The deficit reduction committee, created by President Obama a few months back to kick the can of his irresponsible overspending down the road a few decades, is out with its trial balloon recommendations for reducing the federal deficit. According to the Wall Street Journal, its ideas include:
For businesses, it would lower the corporate tax rate but remove a number of deductions currently available. It would make permanent the research-and-development tax credit.
Federal subsidies to agribusinesses would begin to be slashed by $3 billion a year.
On Social Security, it would gradually increase the retirement age when people can start receiving benefits to 68 at around 2050 and to 69 by 2075.
It would combine a cut in benefits with an increase in taxes levied on wealthier seniors’ benefits.
The savings would be phased in over time and include a freeze on salaries and bonuses paid to federal employees for three years, at a savings of $15.1 billion by 2015.
It would propose cutting the federal work force by 10% for a further savings of $13.2 billion by 2015.
It would seek to rein in federal spending on health care, both by introducing further proposed changes, including reform of tort law, and by seeking to slow the growth of the Medicare program.
All of that, especially cutting the corporate tax rate and tort reform, makes sense. Tort reform alone could do quite a bit to reduce medical costs, which should in turn reduce health insurance premium costs, which would help families and individuals up and down the economic ladder without forcing anyone to buy anything or increasing government control over anything, as ObamaCare does. I’m fine with raising the retirement age and cutting Social Security benefits. Overall we need to reduce liabilities and entitlements, and the above ideas start us on the path to doing that. The fact is, we’re living longer, and Social Security in particular needs to be adjusted to that reality.
There are at least two ideas in the commission’s recommendations that strike me as terrible. Here’s one, from the WSJ story:
The federal gasoline-tax rate would start to increase from 2013, increasing by 15 cents a gallon at that stage.
And here’s the other, from the New York Times’ take:
The proposed simplification of the tax code would repeal or modify a number of popular tax breaks — including the deductibility of mortgage interest payments — so that income tax rates could be reduced across the board.
Cut income taxes, fine, good idea. That will make family budgets a little more liquid, which should spur economic activity, which tends to increase federal revenue.
But repealing mortgage interest payment deductions amounts to a direct attack on the American dream of home ownership. The fact that we have property taxes at all already undermines the concept of ownership; killing off the biggest housing tax break greatly reduces the incentive to buy in the first place.
I’m not an accountant, but like nearly every other adult in the country I’ve done the calculations on home ownership. Owning a home tends to cost more than renting in the short term in upkeep and so forth, but it’s beneficial in the long term. Over a year’s time, you get a tax break that you don’t get if you rent. And over a longer term, your home is an investment that tends to appreciate in value, helping one build future security.
Ending the mortgage interest deduction amounts to a hefty tax hike in the short term, and that makes your home harder to sell since the purchase calculation become less favorable to potential buyers, which makes it a less viable investment over the long term. Given the housing crisis the nation has suffered over the past few years, the last thing we should do is introduce a tax hike that makes owning a home less attractive. But ending the mortgage interest deduction does just that. It will end up driving some who are on the margins now from the homes that they’re barely hanging onto.
As for raising gas taxes …where to start? To begin with, both raising the gas tax and ending the mortgage interest break hurt those who can afford it the least, the most. Also, raising the gas tax will make everything more expensive to manufacture and move around the country to points of sale. We already have the idiotic insistence on ethanol making food prices rise, we don’t need a gas tax hike to add to that. If the commission was looking for a way to freeze up an already weak economy, they couldn’t have found a better one than jacking up the gas tax.
It’s tempting to see these two ideas as less about deficit reduction and economic efficiency than about enabling some other long-term strategic goal. In the case of the gas tax, it may really be an attempt to make the price of gas skyrocket to push toward “green” jobs etc. It’s not like there’s no precedent for that.
How about instead of hiking gas taxes, we sell off federal energy exploration leases? How about we cut all federal funding to groups like Planned Parenthood, public broadcasting, the National Endowment for the Arts, and all other similarly questionable entities? How about we de-certify public employee unions, as Mitch Daniels has done in Indiana, to reduce the pressure to keep paying federal workers more and more while the private sector lags? How about we just cut federal spending across the board? How about a little common sense?
The best thing we can do to stabilize and repair the country’s fiscal health is to get rid of the current administration, but that’s still a couple years off.