President Obama has finally rolled out his plan to slash the national debt. One thing it's not is timely: At least half-a-dozen other groups have published their own debt-reduction plans since Obama took office in 2009.
One of those efforts was a commission set up by Obama himself. The "National Commission on Fiscal Responsibility and Reform," led by Erskine Bowles and Alan Simpson, issued a detailed report last year on how to cut the debt by $3.9 trillion by 2020. It proposed about $2 in spending cuts for every $1 in tax increases, a proportion that generated bipartisan support. Many economists now consider that plan a baseline against which to measure others.
Obama's own plan borrows some ideas from the Bowles-Simpson effort, such as cuts in agricultural subsidies and a call for tax reform that would lower rates and eliminate loopholes. But Obama also left out some prominent suggestions made by his own panel. Those omissions indicate what Obama is willing to fight for—or not—and also reveal how he's positioning himself for the 2012 presidential election. Here are eight ideas Obama left out of his own debt-cutting plan, even though they were included among the Bowles-Simpson recommendations:
A Congressional pay freeze. The fiscal commission pointed out that "unlike most Americans, members of Congress benefit from an automatic salary increase every single year--deserved or not." So it suggested that a three-year Congressional pay freeze—which only Congress itself can authorize--would set an example of austerity. Obama isn't seconding the suggestion, however, perhaps because he doesn't want to pick a personal fight with Congress. Or maybe he doesn't want to provoke demands for a similar pay freeze at the White House.
Cuts in the White House and Congressional budgets. The commission also felt it would be a fitting gesture for Congressional and White House policymakers to cut their own budgets by 15 percent before asking for cuts in other parts of the budget. That shouldn't be too tough, since spending on the legislative branch, for instance, rose by 50 percent between 2000 and 2010, even though Congress itself is the same size it has been for years. But austerity, apparently, doesn't start at home, so Obama kept his hands off the Congressional and White House budgets.
Middle-class tax increases. Obama wants tax increases on households earning more than $250,000, while also endorsing broader tax reform that would include lower rates. His commission went one big step further, by outlining specific elements of a tax-reform plan that would lower income-tax rates for everybody but slightly raise the tax burden on most taxpayers, because it would shrink or end deductions taken by many families. On average, the commission's plan would raise the tax bill for the typical filer by about $1,700 per year, with the middle 20 percent of filers paying about $700 more. Many economists feel the national debt is so large that middle-class tax hikes are inevitable to help bring it down. But Obama surely knows that proposing middle-class tax hikes would be a suicidal election move. So either he plans to pretend they'll never happen, or wait until a second term, if he gets one, to break the bad news to voters.
Eliminating all earmarks. These pet spending projects for favored members of Congress cost taxpayers about $16 billion per year, while usually evading accountability procedures that would surely find that most of them fail to serve the national interest. Obama's fiscal commission said they should be banned completely, but Obama didn't even mention earmarks in his own debt-cutting plan. Yet he still itemized more than three dozen other measures that would save less than the fiscal commission says ending earmarks would save. Those Congressional spending perks must be awfully touchy.
Medical malpractice reform. According to the fiscal commission, "most experts agree that the current tort system in the United States leads to an increase in health care costs." That's why it suggested reforms that would rein in jury awards and costs for malpractice insurance, at a projected savings of $17 billion. Obama has staked his entire presidency on improving the healthcare system for most Americans, yet his debt plan makes no mention of malpractice reform. Trial lawyers are traditional Democratic backers, and Obama, a lawyer himself, may not be willing to risk the loss of a well-heeled constituency.
An increase in the retirement age. The fiscal commission recommended a gradual increase in the age at which people would qualify for Social Security and Medicare, beyond the increases that are already scheduled to happen. Under that proposal, the retirement age would rise to 68 by 2050 and to 69 by 2075. Such a change would slightly reduce the outflows from these two programs and help keep them solvent. Obama proposed a few minor cuts in Medicare benefits but favors holding the retirement age where it is. He proposed virtually no changes to Social Security.
Higher payroll taxes. One of the tax increases the commission suggested was raising the cutoff point for the amount of income subject to the Social Security payroll tax. Right now, the payroll tax applies to about 86 percent of all taxable wages; the commission recommended raising the cap so it applies to about 90 percent of all wages. But that would amount to a middle-class tax hike, since it would apply to many taxpayers who earn less than $250,000. So Obama wants nothing to do with it (for now).
A different cost-of-living formula for Social Security. Another way to raise a few bucks is to change the formula used to determine the cost-of-living increases that Social Security recipients get every year. The commission argued that switching to something called the "chained consumer price index" would provide a more accurate measure of inflation. But it would also cut benefits slightly, which is why it would save the government money. The months before an election are probably the wrong time to nickel-and-dime seniors, so Obama took a pass on the chained CPI. Like many other debt-cutting ideas, however, it may surface another day.