Deficit panel leaders' plan curbs Social Security and Other Sacred Cows

[keegs]

I'm persuaded by these broken souls who complain about our broken tax system and our broken government's broken promises.

[Gone4Good]

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Originally Posted by Nords I think they should invoke the old rulebook used with the 1993 round of Base Realignments and Closures-- vote for the whole slate as proposed or stand up for continuing to waste the money. It was about the only way to get Congress to agree to "repurpose" all the military real estate in their districts...

That is exactly what the President initially proposed. The Senate wouldn't go along . . .

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Despite growing public anger about the burgeoning federal deficit, the Senate today rejected a proposal to establish a commission to devise ways to cut spending and raise taxes -- and to give the panel teeth by essentially forcing Congress to consider its recommendations. The bipartisan amendment would have required Congress to vote on the deficit commission's recommendations -- up or down, without change -- in an effort to prevent lawmakers from sidestepping politically difficult choices and cherry-picking easier but less effective measures.

[scrabbler1]

Lots of good comments here about the Debt Commission's proposals. Many of them I would have written the very same way.

A few things I would like to see:

(1) Equalize the tax treatment of health insurance premiums between those who are on an employer's plan versus those who buy individual coverage. Those on an employer's plan receive some of their premiums tax-free and the rest of their premiums can be paid for using pretax dollars, while those buying individual coverage can at best use pretax dollars to pay for some but not all of their premiums. The employer subsidy should be taxable income and all the premiums paid by both groups should be able to be paid for using pretax dollars.

(2) One fix to SS which would help a lot especially in the long-term is to switch from wage-indexing to price-indexing in the benefit formula. This can be phased in gradually like raising the retirement age and can be tweaked so it doesn't overly affect would-be retirees with lower wages when they were working.

Tax simplification and tax fairness are often at odds with each other. I just compare how my state (New York) taxes dividends and cap gains versus how the Feds tax them. New York simply taxes both of them as ordinary income, so there is no messy dividends and cap gains worksheet. I am not sure I like either extreme, as the simpler one should be fairer and the fairer(?) one should be simpler.

I, too, was fascinated at seeing how the Left has railed against SS changes while the Right railed against any tax increases. Unless they hold hands and jump off the cliff together like the Greenspan Commission did with SS reforms back in 1983, this commission's proposals will go the way of other well-intentioned commissions' proposals - nowhere.

[MichaelB]

The Senate leadership did agree to vote on the final draft of the proposal in its entirety – but only if the Commission gathers 14 votes in support. Like the Wizard of Oz agreeing to grant a wish but only after Dorothy accomplishes an impossible feat – which she subsequently does.

Nobody seems surprised at the recommendations. IMHO this shows that our problems are well understood and not insurmountable and most of the actions needed are simple, but hard, both in commitment and in execution. The weakest part is the containment of medicare costs.

This will be a good test of how much the general public really wants US fiscal reform and what kind of political leadership we have elected between the past 2 elections.

[FreqFlyer]

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Originally Posted by Nords I think they should invoke the old rulebook used with the 1993 round of Base Realignments and Closures-- vote for the whole slate as proposed or stand up for continuing to waste the money. It was about the only way to get Congress to agree to "repurpose" all the military real estate in their districts...

I might be wrong by I'm under the impression that if 14 of the 18 members of the commission approve the proposal it goes to the congress for an up-or-down vote without amendment.

Anyone else read this?

[samclem]

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Originally Posted by scrabbler1 (2) One fix to SS which would help a lot especially in the long-term is to switch from wage-indexing to price-indexing in the benefit formula. This can be phased in gradually like raising the retirement age and can be tweaked so it doesn't overly affect would-be retirees with lower wages when they were working.

How this works out depends on whether wage growth (which is ultimately dependent on US worker productivity) outpaces inflation. In the past it generally has (in the US), which is why the US standard of living has improved and why people see this as a way to save some money in SS payments to seniors. But, looking longer term, there are good reasons to believe US inflation could be relatively high and some believe that US wages, due to increased international competition, are bound to lag. If these folks are right, switching over to inflation indexing of benefits rather than wage indexing could lead to higher growth in SS payments and bigger problems for the SS system as wages (and therefore payroll taxes) stay flat.

In concept, we could peg SS payouts tightly to what is brought in each year in payroll taxes. That puts everyone, recipients and payers, in the same boat, looking (and voting) for things that enhance US competitiveness.

[huusom]

Goverment employee pension and healthcare benefits should also be on the table. I know government employees do not work for free but their pension and benefits are also under funded. We should also consider increase the age where they collect full pension and increase out-of-pocket contribution for their healthcare benefits.

Costs cutting should be done across the board.

[samclem]

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Originally Posted by MichaelB Nobody seems surprised at the recommendations.

Agreed. The speed and volume of the reaction indicates everyone had their press releases written already with their fingers poised over the "send" button.

I wonder how the recent election results will enter into the mix. The Congressional Democrats are, as a group, more liberal now than before the election and, from the sound of their leadership, not in a mood to accept the big spending cuts. All the most vulnerable Democrats have been "purged" by the voters, and the remainder don't need to move to the center, instead they see value in protecting their traditional constituencies. Republicans, of course, are now in a position to make proposals of their own, independent of this deficit commission, and they can likely get them voted on and passed--in the House. Things may be different in the Senate, where many Democrats didn't recently stand for election, but they saw the carnage and may be willing to move rightward to help avoid joining the ranks of the unemployed. If the Republicans don't overplay their hand, there's room for progress there despite the very close Dem/Rep number split. A lot will depend on the political maneuvering--if the Senate leadership and committees can prevent bills from coming to a vote (and they often can) then the existence of a middle ground there is moot. And the demagoguery and bellowing as we move forward will eclipse anything we heard during the health care "debate."

[friar1610]

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Originally Posted by Nords I think they should invoke the old rulebook used with the 1993 round of Base Realignments and Closures-- vote for the whole slate as proposed or stand up for continuing to waste the money. It was about the only way to get Congress to agree to "repurpose" all the military real estate in their districts...

That would be a good idea. From my recollection, BRAC worked pretty well. My community managed to get a base we wanted to close anyway on the list (even though it was such a small facility that it would have been beneath the radar for BRAC.) The reason my community did this was to get the BRAC bennies for the civilian employees and the local community (which wouldn't have been available if the 2nd echelon commander had simply made an operational decision to close it.)

You would know the details better than I, but wasn't New London originally on the Round 2 list for closure but then got taken off due to extensive lobbying by the Connecticut folks?

I don't mean that example to negate the wisdom of using a BRAC-like approach; I think it worked very well.

[MichaelB]

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Originally Posted by huusom Goverment employee pension and healthcare benefits should also be on the table. I know government employees do not work for free but their pension and benefits are also under funded. We should also consider increase the age where they collect full pension and increase out-of-pocket contribution for their healthcare benefits. Costs cutting should be done across the board.

They are. Point 4 of the 5 point summary

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Achieve mandatory savings from farm subsidies, military and civil service retirement.

In the detail, they recommend

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Use highest 5 years to calculate civil service pensions Ask federal workers to contribute ½ the cost (not 1/14th) Reform COLA payments for civilian & military early retirees Reform military retirement system to vest after 10 years (not 20); defer collection until age 60

[ERD50]

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Originally Posted by chinaco As far as SS goes... most americans that worked paid into it(along with their employer). It would not be reasonable to just take it away (regardless of their wealth).

I think this is at the heart of it. In a way, it's just semantics, but I do think it would make a difference if it was set up as strictly a welfare/safety-net program paid out of general taxes. But once you point out that certain $ went into it (and the more you made the more went in), people will expect to get something for it. Most of us get pretty worked up over perceived "un-fairness", it's human nature I guess, and this fans the flames.

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The American way will be to tax income and ultimately to recapture it at the end (estate taxes). IOW... you can use it while you are alive... but in the end, ...

Maybe you guessed I disagree? Yep, they're dead, so screw their intentions of what happens after death. Throw their body in the compost pile, they won't know they aren't in the family burial plot. Take their car, their clothing - they can't use 'em now. We wouldn't want the rest of the family to dispose of any of that per the deceased wishes. They're dead, screw 'em, too late to hire a team of lawyers now. Stupid dead people.

edit/add: And if it were the "American Way", our Founding Fathers would have put it in the Constitution. Heck, they didn't even put income tax in there, or even hint at one group taking care of another.

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Originally Posted by scrabbler1 Tax simplification and tax fairness are often at odds with each other. .

And tax complications and tax fairness are very often at odds with each other. Wow, there must be a jillion opportunities for tax simplification that have nothing to do with 'fairness', or would improve it - let's not let that stop us.

I'll go so far as to say even some of the worst problems may need to be phased in/out to be "fair". If you were able to take advantage of some odd tax law, yanking it from you could create a problem for you, and you were just following the rules (playing the game). But phasing it in over 5 years or so, could give time to adjust.

-ERD50

[scrabbler1]

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Originally Posted by ERD50 I think this is at the heart of it. In a way, it's just semantics, but I do think it would make a difference if it was set up as strictly a welfare/safety-net program paid out of general taxes. But once you point out that certain $ went into it (and the more you made the more went in), people will expect to get something for it. Most of us get pretty worked up over perceived "un-fairness", it's human nature I guess, and this fans the flames.

This is why I object to those (mainly on the Left) who suggest eliminating the wage cap on FICA (SS only, not Medicare) taxes. It is a terrible idea. The same cap on wages subject to FICA also caps SS benefits which is something those on the Left never mention in their arguments. If you eliminate the cap on wages and also on benefits (not what those on the Left suggest) then it won't save the SS system as much, if anything, while giving Bill Gates an uncapped SS benefit check every month. If you eliminate the cap on wages but not on benefits then you are turning SS into a welfare-type program, basically saying to those who pay SS taxes on those excess wages, "Thanks for the SS taxes, but screw you on any added benefits tied to those excess wages."

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Originally Posted by ERD50 And tax complications and tax fairness are very often at odds with each other. Wow, there must be a jillion opportunities for tax simplification that have nothing to do with 'fairness', or would improve it - let's not let that stop us.

I agree. My remark was directed at those (not necessarily here in the Forum) who often cry out, "We need to make the tax code fairer
AND simpler!"

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Originally Posted by ERD50 I'll go so far as to say even some of the worst problems may need to be phased in/out to be "fair". If you were able to take advantage of some odd tax law, yanking it from you could create a problem for you, and you were just following the rules (playing the game). But phasing it in over 5 years or so, could give time to adjust. -ERD50

Again, I agree. An example of this back in the 1980s following the 1986 Tax Reform Act was to phase out the deductibility of personal (non-mortgage) interest such as credit card and student loan. It did not go from 100% deductibility to zero in one shot but instead became partially deductible for a few years before disappearing. It was one reason I paid off my student loans (early) in 1987.

[jimnjana]

I'm just happy cutting expenses is being discussed. I think politicians that oppose any budget cutting initiatives that move forward for a vote, do so at their own political risk.

[samclem]

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Originally Posted by scrabbler1 This is why I object to those (mainly on the Left) who suggest eliminating the wage cap on FICA (SS only, not Medicare) taxes. It is a terrible idea. The same cap on wages subject to FICA also caps SS benefits which is something those on the Left never mention in their arguments. If you eliminate the cap on wages and also on benefits (not what those on the Left suggest) then it won't save the SS system as much, if anything, while giving Bill Gates an uncapped SS benefit check every month.

Eliminating the cap on wages and having unrestricted benefit checks would still result in a very large increase in SS tax revenues for a fairly small increase in total benefit check payouts. The payout schedule is highly progressive, so that high wage earners get very little "payback" for what they put in. And, the higher the "cap" is, the more it is a wealth transfer system for the poor--welfare. But, a softer welfare that isn't means tested--everybody gets something, and those who paid a lot get slightly more back.

[Gone4Good]

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Originally Posted by FreqFlyer I might be wrong by I'm under the impression that if 14 of the 18 members of the commission approve the proposal it goes to the congress for an up-or-down vote without amendment. Anyone else read this?

There is no law that requires an up or down vote. This is a commission established by executive order, it has no binding power on Congress.

And even if prior Congressional leadership agreed to those terms, what does the new leadership say?

[Gone4Good]

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Originally Posted by samclem I wonder how the recent election results will enter into the mix. The Congressional Democrats are, as a group, more liberal now than before the election and, from the sound of their leadership, not in a mood to accept the big spending cuts.

I assume it was just an oversight that you didn't mention how the incoming Republicans are even more dogmatic with respect to tax increases; with many already saying that the proposed $2 spending cuts for every $1 of tax increases relies too heavily on revenue gains.

For what it's worth, the "liberal" NYT Op-Ed page came out with a surprisingly strong endorsement for the commission recommendations. Maybe there is hope for an adult response after all.

[Texas Proud]

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Originally Posted by clifp Actually the 15/30K standard deduction is one of my favorite things about the proposal. One of the goals if the reform is to broaden the tax base I think it does this. Right now the median household income is 45K and approximately 30% of household incomes under 30K per year. Assuming that most all deduction other than the 1K tax credit per kid are wiped out I would think this would drop the number who don't pay taxes from the 47% rate to a number in the 30-35% rate, which looks like an improvement to me. The reason I like the high standard deduction is really simplifies taxes for the vast majority or Americans and discourages the minor cheating. E.g. claiming that underwear you donated is worth $5/pair or fudging on your prescription cost etc. If you have to get $30,000 worth of deductions people will just claim the standard deduction and move on. BTW, as one of the 47% of American who haven't paid federal (or state) taxes for the last few years, I still feel an obligation to reduce the debt, even if it means reduced benefits or future higher taxes.

Why not get rid of all deductions

I agree with you that if there is an incentive to get a deduction people will fudge... or do what I do and double up (I pay two years of property tax in a single year to max my deductions)...

But if NOTHING is deductible, then you don't have to worry about it either... or give a standard dedection and everybody has to use that amount no matter what...

[Bestwifeever]

I can't wait for the mortgage interest deduction to be zapped so we can revisit the pay off the mortgage question here.

[REWahoo]

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Originally Posted by Bestwifeever I can't wait for the mortgage interest deduction to be zapped so we can revisit the pay off the mortgage question here.

Yep. Nothing like beating a resurrected horse to death...again, and again, and again...

[W2R]

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Originally Posted by REWahoo Yep. Nothing like beating a resurrected horse to death...again, and again, and again...

Let me help you....