45 pm

I have an idea Kyle, how about we become a high tax nation until the debt is paid off. That way everyone participates. That way those of us (just about every living adult in the US) would take responsibility to pass on to future generations an almost debt-free nation. When the debt is paid off then pass a Constitutional Amendment that the federal budge must be in balance, similar to GA, every year (no exceptions). When a rainy day fund of $10 trillion dollars is in place, cut everyones’ taxes to the optimal minimum.

Won’t happen though because the (adults) children want to steal the candy without regard for the consequences.

CJ

November 17th, 2010
1:04 pm

Here’s my NY Times result: http://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html?choices=d3t065qm

For the record, I wasn’t happy with everything that the NYTimes had to offer in terms of Medicare–which really drives the vast majority of our deficit problems in the out-years.. As far as I’m concerned, cuts in benefits and arbitrary caps on growth are lazily offered solutions.

One possibility not offered is “Medicare for All.” This would allow any and all the option to buy into Medicare–thereby allowing premiums paid by the healthiest to subsidize the costs for sickest (that is, by definition, how insurance is supposed to work).

In addition, I wouldn’t just return taxes on estates, capital gains, and dividends to Clinton-era levels. I’d actually tax these sources of unearned income at the same rates that taxes on earned income are taxed. As a result, we’d actually be able to lower taxes on earned income. As it is now, people who make most of their money from working are subsidizing people who make most of their money from inheriting and living off of investment returns on those inheritances.

Disgusted

November 17th, 2010
1:28 pm

We would dramatically simplify the tax system, establishing individual tax rates of 15 and 27 percent (from the current high of 35), cutting the corporate tax rate to 27 percent (from 35 today), ending most deductions and credits while simplifying the rest, and ensuring that nearly 90 million households no longer have to file returns.

Sounds like the solution is to sock it to the middle class even more severely.

jconservative

November 17th, 2010
1:35 pm

Kyle, I can agree with most of your plan. The ones that I would disagree with would not represent a large number standing by themselves.

The big problem I have with military spending is not for payroll, rifles, cartridges etc, but the big weapon systems that the Pentagon says they do not want or need but Congress passes anyway.

But the major point that needs to be made is that with the release of the Bowles-Simpson plan we have a starting point for a debate on the issue of spending and budget control.

But we will come back to politics; I can smell it in the air.

The debate on the issue will be driven, not by a desire to resolve the problem, but by the desire to gain an advantage for the 2012 election.

retiredds

November 17th, 2010
2:37 pm

jconservative: you have hit the proverbial nail on the head, “The debate on the issue will be driven, not by a desire to resolve the problem, but by the desire to gain an advantage for the 2012 election.” Look at the START treaty, endorsed by our military leaders and several past Chairs of the Dept. of Defense, and how it is being hijacked by one fool-ish (Republican) Senator.

You are right that we have a starting point for the deficit negotiations (negotiation being an oxymoron to some politicos). But, as you imply, nothing of substance will happen because of the VERY TOXIC political landscape that now pervades. I, personally, have no respect for nor believe any politician (especially here in GA) will do the right thing for this country. They will continue to cater to the interest group that yells and screams the loudest or pays them well through PAC contributions, and the USA be damned.

cutz

November 17th, 2010
2:38 pm

We could simply cut the minimum wage back to pre-war levels. Pre ww2 levels that is. That would make evil corporate stooges like the vile-guiled, Kyle, say “heil” and smile a mile down de nile.

We could reinstitute slavery. That could save the economy for the richest 1/2 percent.

What can we cut to bolster the millionaires’ coffers? The poorest 99.5% of Americans are ready to make any sacrifice for the rich, even if it means we all end up in our coffins.

Kyle, surely you can propose some effort that the small people like me and them and those guys over there can do. Surely you’ve dreamed of this moment when you can rise up and encourage the little people to join in the effort to save the conservatives. Nobody questions the patriotic motives you harbor. Tell us, sir.

left wing

November 17th, 2010
2:52 pm

I’m not impressed. Compressing us down to 2 tax brackets? We should have 7 or 8. And I don’t want a VAT, which is highly regressive.

So Kyle have you seen Congresswoman Jan Shakowski’s (apologies to Jan if I misspelled her name) plan? Might be a starter for me.

Also Kyle I’d like you to ’splain something to me. Why are these “social security” fixes concerned with 75 year timeframes? If the problem is the ‘boomers, then this group (assuming an 80 year lifespan) will be dead & buried by 2045. I’m not aware of any other bubble in the age brackets, so I don’t understand why all this concern about social security out to 2075. I haven’t seen anyone (left or right) address this. Your thoughts?

A Hearty Cheese Sauce

November 17th, 2010
3:11 pm

“6.5 percent “debt-reduction sales tax.”

Bring on the VAT?

A Hearty Cheese Sauce

November 17th, 2010
3:17 pm

There should be ZERO tax increases for this or that. The stupid govt aholes got us into this mess so they can repair it using the cash they have.

What about salary reduction for govt workers….as I understand close to 50% make $150K annually. Thats way WAY to much.
Wage freeze for govt workers.
Cull out the deadwood from the welfare and food stamp ranks.
Slash foreign aid.
Slash AIDS research dollars.

Enough with this coming back for more dollars. The govt needs to tighten its belts just as Corp America must and just as the ordinary worker bee must.

joe

November 17th, 2010
3:20 pm

Another great day for the GOP today…Queen Nancy III voted minority leader. One more step toward removing BO in 12…

Kyle Wingfield

November 17th, 2010
3:33 pm

left wing: I agree, the SS fixes should be much more imminent. For example, why can’t we go ahead and switch to basing COLAs on price inflation rather than wage inflation? Why can’t we raise the retirement age much more quickly than most “experts” are suggesting?

My guess would be because it’s retirees vote in droves. But who — not talking parties here, but generations — was in charge when all this debt was run up? Not the people who will be left to pay the tab if the solutions are made on 75-year horizons.

joe smells

November 17th, 2010
3:34 pm

joe why wait to 2012 you can purchase deodorant today….

left wing

November 17th, 2010
3:52 pm

Kyle My point was not so much that the SS fixes need to be more imminent (although I agree; they do) but that the time horizon extends past the duration of the problem. The boomers are from 1947-1965 (I’m in the middle of the group) and the youngest of us would be buried long before the 2075 date being discussed. To my knowledge there are no other age bubbles like this. So, why worry about raising the retirement age on them if the problem is no longer there?

Now, with regards to modifying the COLA; I’ve seen that suggested elsewhere and I’d be ammenable to it (the effect is that increases would be smaller). We have to start cutting someplace. Also means testing should be considered. But when we’re discussing the merits of various options, we’ve already agreed in principle; all we’re doing is haggling over where & how much.

And yes. It’s called the 3rd rail because it’s taking money out of the age group that consistantly votes in big numbers. Who was in charge when the debt was run up? I’ll give you a couple of hints; he was famous for liking jelly beans, and he made a movie with ‘Bonzo’.

Heil yourself

November 17th, 2010
3:58 pm

Cutz,
Are you inferring that Hitler was a conservative/stooge in the pocket of “corporate interests?” Please check your brain in at the nearest doc for a check up as the current one is not functioning. Hilter was a revolutionary leftist that hated the bourgeoise and wanted to eliminate it (he believe that the elite in the country sold the country down the river at the end of WW1). Something about leftists and their inclinations to want to eliminate “classes”….

left wing

November 17th, 2010
4:06 pm

Heil yourself – Hitler and Mussolini advocated facism, which was also known as corporatism. You might try reading about facism. I’m providing the wikipedia link (yes, I know it’s open source) but you might try googling it on your own:
http://en.wikipedia.org/wiki/Fascism

Question Authority

November 17th, 2010
4:15 pm

/Anyone who thinks that our defense budget has anything to do with defending us against Chinese or Iranian attacks hasn’t been paying attention to where the money goes. 750 bases in 140 countries does not a defense make. The Iranians are never going to attack our country and there is a greater chance that the Chinese will simply dump all of our debt and dollars and collapse our economy than launch any missles or other attack.

So long as we keep spending trillions on protecting other countries from attack and buying missle systems for Israel, we are screwed.

Cut everything by 25%. Means test all SS payments. End all SS witholding and let everyone opt out that is willing to forgo what has been stolen. Get the government out of the medial business entirely. Fire at least 30% of the federal work force (start with the folks who don’t make the “essential employees” list every day it snows too hard.

Shut down the TSA for immediate starters, send all the porno scanners back to Chertoff and damand the money back.

There are some workable ideas to start. These two congressfolks are clowns and their ideas just show how little they care about freedom and restoring the greatness of america.

Question Authority

November 17th, 2010
4:15 pm

I meant medical business.

Peter

November 17th, 2010
4:43 pm

On a different Note…….a new poll suggests 12% more Republican’s believe in Global warming……

Some Republican’s do have open eyes and ears….congratulations to all Republican’s !

Are they just the dumb Republican’s or the intelligent ones ?

Peter

November 17th, 2010
4:46 pm

Hey Kyle if we stop invading foreign countries, we could save a bundle. That would include the rebuilding after bombing….cause we know the projects worth Billions have been started, and then never completed.

Great waste of tax payer’s money !

How are we paying for the 2 BUSH WAR’S Kyle ?

CJ

November 17th, 2010
4:56 pm

Jonathon Chait at The New Republic determined that Bowles-Simpson redistributes income toward the top: the bottom 80 percent of families would pay higher taxes than they did in under Clinton, while the top 20 percent (especially the top 5 percent) would pay less.

More of the same: shift more and more of the burden from the rich onto the poor and middle class.

http://www.tnr.com/blog/jonathan-chait/79226/the-debt-commission-plan-no-deal

Why

November 17th, 2010
5:01 pm

I see a strong desire for more and better government functions and a smaller, lower paid federal work force. Good luck with that. If you want to equate the education level of your federal crypto expert with the private sector plumber, you can only expect the government to unplug the toilets after the next surprise attack.

alpha

November 17th, 2010
5:30 pm

These deficit reduction plans are all wishful thinking. None of them will ever be implemented in any meaningful way. Remember Gramm-Rudman?

Too many people look to the federal government for their sustenance. Anything you trim you gore someone’s ox. It will take a total catastrophic meltdown, something like the government abrogating the federal debt, to right the ship.

Hillbilly Deluxe

November 17th, 2010
7:11 pm

Why can’t we raise the retirement age much more quickly than most “experts” are suggesting?

People who do physical labor for a living are pretty well used up before the current retirement age. There will always be a need for people who do physical labor, inspite of technological gains.

wingnutsunited

November 17th, 2010
7:45 pm

New (Healthcare and Retirement) Plan for over 50 Baby Boomers

1. Gut Obamacare
2. Layoff everyone over 50
3. Cut UI benefits to 2 weeks (if unemployed after that you are a bum)
4. Cut taxes for everyone making over $250K to 0% (after all they are the only ones creating jobs)
5. everyone over 50 becomes homeless and starves to death thereby saving SS and Medicare for the wealthy
6. Each year decrease the age by 1 year

MarksThoughts

November 17th, 2010
11:14 pm

Want to Really Balance the Budget?
1. Go to a Flat Tax, no deductions.
2. No advantage or penalty for marriage. You’re an adult. You pay your taxes he/she pays theirs.
3. Privatize Social Security.
4. Make it illegal for businesses to provide health-related benefits. You’re an adult. If you want to be insured, and to insure your children, buy the insurance. In fact, if you don’t insure your children you lose them to someone who will.
5. Government no longer cares if you’re ‘married’ – or not. Write a will. Make a contract with the one(s) you want to live with. If it’s your child, you’re an adult, care for the child. If you don’t, you lose your child to someone who will care for the child.
6. Want to vote? Great! Prove you’re an American citizen with a bio-metric identification card, with confirmed residence. All ballots in US English – only.
7. Privatize Medicare, Medicaid and all such programs. Only those who cannot take care of themselves should receive government benefits – at any level.
8. Reform the judicial and penal systems. We spend $50 to $70,000 per year to keep criminals in prison, yet we can’t afford to send highly talented young people to college? Accrue a total of 15 years or more of prison sentence(s) over your life-time and you’re done. Wood boxes are cheap.
9. Everyone, absolutely everyone, serves 2 years in the military, or in some form of government service. Won’t do it? Fine. No citizenship rights – no right to vote, no right to drink, no right to own weapons, no right to drive.
10. Eighteen years old? Welcome to reality, you’re an adult. You are eligible to serve your government service; you can vote, you can drive, you can drink, you can learn.

Stu

November 18th, 2010
10:30 am

9. Everyone, absolutely everyone, serves 2 years in the military, or in some form of government service. Won’t do it? Fine. No citizenship rights – no right to vote, no right to drink, no right to own weapons, no right to drive.

Neither government nor country nor you OWN me or anyone else. Until you understand that, you’re just another boot-licker and a threat to individual freedom and voluntary association.

And if chicken littles go to bed and wake up fearing that China and Iran will attack the USA, best you buy ya’ some diapers and then STFU.

[...] is Alice Rivlin, the former Clinton budget director who teamed up with Republican Pete Domenici to present a plan last week for tackling the budget deficit. Now, Rivlin is working with Rep. Paul Ryan (R., Wis.) to introduce [...]

Techfan

November 23rd, 2010
6:39 am

Ever notice that those who think raising the retirement age is a great idea sit on their a**es for a living? I’d love to see them digging ditches at 70, or even my profession, RN. Run up and down halls, pull, push, and tug on 250-300 pounders (or in some cases 500-over 700 pounders) while trying to move them or clean them up. Maybe the plan is just to have the keel over dead and be off the rolls.