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

[jebmke]

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Originally Posted by clifp I was watching 3 way debate on the Newshour over the report; including AFL-CIO guy, Grover Norquist, and a woman who is the President of Committee For a Responsible Federal Budget .

I watched this too. It was hilarious. I was waiting for someone to talk about mothers and combat boots but it never escalated that far.

[Gone4Good]

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Originally Posted by clifp Seriously how can you say that? Did you miss the part where the capital gain and dividend rates increase from 15% to between 27-35% and the large decrease in itemized largely impacts the wealthy. Obviously the devils in the details but I don't understand, how you know this?

The Commission came out with a couple of different options, so we don't know exactly what the plan is. But "Option 1" cuts the top marginal rate to 23%, treats dividend and cap gains as ordinary income, and gets rid of a bunch of deductions.

Compared with current law where the top rate goes to 39.6%, dividends are treated as ordinary income and cap gains are taxed at 20%, that sounds like a really, really good deal for high income people.

Most of the itemized deductions also get phased out already, so the folks who get stung by the repeal of those are the people making six figures rather than the guys making seven, eight and nine.

"Option 2" sounds like it would be better for lower income folks, with higher rates and a much larger standard deduction.

[Gone4Good]

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Originally Posted by samclem Another calm, nonpartisan voice of moderation is heard . . . Paul Krugman weighs in.

One criticism he levels that would be devastating if true is this one . . .

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It’s true that the PowerPoint contains nice-looking charts showing deficits falling and debt levels stabilizing. But it becomes clear, once you spend a little time trying to figure out what’s going on, that the main driver of those pretty charts is the assumption that the rate of growth in health-care costs will slow dramatically. And how is this to be achieved? By “establishing a process to regularly evaluate cost growth” and taking “additional steps as needed.”

Simply wishing away future spending is not a good foundation on which to build. If this turns out to represent a substantial portion of the overall savings, we need to go back to the well and look for more.

[samclem]

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Originally Posted by Gone4Good The Commission came out with a couple of different options, so we don't know exactly what the plan is.

Agreed. And when CBO "grades" the proposed tax change plan into income quintiles and shows which groups are "winners" and which are "losers," let's all try to remember that the CBO uses static analysis. In the real world, people and markets respond to changes in the tax law, so the CBO projections may not be worth much until we understand the impact of their assumptions. We'll all be able to datamine the projections put out by other sources and make our arguments.

The Commission sought to "broaden the tax base." That can mean two things:
1) Classifying a larger part of total economic activity as "taxable". This would be the accounting definition. Doing this allows rates to be lowered while keeping total tax revenues the same, and it reduces incentives for cheating and for "creative" structuring of financial affairs that reduce an individual's/corporation's taxes but also hurt the economy by funneling capital into things with lower expected return/utility.

2) Making more citizens into payers of the federal income tax (even at fairly low rates). This would be the political definition. And, as I may have mentioned, I think it's a good objective.

[scrabbler1]

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Originally Posted by clifp I was watching 3 way debate on the Newshour over the report; including AFL-CIO guy, Grover Norquist, and a woman who is the President of Committee For a Responsible Federal Budget . I guess it is telling that even the Newshour which generally has thoughtful discussion Norquist, and the AFL-CIO both ended up reading from their talking points. I am not even convinced that AFL guy had actually read the report yet. AFL guy: don't cut Social Security eliminate the Bush tax cuts. Norquist: Our problem isn't a revenue problem it is a spending problem. Together: This plan is a non starter.

I saw this, too. The only panelist worth listening to was that woman, Maya MacGuineas, trapped in the center getting pummeled by both sides. MacGuineas has always been a voice of reason. I met her once in the 1990s when she was with the Concord Coalition (I have been a member since 1995) and have seen her on TV on the NewsHour and other similar panels many times over the years. I saw her testifying before a Congressional committee in 2005 when SS reform was a hot item. She was the only one who had the guts to take on the tough questions from the congressmen.

Maya MacGuineas - Wikipedia, the free encyclopedia

If you see her talking about these issues, listen to her and ignore the other panelists. You can always predict what Norquist will say. I usually throw things at the TV. The AFL guy was no better.

[Gone4Good]

I'd characterize "dynamic analysis" more like this . . .

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Originally Posted by samclem We'll all be able to datamine the projections put out by other more partisan sources and make our arguments choose the one that fits our favored outcome.

[samclem]

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Originally Posted by Gone4Good If this turns out to represent a substantial portion of the overall savings, we need to go back to the well and look for more.

Well, I'll reserve any snarky comments about the promised savings from health care reform, except to say that many in Washington will have a hard (political) time if, after voting for some recent landmark legislation that promised to control health care costs, they now try to make the case that we can't control health care costs. Oops, maybe I didn't avoid the snarky comment.

If some of the Commission's cost-cutting gets shown to be implausible, we should remember that they overshot the President's (very modest) deficit reduction target by quite a stretch.

[jIMOh]

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Originally Posted by Gone4Good If I read the press correctly, neither Republican nor Democratic members of the commission are endorsing the report . . . that must mean the proposal achieves a fair balance that will actually correct the problem. It also means that the children we've elected to represent us will use this occasion to misrepresent the report and then use those misrepresentations as justification for doing absolutely nothing. We've seen this movie before.

+1

I read an article on yahoo a few nights ago about this- if this is enacted, it needs to INCREASE my income by $600/mo because that is what the mortgage deduction is worth to me (the article I read discussed taking away the mortgage interest deduction)- and this does not even factor in property taxes, state taxes or kids (deductions and credits).

If they take away the deduction for mortgage interest, but do not offset my income another way, we would walk away from our house (probably) and deal with the consequences.

[jebmke]

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Originally Posted by Gone4Good The Commission came out with a couple of different options, so we don't know exactly what the plan is. But "Option 1" cuts the top marginal rate to 23%, treats dividend and cap gains as ordinary income, and gets rid of a bunch of deductions. Compared with current law where the top rate goes to 39.6%, dividends are treated as ordinary income and cap gains are taxed at 20%, that sounds like a really, really good deal for high income people. Most of the itemized deductions also get phased out already, so the folks who get stung by the repeal of those are the people making six figures rather than the guys making seven, eight and nine. "Option 2" sounds like it would be better for lower income folks, with higher rates and a much larger standard deduction.

On top of this, it adds a gasoline tax and eliminates the child tax credit and EIC. These hit the non rich directly. I personally think we need to jack up the gasoline tax but in a different context from deficit reduction.

[Gone4Good]

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Originally Posted by samclem after voting for some recent landmark legislation that promised to control health care costs, they now try to make the case that we can't control health care costs. Oops, maybe I didn't avoid the snarky comment.

Yes, except that legislation substantially effected the health care industry and included dozens of programs designed to control costs. And yes, CBO's "static analysis" ignored many of those programs because they didn't have a basis on which to project savings, and yet CBO still determined that the package as a whole would reduce the deficit. Does the deficit commission have additional legislation in mind to control health care costs? Will CBO agree that there is cost savings to be had there? We shall see.

And with respect to health reform, I fully expect to hear the same argument about health care savings that we hear about things like TARP. "We'll sure health care cost inflation slowed (the economy stabilized), but we don't know what would have happened if the legislation never passed."

[skyvue]

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Originally Posted by samclem 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.

This is by far the easiest approach to fixing social security in my opinion. It would personally impact me negatively as I hit the income limit around October each year right now, but would agree to elminating the income cap to keep my future benefits secure.

[HFWR]

Obamacare, in my non-informed opinion (not that I'll let that slow me down), accomplished some worthy goals re: access and such, but cost controls appear to be mostly "price" controls, which I have no faith in at all...

Regarding all the rest, I do not expect any "cooperation". The Republican strategy after 2008 was to NOT cooperate with any Obama programs, and to apply the full-court press in the media. Whether this was good policy is debatable, but it was certainly a good political strategy. As a result, Bluedogs lost their jobs, and any moderate Republican found compromising with either the Administration or the Democrats in Congress will likely be shown the door in 2012.

Much like the Democratic majority overplayed their hand after 2008, the Republicans might be in danger of doing the same.

In summary, I'm not sure anything will get done, because the "tails" are wagging the dog...

[Texas Proud]

This is a telling quote from his article

"Start with the declaration of “Our Guiding Principles and Values.” Among them is, “Cap revenue at or below 21% of G.D.P.” This is a guiding principle? And why is a commission charged with finding every possible route to a balanced budget setting an upper (but not lower) limit on revenue? "


Just him saying this makes him sound dumb.... come on... when was the last time we were ever worred about a lower limit on taxes We are talking politicials here...

And IIRC, the long term revenue percent is between 18% to 20%... so 21% is higher than normal...

Also, to me we need to cap SPENDING at 21%... I had heard that it is at 24%, but did not look to see if this is correct...

[Gone4Good]

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Originally Posted by Texas Proud And IIRC, the long term revenue percent is between 18% to 20%... so 21% is higher than normal... Also, to me we need to cap SPENDING at 21%... I had heard that it is at 24%, but did not look to see if this is correct...

For 2010, spending is actually 25.4%. But Federal revenue as a % of GDP is only 14.8%

Sorry to say, the current deficit is not just an issue of spending too much.

Couple more numbers:

average taxes / GDP for 2001-2010 = 17.1%, for 1991-2000 = 18.7%
average spending / GDP 2001-2010 = 20.7%, for 1991-2000 = 20.3%

So compared to the prior decade, spending has grown as a share of GDP but by far less than the amount by which taxes have fallen.

[Texas Proud]

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Originally Posted by jIMOh +1 I read an article on yahoo a few nights ago about this- if this is enacted, it needs to INCREASE my income by $600/mo because that is what the mortgage deduction is worth to me (the article I read discussed taking away the mortgage interest deduction)- and this does not even factor in property taxes, state taxes or kids (deductions and credits). If they take away the deduction for mortgage interest, but do not offset my income another way, we would walk away from our house (probably) and deal with the consequences.

You must have a pretty big mortgage to be savings $600 per month in taxes... heck, my mortgage payment is not much more than that...


A question that I would have is why should the rest of the taxpayers subsidize your big house and your kids I am not trying to single you out specifically, but that is what is happening with these deductions and credits.

[FinanceDude]

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Originally Posted by skyvue This is by far the easiest approach to fixing social security in my opinion. It would personally impact me negatively as I hit the income limit around October each year right now, but would agree to elminating the income cap to keep my future benefits secure.

I agree, even though I too would be affected negatively by such legislation. I am sure that will never fly in Washington. Maybe they could do a small fix, like raise the limit to $150,000 or so, and see how that works, rather than going unlimited right away.......

[Texas Proud]

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Originally Posted by Gone4Good For 2010, spending is actually 25.4%. But Federal revenue as a % of GDP is only 14.8% Sorry to say, the current deficit is not just an issue of spending too much.

Thanks... good table...

I think we can agree that the revenue number is down because of the crisis.... and if and when people start getting jobs it will go up...


You can see that prior to Bush's tax cut the revenue was in the 19% range.... in fact, going back to Regan it averages 18.5%... during this time spending was 20.8. It looks like it was higher back during Reagan and went down during Clinton and the second Bush...

Now, look at spending... it has gone back up to the Reagan and before %s.... if we just get it back down to the 19% or so.... we can balance the budget...

This does nothing about our huge debt.... but first things first...

[Texas Proud]

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Originally Posted by Gone4Good For 2010, spending is actually 25.4%. But Federal revenue as a % of GDP is only 14.8% Sorry to say, the current deficit is not just an issue of spending too much. Couple more numbers: average taxes / GDP for 2001-2010 = 17.1%, for 1991-2000 = 18.7% average spending / GDP 2001-2010 = 20.7%, for 1991-2000 = 20.3% So compared to the prior decade, spending has grown as a share of GDP but by far less than the amount by which taxes have fallen.

But, we have this to look forward to per the table...

Avg taxes / GDP for 2011 - 2015 = 18.3%
Avg spending / GDP for 2011 - 2015 = 23.4%

Taxes back up to where they were (and higher than the last decade)
Spending a lot higher than before (by 13%... 23.4/20.7)

[FinanceDude]

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Originally Posted by Gone4Good Yes, except that legislation substantially effected the health care industry and included dozens of programs designed to control costs. And yes, CBO's "static analysis" ignored many of those programs because they didn't have a basis on which to project savings, and yet CBO still determined that the package as a whole would reduce the deficit. Does the deficit commission have additional legislation in mind to control health care costs? Will CBO agree that there is cost savings to be had there? We shall see.

WHEN was the LAST time a govt program CONTROLLED costs? There is no precedent that ObamaCare will control costs, take a look at Medcaid/Medciare and SS for examples...........

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And with respect to health reform, I fully expect to hear the same argument about health care savings that we hear about things like TARP. "We'll sure health care cost inflation slowed (the economy stabilized), but we don't know what would have happened if the legislation never passed."

As far as "saving" me money, tell me how this does that?

Big Changes Coming To Your Medical FSA - Forbes.com

So, I put away money pre-tax to fund this, but I am not allowed to use the money to buy cold meds and other OTC meds? That is RAISING my cost of healthcare, NOT lowering it.........

[Texas Proud]

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Originally Posted by Gone4Good And spending is up because of the crisis. Unemployment insurance, food stamps, etc. don't pay for themselves.

I doubt that it adds even 1% to the number... but since this is a WAG... I could be wrong...