Deficit Commission Proposals Are a Recipe for More Big Government

Reduce the rate of increase in federal spending without raising taxes.

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President Barack Obama’s deficit commission has issued its preliminary recommendations and the news is not good.

As James Lucier and Robert Kaminski of Capital Alpha Partners put it, “The report contains kernels of a structural tax reform idea that may have legs, but otherwise it is mostly old spinach that has been on the plate for a long time.”

The report, Lucier and Kaminski say, is “dead on arrival. In fact, it was stillborn.”

[Read more about the deficit and national debt.]

“It quickly became apparent that the Republican and Democratic co-chairs of the bipartisan National Commission on Fiscal Responsibility and Reform chose to release a draft version of their report before the commission had even voted on it because is was clear, as Washington has suspected for months, that the commissioners would never be able to reach agreement among themselves.”

Under the rubric of making hard choices, it is loaded with excuses for new and higher taxes. “By its own admission” say the folks at the pro-taxpayer Americans for Tax Reform, “the report calls for a 10-year net tax hike of $962 billion--nearly a $1 trillion tax increase over the decade.”

The commission, chaired by former Clinton White House Chief of Staff Erskine Bowles and former Wyoming GOP Sen. Alan Simpson, appears to have ignored the sage wisdom of former President Ronald Reagan, who repeatedly defined the problem with government as being that it was too big and spends too much.

According ATR’s preliminary analysis of the recommendations, the commission’s goal is to “raise the long-standing historical level of federal revenues from its average of 18 percent of GDP to 21 percent” of U.S. Gross Domestic Product, which would be a dramatic increase overall in the permanent level of federal spending.

“Additionally,” ATR says, “the report calls for a tax hike ‘trigger’ to take effect if Congress fails to enact comprehensive tax reform. This ‘trigger’ would take the form of a 10 percent reduction in the mortgage interest deduction, charitable contribution deductions, the exclusion for employer-provided health insurance, and a host of other tax deductions and credits,” which could ultimately lead to additional tax hikes in the trillions of dollars.

The preliminary report also recommends slowing down the rate at which tax brackets adjust for inflation, bringing back the infamous bracket creep that allows inflation to move families into higher tax brackets while the purchasing power of their income is actually declining.

The commission is also suggesting an expansion of the Social Security taxable wage base, an increase in the retirement age, the abolition of the mortgage tax deduction, even though it calls for doing this in exchange for lower tax rates--which would be a further shock to the already hammered U.S. housing market and an automatic tax increase for any year in which the budget is out of balance.

[Read the U.S. News op-ed debate: Should the Retirement Age Be Raised?]   

The final assumption ignores the now proven reality that higher taxes can actually led to less revenues for the federal government rather than more as tax rates have a direct effect on economic activity.

It is not, as my bloleague Jack Farrell wrote today on the Thomas Jefferson Street blog, “A commonsense plan that Americans… can rally around.” It’s a program for bigger, more intrusive government, which is just the kind of thing the voters rejected on November 2.

There are ways to bring the deficit down, first and foremost being to reduce the rate of increase in federal spending without raising taxes. Newt Gingrich and John Kasich proved this could be done several times in the late 1990s and there’s no reason it can’t be done again. Another way is to get the economy growing again, which would involve repealing much if not all of Obamacare and keeping the current tax rates where they are rather than letting them go up in January as the White House may or may not, depending on which set of remarks made recently by senior White House adviser David Axelrod one chooses to believe.

[Read more about healthcare reform.]

The politics of the moment also argue for its early dismissal. As Lucier and Kaminski argue, “It is the Tea Party and not the commission per se that will drive the agenda going forward. That means pressure on spending across the board--and some beloved tax deductions--will be real. With progress in these areas will come pressure on entitlements as well.”

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