Rowyn (rowyn) wrote,

Deficit Panel -- Preliminary Results

Earlier this year, President Obama tried to get Congress to create a commission on reining in deficit spending. He wanted Congress to do it because a Congressional commission would have teeth -- Congress would be obliged to consider the recommendations seriously. When Congress didn't do it, the President appointed his own commission. I do not have high hopes that Congress will pay more than lip service to the results.

The commission's final report is due on Dec. 1. The preliminary plan is quite interesting, though! I am very impressed by the range of areas targeted, including military spending, social security, and even cap the home mortgage deduction. (!)

I quite like the tax plan:
The preliminary plan in its current form would end or cap a wide range of breaks relied on by the middle class—including the deduction for home-mortgage interest. It would tax capital gains and dividends at the higher rates now levied on wage income. To compensate, one version of the plan would dramatically lower and simplify individual rates, to 9%, 15% and 24%.

For businesses, the controversial plan would significantly lower the corporate tax rate—from a current top rate of 35% to as low as 26%—but also eliminate a number of deductions.

Americans for Tax Reform (a conservative group) hates it, because it's a net tax increase.

But I am FINE with a net tax increase if it SIMPLIFIES the tax code and especially if it lowers marginal rates. I would love to see fewer deductions. I would be happy to give up my own tax deductions for this (although I suspect mine aren't on the target list -- on my federal taxes, I claim deductions for home mortgage interest, local & state taxes, and charitable donations. While mortgage interest is on the chopping block, it looks like the plan is to cap it on mortgages far larger than mine).

As a depressing reality check:
  • The plan is probably more aggressive at cutting spending and raising net taxes than even the commission will be able to agree on; I expect the final plan to be less sweeping.

  • Assuming Congress acts on the commission's recommendations at all, it will at best enact a very watered-down version of them.

  • Even this plan -- which is the MOST aggressive version we're going to see -- would not eliminate the deficit until 2037.
That last bit of bad news may not be as bad as it sounds; the current recession* is depressing federal revenues. Assuming the economy works its way back to sound footing, tax revenues will go up and balancing the budget will be easier. The Clinton-era balanced budget was the result of the dot-com boom, when the economy was riding high and tax revenue soared. While I don't particularly want another unsustainable boom, slow but steady growth would still give the gov't higher revenue than it's getting now.

* Yes, technically, the "recession" is over, but it sure doesn't feel that way.

Anyway, overall it looks like a good start. I wish them luck with this venture; it's going to be a very tough sell.
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