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, 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.
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Mr. and Mrs. American Spectator Reader, let P.J. O’Rourke talk sense to your kids.
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