The Corner

Re: Debt Commission, Obamacare, and the GOP — a Question

Andrew McCarthy asks:

I know Paul Ryan finds the failure to deal with Obamacare to be a key flaw in the Debt Commission proposal. (I agree, for what little that may be worth.) If an effort to repeal and replace Obamacare were really going to happen, would Rep. Ryan’s criticism be a good reason to reject the Debt Commission plan?

The answer is yes. The biggest problem with the commission’s report is that fails to address the explosion in entitlement spending driven by Medicare and Medicaid. How can the report be taken seriously when it proposes to cap spending at what is, historically, a high level already, without doing what it would take to credibly meet that promise? There is no way spending will stay at 22 percent of GDP if Medicare isn’t radically reformed.

But there are other reasons to be against the report, despite all the good things in it (e.g., the broadening of the base with cuts in marginal tax rates, the reduction of the corporate-income tax rate, setting the stage for raising the retirement age).

First, real spending cuts are nowhere to be found; in their place we have the old “baseline” budget gimmick. Increasing spending more slowly than it was scheduled to increase is not a spending cut. That’s like me saying that instead of buying three new outfits, as I had planned, I will only buy two outfits, when in fact I should have been selling much of the stuff in my closet. Also, keeping spending constant is not the same as cutting spending.

By its own admission, the commission’s report increases spending by $1,600,000,000,000 (that’s $1.6 trillion) between today and 2020 (check out Figure 16 on page 64 here). Let me repeat that: In 2020, the federal government will be spending $5.1 trillion. It spends $3.4 trillion today. It will increase spending faster than inflation.

If the members of the commission believe in increasing spending, they should have the courage to defend their position openly, instead of doing this.

So there aren’t really any spending cuts (again, not growing farm subsidies as fast as they were supposed to grow shouldn’t be called “cutting spending”), and the Medicare explosion is not addressed in a serious manner. But on top of that, the commission proposes increasing taxes in a way that would penalize savings and investments. #more#The report is explicit about taxing capital gains and dividends at ordinary income rates, which could be as high as 28-29 percent. This would not only continue a penalizing tradition of double taxation of income, it would double-tax that income at higher rates than today.

Not to mention that, as my colleague Jason Fichtner pointed out to me, the tax increases will hit middle-class people hard:

The average tax increase for Americans will be $1,750, while the top 20 percent, the ones that carry 70 percent of the federal tax burden will see an increase of approximately $9,000.

Finally, at the institutional level, the commission’s recommendation won’t do anything to stop government from spending more and more money in the future. Prof. David Primo of Rochester University has done fantastic work on which rules truly bite and should be used to restrain government spending, none of which are to be found in the commission’s report, making all its promises no more than wishful thinking. In fact, Primo’s position on the rules is the report is the following:

Recommendations 1.3, 1.6, and 6.2: We’ve seen time and again that relying on Congress and the president to police themselves doesn’t work.

We saw it in the 1980s with the failed attempts to balance the budget and we saw it early this year when Congress thumbed its nose at its own PAYGO rules almost immediately after enacting them. It’s disappointing that the Deficit Commission aimed high in other regards but aimed so low in the area of budget rules. If I were on the Commission, I would have advocated for constitutional budget rules to keep the Congress and president in line.

The rules that the Commission proposes are either internal to Congress or statutory, but these rules can easily be changed, or even ignored, very easily, and they have been historically. Constitutional rules are much harder to change and are more readily enforceable.

So, as much as it pains me to say it, in spite of the good things that made it into the report and in spite of the all the bad things that could have been in the report and weren’t, this is not an acceptable plan. In fact, it should be presented as a plan with some good ideas but a plan unlikely to address our fiscal crisis, a plan that will continue to grow the size of government.

Veronique de Rugy is a senior research fellow at the Mercatus Center at George Mason University.

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