On February 18, 2010, President Obama created a panel called the National Commission on Fiscal Responsibility. It's billed as a bi-partisan panel, but the self-imposed rules governing the appointment of members meant that the Democrats would appoint 12 of the 18 members, though at a minimum 2 of those 12 can not be "Democrats". The other 6 members were appointed by Republican leadership in the Senate and House. In the end the panel is 10 overtly Democratic members, 6 Republican politicians, and 2 CEOs.
If you're the President, you expected the panel to come back with some sort of rubber stamp of your economic policy. Unfortunately, the 18 panel members are capable of simple math and determined that spending cuts and tax increases are required to restore the American economy. This was met by stunned lawmakers, notably the Democrats who put this thing together and schedule the proposal to be delivered after the election (no politics there of course). The proposal from the co-chairs which was released today is far from earth shattering. This is not the final deliverable as that must be approved by a vote from the entire commission. I outlined some of the items below which I found to be fairly good proposals.
1) Social Security: Raise the eligibility age, index benefits to inflation not wage growth, expand the tax base to include state/local government workers, and expand the tax to higher income levels. All of these are necessary in some form or another; it is impossible to fix Social Security without either raising taxes or cutting benefits. The Social Security eligibility age was initially 65 when the program was first introduced in 1935 and life expectancy was between 60-64 at the time (see page 6 here). The eligibility age is now 67 and life expectancy has increased to just over 78. (By the way, life expectancy means how long a child born in that year is expected to live...example: a child born today is expected to live to 78). Social security was meant to keep the elderly out of destitution, so indexing to inflation provides the individual to access the goods which are required to live.
2) Fix the tax system: Use just 3 tax rates, reduce the availability of deductions (including the mortgage deduction), and tax no income under $30,000. I really like this plan. Raising the standard deduction to $30,000 codifies what is already the case, that low income individuals pay no taxes right now. Whenever a Democrat says, "They're trying to raise taxes on the poor to give tax breaks to the rich," I laugh. The poor don't pay taxes and what the Democrat should say but can't is, "They're trying to cut benefits to the poor so they lower taxes for the rich." I like reducing the number of tax deductions available, especially those related to housing. Tell me, why exactly should the interest on a mortgage of greater than $500K be tax deductible? I disagree in general with the mortgage interest tax deduction, but subsidizing the purchases of large homes doesn't seem like smart public policy. I would also suggest that the deduction should be indexed to geographical areas, but in general the principle seems correct.
3) Cut federal budgets: Freeze federal wages/benefits, reduce farm subsidies, make civil servants contribute to their retirement plan, and so on. Again most of these options seem to be reasonable. The gap between public and private sector pay has disappeared, so there's no reason for Federal employees to enjoy hirer pay and lower career risk. Farm subsidies are just plain ridiculous, subsidizing the manufacture of ethanol which requires more energy to produce that it provides simply highlights what happens when a politician tries to solve a market problem. I also like the proposal to increase the premiums for the military's health care plan, Tricare. As discussed here, this alone costs the Pentagon tens of billions each year. The premiums could be substantially raised and still be lower than the market price of a comparable plan.
There are quite of few excellent ideas in their report, most of which will never make it out the committee since the final report requires a vote by the 18 members to be approved. The trouble is that the co-chairs were right, we are in a bad place economically and fixing it requires pain in the form of cuts to federal budgets and increased taxes.
Having recently received an offer for employment, I calculated my expected yearly tax bill and was horrified to learn it will be significantly larger than my salary when I first joined the Army as a 2nd Lieutenant. The upside to this is my purchasing power now is significantly better that of an individual who was born to a lower middle class family anywhere else in the world. So why don't we just buck up and accept that the Ponzi scheme we have allowed our politicians to put in place can't continue?
P.s. Having read this post before hitting the "publish button," I appear to have assigned far more blame to Democrats than Republicans. That is certainly not my intent, indeed were you to simultaneously start two wars and cut taxes you shouldn't even be allowed to utter the words "fiscal responsibility." I will also add that I find Tea Party members to be in the same intelligence league as the beauty pageant member (What do you want? World Peace!). If you pay attention to all the candidates that the Tea Party has put forward, they all recommend cutting taxes. Asked how they'll pay for this, they reply with some inane combination of cut earmarks and reduce waste. I have news for you, earmarks are a pitifully small portion of the federal budget (less than 1% percent) and there is not exactly a Federal program which comprises of people burning $100 bills all day long. Waste in government means ineffective policies and expensive regulations, it's not exactly easy to find or fix.
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