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Special Report
Pete and Alice’s Commission
The moderates have had their say — and the weaknesses of their plan far outweigh its few strong points.
Putting out debt-reduction plans are all the rage these days. Following the proposal put out by the co-chairmen of President Obama’s Fiscal Responsibility Commission, we’ve seen plans from far-left Congresswoman Jan “I hate private health insurance” Schakowsky (D-IL) and now from former Fed vice-chair Alice Rivlin and former New Mexico Republican Senator Pete Domenici.
While I give Rivlin and former Domenici credit for trying to come up with a sound deficit- and debt-reduction plan, what they’ve proposed has a many important problems and one fatal flaw.
Let’s start with the plan’s few bright spots:
• It creates a federal income tax system of just two tax brackets, 15% and 27%, and reduces the corporate tax rate to 27%.
• It makes Medicare participants pay more of the program’s actual costs.
• It eliminates the deductibility of health insurance by employers.
• It eliminates some farm subsidies and reforms the crop insurance program.
• It makes it harder for federal employees to game the pension system by basing pension benefits on the “highest five years of government service.”
• It caps “noneconomic and punitive damages” awarded in medical malpractice cases.
But the Rivlin-Domenici plan’s weaknesses far outweigh its few modest strong points:
First, the plan’s spending restraint is, to put it kindly, timid. Instead of cutting anything, the plan simply freezes a fraction of the overall discretionary budget and defense spending at today’s bloated levels.
Second, the “payroll tax holiday” under which there will be no 12.4% FICA tax due for the year 2011, like most temporary attempts at stimulus, will be much less effective than they hope. Employers are rational and know that a one-year break on employment taxes just means those taxes will be back again next year. Furthermore, while I’m all for tax cuts, it doesn’t make a lot of sense to increase the Social Security system’s unfunded liability so that we may pay lower taxes today only to be offset by higher taxes tomorrow. Indeed, since Social Security taxes go into general revenue, a payroll tax holiday will immediately increase the federal deficit by hundreds of billions of dollars. Quite an expensive holiday.
Third, although Rivlin and Domenici do index Social Security benefits, they do not raise the retirement age, one of the key things which MUST be done to salvage the nation’s most popular unconstitutional entitlement program. Instead, they simply raise the payroll tax cap, thus offsetting most of the theoretical gain of the payroll tax holiday just one year after that holiday. Furthermore, each step toward reducing benefits for upper-income beneficiaries and raising benefits for low-wage workers is another step toward proving that Social Security is a welfare program rather than how most people see it, as a retirement plan — even if a retirement plan that no rational person would invest in.
Fourth, the Nanny State is alive and well in the Rivlin-Domenici plan with a proposed tax on “high-calorie sodas.” However, even putting aside the serious question about whether such “sin taxes” are anything more than heavy-handed social engineering, a soda tax is, as Veronique de Rugy has written, unlikely to change people’s behavior or diminish their caloric intake. Sure, such a tax might raise some revenue, but should government add insult to injury by not just taking too much of our money but by trying to gouge us on life’s little pleasures?
Fifth, the cost containment measures for Medicare are utterly inadequate, buying into (literally and figuratively) the government run “exchanges” created by Obamacare rather than arguing for free-market solutions such as allowing interstate purchase of health insurance.
About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver’s NewsRadio 850 KOA at 11 AM on most Sundays. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.
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Booger | 11.19.10 @ 6:12AM
From the desk of President B. Hussein Obama:
Dear Citizens,
Back around the beginning of November it was brought to My attention that a bunch of you have a problem with the deficit that the Federal Government is currently running up each year. While I realize this could be viewed as a problem, it is important to remember that this is a problem I inherited from that cowboy Bush, and which I have been endeavoring night and day to rectify. Let Me be perfectly honest with you. I find your obsession with deficits to be a little neurotic. After all, if we run out of money, the Fed can always just print more. So why worry? But since you people out there in flyover land have gotten yourselves into such a lather about this, I have a plan to eliminate the deficit for you.
First of all, kiss the mortgage deduction on your house goodbye. It's not like that deduction does any real good anyway. If the last few years have shown anything, it's that you people are not up to managing your own finances well enough to own your own homes anyway. So I have decided to quit encouraging you to do what you shouldn't do to begin with. I figure with all the extra dough that will roll in after that particular deduction is gone I can finance plenty more trips to exotic locations like Mumbai, as long as they have top-flight golf courses.
Next up, no more child-tax credit deduction. Don't you rednecks know that every time you pop out another baby you're killing the planet? Humans are the cause of global warming, and here I am giving you a tax credit to make more of 'em. Well, no more money for those little CO2 machines of yours. As a bonus, the money I save this way will pay for even more third-trimester birth control under My great health care plan, which will save the planet that much faster. It's two for one!
I have, furthermore, discovered some areas where I can make immediate spending cuts, since all you Tea-baggers out there always want less spending. First of all, after reviewing the budget for the Department of Defense, I believe that we can dispense with expenditures for new jet fighters (after all, Al Qaeda doesn't have an air force), missile defense (Al Qaeda doesn't have ICBMs either), aircraft carriers and submarines (Al Qaeda doesn't have a navy). Once we eliminate spending on these areas I'll have enough money left over for Michelle to take just as many of her friends as she wants on that next European jaunt. After all, she's got all kinds of depressed friends.
Well, you asked for it and now you have it. Timmy Geithner has done all the math on this for Me, and assures Me that this plan will balance the budget by 2015. And if Timmy Geithner says it, then that's good enough for Me, so it better be good enough for you. Just let Me know if there's anything else I can do for you.
Sincerely,
President for Life B. Hussein Obama
http://beautifulletters-bls.blogspot.com/
david shoup| 11.19.10 @ 1:01PM
too cute! booger has obama's speech pace down pat. what a president 52% of americans elected. great hope and change!!!!!!!!!!!!!!!!! i do admit that a worn out senate hack would not have been much better. maybe the republicans can find their conservative roots now that we tea party radicals have pointed out that the emperor has no money and no new ideas as well as no clothes.
Melvin| 11.19.10 @ 6:55AM
Financial and tax reform isn't going to come from within the system. It is too heavily influenced by the politicians own wants and desires, it must come from the outside, and be force fed down the gullets of the greedy politicians.
c. j. acworth| 11.19.10 @ 7:19AM
The same argument for a national sales tax is heard all the time here in NH, where we have no general sales or income tax, as a budget-fixer. I just point south to Taxachusetts or my natal state of Connecticut which have all the taxes you could wish for and are still underwater fiscally. Icreasing taxes just leads to increased spending. Give a politician a dollar today, he'll spend two tomorrow and come back for three next tuesday.
R Martin| 11.19.10 @ 7:22AM
Whatever public sentiment led to the political outcry November 2nd should be doubled in opposing any national sales or value added tax. Such a tax makes it way too easy for big government politicians to promote their philosophy and allows them to ignore the folly of their actions which prompt the talk of such a tax. Don't let them do it.
martin j smith| 11.19.10 @ 7:54AM
First i would say that our economic problems ARE A NATIONAL SECURITY PROBLEM.
Second the PEOPLE ( Citizen Voters ) should be involved in contributing ideas about solving our economic problems along with economists and politicians.
Third, if there are any things imposed on the voters there should be a national referendum --not wait for an election cycle.
fourth, any type pain that citizens suffer, ANYONE WORKING FOR THE GOVERNMENT MUST DEMONSTRATE THAT THEY ARE ALSO UNDER THE KNIFE AS WELL.
All proposals must be justified and explained in clear English not gobledygook... No exemptions from the pain.
The point being whatever is going to work, everyone must have skin in the game. Otherwise it is a game.
Finally-I am tired and I know there is no cure for this--of hearing the term Moderate Republicans. No matter how many times this term may be used, I believe in my heart that they are Democrat period.
Donna| 11.19.10 @ 8:41AM
Republicans set forth a budget alternative that embraced fiscal discipline, lower taxes and smaller government.
Deficit:
Under the Republican plan, deficits are $3.3 trillion lower for the 10-year budget period and fall below 3.0 percent of GDP over the 10-year period.
Debt:
The Republican plan borrows $3.6 trillion less than the Obama Administration's budget.
Total Spending:
Over 10 years, the Republican plan spends $4.8 trillion less than the President's budget. Also, spending falls to 20.7% of GDP--about the historical average.
Discretionary Spending:
The Republican plan freezes nondefense discretionary spending in 2010-14 and allows for moderate increases through 2019.
Entitlement Spending:
While the Democrat budget increases entitlement spending by $1.4 trillion over ten years, the Republican plan slows the average annual growth in mandatory spending from 5.3% to 3.9%.
Long Term:
Under the President's budget the national debt exceeds 100% of GDP in 2030. By contrast, the Republican plan gains control of the debt, by never exceeding 75% of GDP over the next 75 years. It also begins reforms to ensure the federal government can meet the mission of health and retirement security, extending the American legacy of leaving the next generation better off.
Taxes:
While President Obama's budget punishes investors by increasing taxes by $1.15 trillion, the Republican plan provides tax incentives to use private capital, not taxpayer dollars, to unlock credit markets and encourage private sector investment and job growth. The Republican plan also suspends the capital gains tax through 2010, reduces corporate tax rates from 39% (second highest in the industrialized world) to 25%, and produces 2.1 million more jobs than the President's plan in the fifth year of the budget.
Energy:
Reducing U.S. dependence on foreign oil is a main priority of the Republican plan. Unlike the Obama Administration’s budget that imposes a national energy tax, this plan opens domestic resources to environmentally sound exploration and development, and encourages the development of carbon-free nuclear energy.
Defense and Veterans:
House Republicans increased the President's budget for defense by $5 billion, reserved a $50 billion placeholder for unmet needs in the Department of Defense and, and fully funded the House-reported level for the Veterans’ Administration ($540-million increase over the President).
Al Adab| 11.19.10 @ 1:45PM
For the purpose of both debt reduction and federal/state projects financing, the sale of Federal lands within the states should be strongly considered. Proceeds would provide first for debt reduction through the redemption of bonds and secondly for the financing of what were once called "internal improvements" - now pork projects - (which need to be severely curtailed). Projects currently under way could be continued but new concepts and proposals should wait at least some number of years.
These Federal lands represent a massive "trust account" of the citizens and should be used in this fashion through their sale or lease or both. Oil, mineral and gas reserves in these lands also represent a significant resource. Environmentalism albeit not conservationism, must take a back seat to our fiscal strategy.
George S| 11.19.10 @ 8:43AM
Debt commissions are a waste of time. Ideas to reduce the deficit are a dime a dozen and every one of them share one thing in common: no politician would dare run with those on the campaign trail. Much easier to write down ideas in the comfort of your professor's lounge if you know there are no consequences.
david shoup| 11.19.10 @ 12:44PM
disdain for alice rivlin and disgust for pete domenici. they are members of the herd of career congressional swine that gave us our 13 TRILLION dollar debt! how can anyone expect them to provide a debt solution?
Al Adab| 11.19.10 @ 1:10PM
For policy wonks the commission report presents a good starting point. It seems however, to over empahsize the revenue side of the equation without being consistent across the board with spending reductions.
For example the elimination of insurance premium deductions increases revenue but strengthens the case for federal intervention in health care provision. This is a serious downside.
At the same time the income tax revisions and the tort caps seem logical.
We must be careful as we work toward what might someday be called the "Compromise of 2011" that the interests of the States are respected. States should be encouraged to pursue projects they deem necessary for their "happiness" but on their nickle. Debt solution must include significant spending reductions across the board with the actual elimination of many agencies considered. Federal budget discipline could involve spending limited in the next few years to say 2005 (the actuaries can find the right year) levels. Future annual budgets should be based on prior year revenue rather than on projected increases. Constant grants and projects within the several states must be reexamined and eliminated.
A change from the "bring home the bacon" attitude on the part of citizens and representatives is needed. This change of mindset would serve well to limit the spending deficit, reduce the Federal presence in everday life and increase the Liberty and general welfare of both the people and the nation.
We stand at a great crossroad. The decisions of this and the next few years need to be honest, well-considered and equitable. History will judge self-government bases on our success or failure.
MikeD| 11.19.10 @ 1:46PM
HUMBLE SUGGESTIONS CONCERNING OUR FINANCIAL SITUATION:
Immediately eliminate the Departments of Education, Housing, Energy, and the EPA. Let any states that choose to get involved take over their functions if they so desire. (I'm sure there are other departments to cut, please tell me which ones I forgot. we're all in this together!) Cut ALL 'entitlements' by 10% per year for the next three years. (I know everybody on Social Security and Medicare will scream, but being forced to do with less might eliminate those annoying commercials for those damned scooters that some old lady got without a "...penny out of pocket.") I'll comment on Social Security again.
Cut every government budget by the same 10% per year for the next three years; including every federal salary for all elected and appointed employees. Provide budget for every Representative to employ 2 staffers; and every Senator gets 3. That's it. (I ran an $800 MILLION business with one assistant. Get used to doing more with less!)
Eliminate EVERY CENT IN THE FIRST LADY'S BUDGET. She is not a government employee, so she doesn't need one red cent of our money. Put EVERY elected and appointed government, including the President, Supreme Court Justices, Senators, Reps, etc... on Medicare immediately; and eliminate their pensions and restrict their pensions to Social Security that vests only after 20 years of service. No more 'free rides' after one term. Back to Social Security:
I was an executive with a Fortune 500 Company. Thirty years ago my dad told me to stay out of debt, which we have done, and to buy good disability insurance. I did that too. Then, as fate would have it, I contracted an incurable nerve disease that is eating away at my body. (A form of ALS is the best description.) When I began to degenerate, my company helped me get on disability because I was no longer mobile. Even though I had company disability insurance, and additional personal disability, as well as medical insurance; none would take effect unless I qualified for Social Security Disability. Then we found out that, regardless of my existing health insurance, I was forced to go on Medicare...at age 50. Once again we learned how we did the right thing for years only to discover that we ended up on the 'dole' so to speak. I'm more than pi$$ed, but can't do a thing about it.
The wonderful government essentially takes the benefit I paid for all those years, keeps what they want, and sends a bit for us to live on. Amazing! I advise everybody out there in American Spectator-land to learn everything they can about disability insurance and the 'fine print'. Jimmah Cartah helpfully began taxing disability benefits that were 'pegged' at 60% of base income (instead of 100%) because they WERE NOT SUBJECT TO FEDERAL INCOME TAX. So, we now got 60% of my former income that is reduced by taxes another 25% or so. Thanks Jimmah! Oh! You didn't hear me because you were too busy telling everybody how wise you were? Sorry.
As a Country we have to learn to do more with less, and then do less while making people do more for themselves. We simply cannot afford all the crap we've become accustomed to. If anybody screams about it being unfair; ask them if they'd rather do with less, or lose EVERYTHING when our currency is worthless and we're killing each other over loaves of bread. It isn't that far fetched. And, yes, the situation is THAT bad. While we're at it, a little prayer wouldn't hurt.
I'm sorry I'm rambling, but I manage to get more and more pi$$ed at Obama and his thugs every day. I really shouldn't watch the news; but we have to know what Obama, Pelosi, and Reid snuck through congress during the 'wee hours of the morning' and what other crimes Obama committed via his Executive Orders while we slept.
At least the sage comments from most of you remind me that we still have some smart patriots in our Country. Stick to it! Enrage a liberal to frothing madness today!
CD Richard | 11.19.10 @ 8:04PM
Because it has Pete Domenici's stamp of approval, it has mine.
Few people have a better understanding of our financial & tax system(s) than does Senator Domenici.
Everyone can find fault with the plan, but therein lies the problem - there is no perfect solution out of this mess that is painless.
I say, let's adopt the plan, take our medicine, and get on the road to recovery.
The sooner, the better.
Lu Dumak| 11.19.10 @ 9:17PM
I am on S.S. and do not think we should raise the age. First, all you are doing is hoping more people die before they can collect S.S. You are telling people that you are going to Unconstitutionally steal money from their pay all of their working life and than give it to someone else. Those that don't die soon enough. S.S. should be personalized starting now. I
gene hauber| 11.19.10 @ 9:21PM
WHEN WILL WE FINALLY RID OURSELVES OF "HAS-BEEN" POLITICAL DINOSAURS??, THE TOTALLY EMPTY SUITS....
THE LIKES OF GEORGE MITCHELL, PETE DOMENICI , ALICE RIFLIN, GERALDINE FERRARA, THE CROSS-EYED BLACK PROFESSOR THAT O'REILLY HAS ON ALL THE TIME, BOB BECKEL, CLINTON, ANY DEM POL FROM NJ, NY, CA, CHICAGO.............AND ANY OBAMA TALKER. YOU GET THE DRIFT.
THESE ARE HAS-BEEN EMPTY SUITS OF THE ANTI AMERICAN LEFT THAT WE NEED HEAR NO MORE FROM.
ROGER AILES..TAKE NOTE!!
Anthony| 11.19.10 @ 9:30PM
Republicans have to stop trying to give us a back door tax hike by eliminating the deduction of employer paid health plans. This is a TAX HIKE!! If the repubs keep up this kind of nonsense they'll be out of power in two years and the US will be socialist in six.
Bill Hussein O'Stalin| 11.21.10 @ 7:43AM
Until there are serious and massive cuts in the size of non-productive federal agencies everything else is a joke that has no punch line.
chuck| 11.21.10 @ 8:53AM
Are there really "productive" federal agencies?
Bill Hussein O'Stalin| 11.21.10 @ 12:22PM
That too.
PattyMor| 11.21.10 @ 1:39PM
Commissions are a politicans dream. The commission pumps out the bad policy ideas and the Prez. can hide behind them. Their ideas lock in the stupendous spending increases the Prez. and his pals Nancy & Harry built into the budget.
The sad truth is that the politicans will not fix the problem until the United States collapses from the weight of all the entitlements and bloated bureaucracy. Each decision to cut enrages some group which is the beneficiary of the largess.
By their inaction, they have chosen to debase the currency. Not only is the FED buying Treasuries, it also plans on buying municipals. So the spending at all levels of government will continue. So enjoy your check while it still can buy something.
Me, I'm stocking my basement with food--lots of canned goods. Next is the detergent and cleaning supplies. The commodity indexes are telling us to expect tremendous inflation, so be ready.
ROBERT | 11.21.10 @ 4:57PM
A conservative senator, just recently compared the American sacrifice (the upcoming multitude of tax increases), to the sacrifice made by American soldiers in World War II.
While there is no question that the sacrifice made by American soldiers in all wars has been and is profoundly noble, that this senator should compare the bowing our heads to a tax increase is simply outrageous. There should be no tax increases for the following reasons.
1. Democrats and Republicans, in service to a welfare state, have engaged as traitors in the squandering of American wealth-- not for the sake of the country but for personal self-aggrandisment.
2. The notion that there must be compromise that is, cuts in spending as well as tax increases is pernicious sophistry. A socialist government engages in the confiscation and squander of our wealth, uses the money to concentrate its power, pay off the "special interests" all politicians criticize and none will identify-- and now, in the spirit of compromise, wants to confiscate even more of our money.
3. That the government, in any event, will use the new tax money to lower the deficit is plainly a worn out lie. They would squander that money as they have squandered all monies raised by tax increases this because, whatever their party, they are irredeemably corrupt. They are alike servants to a welfare state that owns them, heart, soul, lock, stock and barrel.
If you are wondering about your classification in the maze of the welfare state, it is Serf. You know, the serfs, the ones forced to work the land so as to provide a comfortable life for the ruling class. Rather than work the land, we may punch computers, sell cars or real estate, teach math to kids, but the category is indistinguishable. We are serfs. That, after all, is what the ruling class believe we are here for.
4. How stupid do these political morons think we are? They will lower the tax rate and at the same time impose an escalating sales tax increase, the nullification of mortgage interest and other write offs and pretend they are lowering taxes.
5.They falsely raise the pretense of being even handed; however, precisely what government agency will they nullify. There are hundreds that serve no purpose other than to create a leftist constituency. Of this not a word.
Rich Santomauro| 11.21.10 @ 10:22PM
Every American outside of crony capitalism and the corrupt two party system should sign up for the Second American Revolution at http://goooh.com . It's time to put a permanent end to the two party system before it destroys the nation.
Gary Zaetz| 12.6.10 @ 12:27AM
Our nation's efforts to recover our war dead are seriously threatened by the freeze on non-war discretionary defense spending recommended by the Rivlin-Domenici debt reduction commission. It is shameful that today, 65 years after the end of World War II, there are 74,000 American servicemen and servicewomen still missing from that conflict. A major reason for this failure is the fact that the Defense Department's Joint POW/MIA Accounting Command (JPAC) is severely underfunded. If JPAC is to meet the target of 200 MIA recoveries annually by 2015, as mandated by the 2010 National Defense Authorization Act, the Defense Department needs, at a minimum, to triple the amount of funds it requests annually from Congress for field investigation teams, and Congress must appropriate these funds. Our commitment of 'no man left behind' is too important for the Defense Department to continue to treat JPAC like a neglected stepchild. All members of Congress must support this badly needed increase in funding for the recovery of the remains of our heroic missing servicemen. They and their families deserve no less. JPAC must be exempted from any Defense Department budget freeze.