Debt Commission Almost Gets It Right

After reading the Co-Chair’s draft, proposed, possible recommendations that might, if lucky, ever become real – report.  I posted a “just the facts ma’am” article earlier but wanted to add my thoughts on the proposal.

It’s a 50-page blur of bullet-points, charts and graphs, but it does illustrate one thing – at least they’re really thinking about proposing some tough ideas.

The Good

Discretionary spending caps.  Only worth $88 Billion in the first year of the plan, but increases rapidly to be worth hundreds of billions of dollars per year in savings.

They push for the simplification of the tax code into a three tier structure of much lower rates than are currently paid, gets rid of AMT for good and lowers corporate rates to internationally competitive levels.  The removal of earned income and child tax credits will also broaden the tax base by including lower-income workers who now tend to pay nothing into the system and actually get money back.  Three options are presented, but one of them (option 3) looks like someone scratched out a terrible idea in a hurry just to make sure there were three options.

Option 3 – “Tax Reform Trigger”: Ask Finance, Ways and Means Committees and Treasury to develop and enact reform by end of 2012. Across the board cut for itemized deductions, empluyer health exclusion, and general business credits that are due to start in 2013 if no reform is enacted.  Cuts should increase over time. Gradually increase gas tax (15 cents in 2013) to fully fund transportation spending.  Adopt chained CPI to correct for government over-statement of inflation

Of course, the removal of deductions also includes the reform of the mortgage interest tax deduction.  As a home owner, this one was borderline good/bad.  The reform proposes to only allow the deduction on a single residence, not on second mortgages and only for loans up to $500,000.  I left this in the good column because we will all need to pitch in to reduce the debt.  Getting a much lower tax bill and not fearing AMT inclusion in trade for losing this deduction will be a trade-off I can take.

The draft proposes the reduction in the number of federal employees by 10%, cuts 250,000 contractors and freezes all government pay for 3 years. I can’t wait to see SEIU go nuts over these ideas.

On health care, finally, someone is talking about tort reform as a means to control the cost of medical care in America. Lacking specifics, and heading to a Congress full of lawyers – not sure how viable this is.

Raising the Social Security retirement age to 68 by 2050 and 69 around 2075 is a reasonable adjustment.  This won’t affect anyone just about to retire on the government’s underfunded, beaten and robbed Trust Fund, but offers a more-logical solution than just leaving the age at 65 forever while we all continue to live and work longer.

The Bad

The main cost-cutting measure for health care is to cram-down the cuts by forcing Doctors to take less money for their services.  Pare that with the dropping of the College loan subsidies and there are going to be a lot of debt-strapped doctors with a much smaller income.  I have no idea how this is supposed to attract more Americans to become physicians.

The draft increases the gas tax by 15 cents in 2013 and keeps increasing it until if fully pays for all transportation costs (and this one gets worse see: Ugly).

The Ugly

While they protected the Transportation Trust Fund from being cross-infused from the general fund, no protections against the continued theft of money from the Social Security Trust Fund was considered.  The plan will make sure that revenues increase and outlays are reduced, but there is nothing to prevent Congress from replacing every last dollar in the fund with IOUs.

The Transportation Trust Fund (highway Trust Fund) is suggested to be moved to “mandatory expense”.  This will relieve it from the discretionary spending caps proposed in the draft.  Tie this with the ever-increasing gas tax to pay for Transportation and the environment is ripe for Congressional members to do what they always do – spend at our expense.

Obamacare is not offered up as a sacrifice.  800-pound gorilla anyone?

The real ugly here is the likelihood of these reforms being accepted.  14 of the 18 members must approve the measures and the final report is due out in just over 2 weeks.  If any of the measures with real teeth actually make it out of the commission, Congress gets a shot at them.  It may take 2012 and a Conservative Senate before we see any real action on the national debt.