Gang of Six Plan .. or Not [Full Text]

Senator Tom Coburn rejoined the deficit panel known as the “Gang of Six” just in time to help sell a non-balancing, non-binding piece of not legislation that the President pointed to as a possible solution to the budget crisis.

The proposal is not legislation. It’s a set of guidelines for Congressional committees to then take back and come up with ideas on how to implement the guidelines. There is little hope of all of that coming together in a bill and garnering the necessary votes by August 2nd.

The proposal promises to reduce publicly-held debt to around 70% of GDP by 2021. That is precisely the ratio of debt-to-GDP that Obama started with in 2009. Since then, the Democrat-controlled Congress and White House have skyrocketed that to almost 100% of GDP. That means that the proposal will never balance the budget – ever.

All but a tiny portion of the plan is typical can-kicking. Only $500 billion will be cut from the budget immediately. The rest is over time, totally relying on committees to suggest ways to hit the guidelines – which they won’t. Even if they did, the plan will likely only reduce the deficit by about $4 trillion over ten years.

The immediate cuts are achieved by changing the method by which cost-of-living increases are calculated and by implementing some temporary discretionary spending caps.

The proposal also eliminates the alternative minimum tax and restructures the tax code to 3 tax brackets instead of the 6 it now has. Loopholes and deductions will be reduced and the rates will be lowered in all of the brackets. This should lead to a broader tax base, but due to the failure to eliminate the earned income tax credit and other lower-end tax loopholes, the middle class will bear the brunt of this broadening. The plan would also leave Obama without his tax hikes on businesses, jets and the wealthy.

Entitlement reform is not concretely dealt with in the plan. The cost of living increase is not significant enough to make Social Security and Medicare solvent. That single reform will simply slow the annual increases to payees by 0.25%. It does nothing to stem the tide of baby boomers soon to flood the programs. Without a change to means testing and an increase in the eligibility ages, no significant improvement to these entitlement programs outlook can be expected.

$500 billion in cuts while approving $2.4 trillion in new debt. The math doesn’t work. By failing to come up with a solution to balance the budget, Sens. Conrad and Coburn have failed to take hold of an historic opportunity. The 112th Congress will not be the ones to finally set America on a fiscally-sound course.

Conrad Budget Executive Summary