Does the Gang of Six Deal Increase or Reduce Taxes?

by Veronique de Rugy

Economist Donald Marron offers this little quiz about the Gang of Six’s new budget proposal:

Over the next ten years, would the proposal:

a. Cut taxes by $1.5 trillion

b. Increase taxes by $2.0 trillion

c. Increase taxes by $1.2 trillion

d. All of the above.

If you answered (d), you have a fine future as a budget watcher (or you peeked at the answer from the last time we played this game).

The answer depends on the yard stick you use to measure changes in tax revenues. Unfortunately, people now use at least three different yard sticks.

Beyond these interesting scoring issues, what really matters is which of the scenarios is likely to be implemented if the deal is adopted. Anyone want to bet what we’ll end up with?

To think that some Republicans may be tempted by this deal is stunning, especially after they rejected the president’s grand-bargain deal. Kevin Williamson has a good explanation about why that may be (they are blinded by the promise of a 6 percent cut in the top marginal rate).

The rate cuts, we are told, are “pro-growth.” Growth is the great magical unicorn that will deliver us from the burden of making hard decisions, we are promised. 

But the important drivers of our deficit are entitlements, mainly centered on health care, the cost of which is growing at about three to four times the rate of GDP growth. We aren’t going to grow our way out of that problem — not at 2 percent, not at 5 percent. We’ll simply keep spending, pile up more debt, and have a debate like this again in a couple of years, if we’re lucky — or in a couple of weeks if we aren’t.

Nothing short of comprehensive reform of Medicare, Medicaid, and Social Security is going to stabilize our public finances. The Gang of Six deal contains only very vague language about “efficiency” in health-care spending, and it actually makes Social Security reform more difficult by introducing procedural barriers. It’s a terrible deal, and Republicans would be fools to take it.

Read the whole thing here.

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