The two deficit-hawk extremists President Obama put in charge of his fiscal commission released their personal suggestions for cutting the federal budget deficit on Wednesday. And while it's quite possible that not a one of them will make it into the commission's official recommendations, which require the approval of 14 of the 18 commissioners (not just two), the document will inevitably be welcomed as a "serious" contribution to the debate - at least by Republicans and conservative Democrats.
But taken as a whole, the plan authored by Erskine Bowles and Alan Simpson would have devastating effects on the government and its ability to help the most vulnerable in our society, and it would put the squeeze on the middle class, veterans, the elderly and the sick - all in the name of an abstract goal that ultimately only a bond-trader could love.
Here are the top 10 flash points:
It Would Cut Social Security Benefits For Current And Future Retirees(01 of10)
The chairmen’s plan would increase the Social Security retirement age and limit yearly cost-of-living increases to the rate of inflation rather than of wage growth. The cut in annual increases would affect current retirees -- which was supposed to be off the table. Their benefits would go down by about 3 percent after they’ve been retired for 10 years, and about 6 percent after they’ve been retired for 20 years. And the retirement age increase is just a particularly cruel way of cutting benefits. The age at which the elderly can retire on full Social Security benefits is already increasing to 67 by 2027. The chairmen’s plan would “index” the retirement age to increase in longevity, meaning it would hit 68 in about 2050 and 69 in about 2075.Sen. Bernie Sanders (I-Vt.) had this to say about it: “It is reprehensible to ask working people, including many who do physically-demanding labor, to work until they are 69 years of age. It also is totally impractical. As they compete for jobs with 25-year-olds, many older workers will go unemployed and have virtually no income. Frankly, there will not be too much demand within the construction industry for 69-year-old bricklayers.”New York Times opinion columnist Paul Krugman also pointed out that “the people who really depend on Social Security, those in the bottom half of the distribution, aren’t living much longer. So you’re going to tell janitors to work until they’re 70 because lawyers are living longer than ever.”
It Would Cut Tax Rates For The Rich(02 of10)
What in the world is a proposal to cut income tax rates doing in a deficit-reduction plan in the first place? And what’s the need for it? Under the chairmen’s “Option 1” for taxes, individual income tax rates would decrease across the board -- but mostly for the highest bracket, where the rate would drop from 35 to 23 percent. The corporate tax rate, now 35 percent, would also be reduced, to 26 percent.As New York Times opinion columnist Paul Krugman writes: “Even if those cuts are offset by supposed elimination of tax breaks elsewhere, balancing the budget is hard enough without giving out a lot of goodies -- goodies that fairly obviously, even without having the details, would go largely to the very affluent.”
It Would Screw The Middle Class(03 of10)
The single biggest cut in Social Security benefits in the chairmen’s plan comes from moving to a "more progressive benefit formula,” starting at the 50th percentile. That sounds all well and good until you realize that the median household income right now is about $50,000. So even as Congress debates whether a $250,000 annual income counts as middle class for tax cut purposes, the true middle class would see it Social Security benefits dramatically reduced through means testing under the chairmen’s plan.Similarly, the plan calls for the elimination of the home mortgage exemption. Poor people don’t get it; rich people don’t need it; the people who’d get hurt are the middle class.
It Uses ‘Caps’ To Disguise Major Cuts To Medicare (And Elsewhere)(04 of10)
The plan’s proposals for Medicare in the short run are heavy on euphemism. “Expand cost-sharing in Medicare to promote informed consumer health choices and spending,” of course, means increase fees. “[A]sking doctors and other health providers, lawyers, and individuals to take responsibility for slowing health care cost growth,” means pay cuts to health providers -- and plaintiffs’ rights.But the long-term plan is basically to set a cap on the rate of growth of federal health expenditures. The rate would be capped at no more than 1 percent more than the increase in gross domestic product. Economist Brad DeLong’s reaction: " Oh my God! Ration city, here we come! What clowns vetted this thing?”Should that target not be met, well, then, the president would be required to submit -- and Congress would be required to consider -- “reforms to lower spending.” The ones listed include such things as increasing fees or, interestingly enough, adding a robust government-run “public option” for health insurance. But much more draconian measures presumably would also have to be considered. There’s just no mention of them here.Mandatory, theoretically enforceable caps are also a key to the chairmen’s plan for decreases in discretionary spending.
It Makes A Start On Cutting Defense(05 of10)
As Spencer Ackerman writes for Wired, the chairmen are telling the military that it’s “going to have to lose some of its favorite gear.” Indeed, the plan calls for a reduction of more than $100 billion in annual defense spending. That’s real money even for the Pentagon; a bit less than 20 percent of its non-war-related budget. It would, for instance, reduce weapons purchases by 15 percent, freeze military and civilian pay, and reduce overseas bases by one-third. That’s a very radical proposal by congressional standards. And it’s even in the ballpark of some of the most dramatic recommendations made by outside groups recently.Rep. Barney Frank’s bipartisan Sustainable Defense Task Force recommended nearly $1 trillion in defense budget cuts over the next 10 years, and even as Bowles and Simpson were coming out with their plan on Wednesday, the Cato Institute was putting forth a list of 19 proposals that would reduce military spending by $1.2 trillion over the next 10 years. One particularly ripe area for cutting mentioned by both groups, but not, apparently on the chairmen’s list, is cutting the nation’s bloated nuclear weapons arsenal.
It’s Just What The Housing Market Needs(06 of10)
The version of the chairmen’s tax plan that brings the top individual income tax bracket down to 23 percent calls for the total elimination of all “tax expenditures” – including targeted deductions that have hitherto been considered in the best interests of the nation. The two biggest ones by far are the health insurance deduction for employers, and the mortgage interest deduction for homeowners.There are many legitimate equity-related arguments to be made about the mortgage-interest deduction. But in the middle of a mortgage and foreclosure crisis, eliminating one of the most effective inducements for people to buy homes could well drive the housing market into an even deeper depression.
It Would Declare War On Federal Workers(07 of10)
If the chairmen’s plan has a whipping boy, it’s the federal worker. Top of its list of “illustrative domestic cuts” are freezing federal salaries, bonuses, and other compensation for three years, cutting the federal workforce by 10 percent (by hiring two workers for every three who leave the government), and eliminating 250,000 non-defense service and staff contractors. That’ll certainly make government work better.
It Would Hurt Veterans And Servicemembers(08 of10)
Firedoglake’s David Dayen sums up the plan’s effects on servicemembers and veterans: “They want to add co-pays to the Veterans’ Administration and TRICARE, as well as pushing individuals covered by TRICARE into an employer policy. They also want to freeze noncombat military pay for three years. And, they want to end schools for families on military bases, instead reintegrating soldier’s kids into the public school system (because that’s so easy for a military family that moves every other year).”
It Would Kill An Incredibly Effective Anti-Poverty Tool(09 of10)
Among the “tax expenditures” that would be eliminated in order for the chairmen’s tax plan to bring the top individual income tax bracket down to 23 percent are the EITC, or Earned Income Tax Credit, and the child tax credit.The EITC is one of the government’s single most effective antipoverty instruments, providing needed cash to poor and low-income workers. Congress originally approved it in 1975 in part to offset the burden of payroll taxes and as an incentive to work. And it has worked very well indeed.
There Are A Lot Of Things Missing(10 of10)
When contemplating a plan like this one, it’s always worth thinking about what is not in it. And when it comes to increasing federal revenues in particular, there is a lot missing. There’s no increase in the relatively low tax rates paid by the richest households. (In fact, there’s a sharp decrease.) There’s no Wall Street financial speculation tax (or financial transaction tax). There’s no carbon tax. The plan proposes raising the contribution ceiling for Social Security to 90 percent (that would somewhat increase the current ceiling of $106,800). But why not 100 percent? There’s no Value Added Tax. And in terms of possible solutions, there’s no proposal to have the Federal Reserve simply continuing to buy the debt and hold it indefinitely.You could even argue, as Sen. Bernie Sanders (I-Vt.) does, that the chairmen’s plan completely misses what should be its central targets, the real villains of the deficit. “The huge increase in the national debt in recent years,” Sanders points out, “was caused by two unpaid wars, tax breaks for the wealthy, a Medicare prescription drug bill written by the pharmaceutical industry, and the Wall Street bailout.” Not by Social Security. Not by Medicare. Not by the middle class, or the poor, or the federal workers. And for good measure, Dean Baker, co-director of the Center for Economic and Policy Research, points out that the whole project is misdirected: "The country is suffering from 9.6 percent unemployment with more than 25 million people unemployed, underemployed or who have given up looking for work altogether. Tens of millions of people are underwater in their mortgage and millions face the prospect of losing their home to foreclosure. "This situation is not the result of government deficits," Baker argues. In fact, "[t]he large government deficits are the only factor sustaining demand following the loss of this bubble wealth. If today’s deficit were smaller, we would not be helping our children; we would just be putting their parents out of work."
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Dan Froomkin is senior Washington correspondent for the Huffington Post. You can send him an e-mail, bookmark his page; subscribe to RSS feed, follow him on Twitter, friend him on Facebook, and/or become a fan and get e-mail alerts when he writes.
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