"It profits me but little that a vigilant authority always protects the tranquillity of my pleasures and constantly averts all dangers from my path, without my care or concern, if this same authority is the absolute master of my liberty and my life."

--Alexis de Tocqueville, Democracy in America

Wednesday, November 10, 2010

The Debt Commission's Report

The chairmen of the debt commission appointed by Obama as a way of passing the buck on the federal government's burgeoning deficit have issued a report.   Of the two chairs, Erskine Bowles was a Clinton insider; Alan Simpson a relatively liberal Republican Senator of the old school.  So I wasn't expecting much, other than a move to raise taxes.   But the report has some interesting ideas:
  • Caps federal government revenue at 21% of GDP.  That's still way too high -- ask yourself whether the feds do anything that's worth 21 cents on every dollar anyone makes doing anything anywhere in America.    But the idea of a cap on the amount the feds can take is a good one.   Make it 15% and I'd be sold.   That would be a substantially smaller government.
  • Caps discretionary spending at FY 2010 levels.   That's way way too high -- that's saying that we get Obama level stimulus spending forever.   But cap it at FY 2008 and I'd be sold.  Again, that would be a substantially smaller government
  • As part of the effort to cap discretionary spending, the proposal would freeze federal salaries and reduce the federal workforce by 10%.   I'd add in a real reduction in federal salaries and benefits, but this is on the right track.   If we are to survive, we have to wage war on our own government  -- by which I mean on bloated government bureaucracies, their unionized employees, and their bloated salaries and (especially) their bloated benefits.
  • Considers eliminating all deductions, especially the mortgage interest deduction (perhaps only for 2nd homes or jumbo mortgages), while simplifying the tax code into three lower rates.   This would be in effect a huge tax increase, but the idea of tax simplification is attractive.  If the rates were lowered to where the proposal was revenue neutral, I'd be in favor of it.   It doesn't seem to me that the decision to buy a bigger and more luxurious home ought to give you more favorable income tax treatment than any other form of consumption.    Low tax rates and few, if any, deductions under which the government privileges certain kinds of economic behavior would be a near ideal recipe for growth. 
  • Couples cuts in Medicare reimbursement with medical malpractice reform.  That sounds like a great idea.   Doctors might end up with the same net income with lower malpractice insurance expenses, and the system would pay doctors, not plaintiffs' lawyers.
  • Reduce farm subsidies by $3 billion a year.   Not enough, but it's a start.  Eliminating farm subsidies is where we should be aiming, if we had the balls.  Why should a small shopkeeper in Milwaukee subsidize a small businessman in Iowa simply because the Iowan's small business happens to be growing food? 
  • Transition to more of a defined contribution plan for federal employees' retirement (50% of contributions) rather than the current defined benefit play (where employees pay only 7% of contributions).   Ideally, we should recognize that the era of the DB plan is over, for the simple reason that funding DB plans is always hostage to investment returns, which will inevitably be uncertain and volatile.   But this is another good start.
  • "Gradually move toward a more progressive formula" for Social Security.   That's a nice way of saying they're going to means test Social Security.  That's painful, when the program has always been sold as one where everyone is treated equally, i.e., that it's not a welfare or poverty program.   But it's inevitable if we're going to survive the coming demographic/actuarial apocalypse.  
  • Increases retirement age under Social Security, already scheduled to go to 67, to 68 in 2050, and 69 in 2075.  Again, painful to contemplate -- although it won't affect an old guy like me -- but it's inevitable.   Actually, this arguably should be ratcheting up faster to reflect actuarial reality, but it's probably not politically palatable.
  • Phase in to a higher maximum income figure for the Social Security tax.   Ouch!   This is just a pure tax increase on high earners, particularly when you couple it with the proposal to move toward a more "progressive" program.  Essentially, they're saying high earners should pay more for Social Security and get less, turning it more and more into a wealth redistribution scheme.   Sorry, not for me.
All in all, not a bad set of proposals.   Some are pretty courageous even.   But I see no chance of much of this getting adopted.   The Democrats will demogogue any change to Social Security or any move to cut AFSCME jobs.  

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