Deficit Commission Proposals Floated

By Thomas Lifson

In time to influence lame duck session debate on extending the Bush tax cuts, outlines of the proposals of the bipartisan deficit reduction panel are being floated. They are unimpressive, and unlikely to win support.

Proposed discretionary spending cuts are only $200 billion, and half of that would come from Defense, which has already been shrinking as a portion of federal spending. Moreover, the wear and tear on equipment through wars in Iraq and Afghanistan has been considerable, in a time of shrinking acquisition of new weaponry. In short, the United States' defense posture is dangerously weak, at a time when China is radically increasing its military expenditures.

Agriculture subsidies would be decreased - a good thing - but only by $3 billion a year. However, few presidential candidates facing the Iowa primaries are likely to call for ethanol subsidies to be cut.

Even worse, entitlements appear to be treated gently:

On Social Security, it would gradually increase the retirement age when people can start receiving benefits to 68 at around 2050 (40 years from now!) and to 69 by 2075.

Medicare is also slated to be slowed in the rate of growth, but no details are available.

Tax increases include:

...limits on tax breaks for homeowners by removing deductions of interest on second homes, home-equity loans and mortgages worth more than $500,000.

The federal gasoline-tax rate would start to increase from 2013, increasing by 15 cents a gallon at that stage.

On the upside, the panel calls for reducing the corporate tax rate. This is sensible, because this is a tax on what amounts to seed corn - enterprise which creates wealth (which can be taxed when individuals receive it).

Spreading pain is never popular, so I expect the plan to take flak from all sides.