Gang Of Six Plan: A $3.1 Tril Tax Hike
Posted 06:54 PM ET
National Debt: No wonder President Obama has so heartily endorsed the "Gang of Six" deficit plan. Just like everything Obama has offered so far, it's short on details and long on tax hikes.
Soon after the "Gang of Six" — a bipartisan group of senators that has been trying for months to put together a deficit reduction plan — issued its new proposal, President Obama praised it as "a very significant step" that represents "the potential for bipartisan consensus."
What it really represents is Washington at its worst.
The "plan" Obama was praising isn't a plan at all, but a few pages of bullet points with vague concepts, promises of future cuts, and confusing, and at times contradictory, numbers.
And what details it does contain show that the gang has employed some of the most egregious budget tricks available to make the spending cuts look bigger and tax hikes smaller than they actually are.
The best example of this is the plan's tax proposal, which alternately boasts that it cuts taxes by $1.5 trillion and raises them by $1 trillion, but which more likely will result in taxes going up by more than $3 trillion.
According to the outline, the $1.5 trillion in "tax relief" is how the Congressional Budget Office would score the plan.
But what the gang conveniently leaves out is that the CBO's forecast has $4.6 trillion in tax hikes already baked into it. That's because the CBO baseline assumes all the Bush tax cuts get repealed, that every other temporary tax cut is left to expire, and that the alternative minimum tax continues to entrap millions more middle-class families each year.
Once you take that into account, the $1.5 trillion in "tax relief" turns instead into a $3.1 trillion tax increase over the next decade. (It's anyone's guess where the gang got its $1 trillion tax hike figure.)
The plan also boasts an "immediate" down payment of $500 billion in deficit reduction.
But there's nothing immediate about it at all.
These savings come mainly from a three-year cap on discretionary spending — never mind that such spending caps haven't ever worked in the past — as well as a change in the official inflation index that would cut annual Social Security benefit increases and impose a hidden tax on families by lowering the annual inflation adjustment to tax brackets.
The long-term plan doesn't appear any better.
The $2.6 trillion in spending cuts over 10 years might sound like a lot, but it amounts to a mere 5% of projected federal spending. And even calling it a "cut" is a misnomer, since federal spending would continue to climb over those years, just at a very slightly slower rate.
Even the gang's $3.7 trillion deficit reduction figure is hardly anything to boast about, since the plan would still add something like $5 trillion in debt on top of the $14 trillion we've already piled up.
To be fair, there are some good items on the gang's list, including tax reform that lowers and simplifies personal income tax rates, an end to the alternative minimum tax, and cuts to the corporate tax rate. And it at least acknowledges the need for entitlement reform.
But it's far from a credible debt reduction plan.
Any plan that counts on spending cuts in the future is bogus. History has shown time and again that those cuts never materialize.
Plus, most plans take current spending levels as a given, and make "cuts" off this hugely inflated base, ignoring the fact that federal spending has rocketed upward by an astonishing 24% in just the past three years.
A credible plan would bring spending as a share of the economy back to prerecession levels. That would mean a spending cut in the neighborhood of $450 billion next year.
In addition, changes in spending and taxes should be measured against today's levels, not against some baseline that assumes government gets bigger every year. Baseline budgeting gives politicians too many chances to fudge the numbers.
And while deficits and debt are important, what matters most is the size of the federal government and economic growth.
The bigger the government, the worse growth will be, no matter whether the budget is balanced. Since 1950, federal spending has averaged 20.8% of GDP. That should be the absolute upper limit on spending going forward, although we'd prefer it to be lower still.
The fact that more and more lawmakers on both sides of the aisle are willing to sign onto the phony Gang of Six plan, and that Obama would lend it his effusive praise, is a testament to why the country is in such deep fiscal trouble.
Posted 06:54 PM ET
National Debt: No wonder President Obama has so heartily endorsed the "Gang of Six" deficit plan. Just like everything Obama has offered so far, it's short on details and long on tax hikes.
Soon after the "Gang of Six" — a bipartisan group of senators that has been trying for months to put together a deficit reduction plan — issued its new proposal, President Obama praised it as "a very significant step" that represents "the potential for bipartisan consensus."
What it really represents is Washington at its worst.
The "plan" Obama was praising isn't a plan at all, but a few pages of bullet points with vague concepts, promises of future cuts, and confusing, and at times contradictory, numbers.
And what details it does contain show that the gang has employed some of the most egregious budget tricks available to make the spending cuts look bigger and tax hikes smaller than they actually are.
The best example of this is the plan's tax proposal, which alternately boasts that it cuts taxes by $1.5 trillion and raises them by $1 trillion, but which more likely will result in taxes going up by more than $3 trillion.
According to the outline, the $1.5 trillion in "tax relief" is how the Congressional Budget Office would score the plan.
But what the gang conveniently leaves out is that the CBO's forecast has $4.6 trillion in tax hikes already baked into it. That's because the CBO baseline assumes all the Bush tax cuts get repealed, that every other temporary tax cut is left to expire, and that the alternative minimum tax continues to entrap millions more middle-class families each year.
Once you take that into account, the $1.5 trillion in "tax relief" turns instead into a $3.1 trillion tax increase over the next decade. (It's anyone's guess where the gang got its $1 trillion tax hike figure.)
The plan also boasts an "immediate" down payment of $500 billion in deficit reduction.
But there's nothing immediate about it at all.
These savings come mainly from a three-year cap on discretionary spending — never mind that such spending caps haven't ever worked in the past — as well as a change in the official inflation index that would cut annual Social Security benefit increases and impose a hidden tax on families by lowering the annual inflation adjustment to tax brackets.
The long-term plan doesn't appear any better.
The $2.6 trillion in spending cuts over 10 years might sound like a lot, but it amounts to a mere 5% of projected federal spending. And even calling it a "cut" is a misnomer, since federal spending would continue to climb over those years, just at a very slightly slower rate.
Even the gang's $3.7 trillion deficit reduction figure is hardly anything to boast about, since the plan would still add something like $5 trillion in debt on top of the $14 trillion we've already piled up.
To be fair, there are some good items on the gang's list, including tax reform that lowers and simplifies personal income tax rates, an end to the alternative minimum tax, and cuts to the corporate tax rate. And it at least acknowledges the need for entitlement reform.
But it's far from a credible debt reduction plan.
Any plan that counts on spending cuts in the future is bogus. History has shown time and again that those cuts never materialize.
Plus, most plans take current spending levels as a given, and make "cuts" off this hugely inflated base, ignoring the fact that federal spending has rocketed upward by an astonishing 24% in just the past three years.
A credible plan would bring spending as a share of the economy back to prerecession levels. That would mean a spending cut in the neighborhood of $450 billion next year.
In addition, changes in spending and taxes should be measured against today's levels, not against some baseline that assumes government gets bigger every year. Baseline budgeting gives politicians too many chances to fudge the numbers.
And while deficits and debt are important, what matters most is the size of the federal government and economic growth.
The bigger the government, the worse growth will be, no matter whether the budget is balanced. Since 1950, federal spending has averaged 20.8% of GDP. That should be the absolute upper limit on spending going forward, although we'd prefer it to be lower still.
The fact that more and more lawmakers on both sides of the aisle are willing to sign onto the phony Gang of Six plan, and that Obama would lend it his effusive praise, is a testament to why the country is in such deep fiscal trouble.
