The Devil in the Details

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    So, is this dysfunctional Congress actually trying to deal with the second structural deficit in thirty years engineered by a Republican administration? Thirty or so years ago, Ronald Reagan came into office during a deep recession and pushed through huge tax cuts that ultimately gave us the first such deficit. That one didn’t get fixed until the Clinton administration. In 2001 Republican George W. Bush created the same situation, using a fairly mild recession to undo the tax reforms of the Clinton era, thus wiping out any hope of continuing surpluses that were meant to prepare for the retirement and medical costs of the Baby Boomers.

    We wouldn’t even have this second structural deficit if George W. Bush had not given us those huge tax cuts and followed that with two wars that were unpaid for, a Medicare prescription benefit that was unpaid for, and the creation of a new cabinet department, Homeland Security, that was unpaid for. In fact, the easiest way to solve our problem, some say, is to allow all the Bush tax rates to expire in 2013, end both wars, and find a way to pay for that Medicare benefit, while reining in health care costs.

    Structural deficits exist when the budget of a government cannot reach balance, even if the economy is operating at full potential.  Right now, the huge deficits we are piling up aren’t all  that bad because interest rates are very low and acting too fast will harm the slow recovery; however, that situation won’t last much longer. Coming to terms with the federal structural deficit has to be done fairly soon for our economic health.

    The question is whether Sen. Mark Warner and the so-called “Gang of Six” have a plan that will work without making the working and middle classes bear all the burden of undoing the Bush excess. It appears that they basically took last year’s presidential deficit commission report and made that the plan they will push. One would think that they at least do concede that tax revenues have to be raised at the same time as expenditures must be cut. However, the fine print in their short outline makes that unclear.  The most heated arguments are sure to come from deciding what revenue is raised and what programs get cut. Since the “Gang of Six” released just a three-page outline of their proposal, we are left to wonder what devils lurk in the details. In that summary ,  I found a couple of obvious hidden devils:

    Tax Reform and Revenue:

    How does giving $1.5 trillion in net tax relief and then having the Finance Committee insure that tax reform will provide $1 trillion in additional revenue add up to additional net revenue for the government? The little devil in that detail seems to be this statement, “Tax reform must be projected to stimulate economic growth, leading to increased revenue.” So, increased government revenue is is based on hope that any reform will lead to a robust economy and more revenue? That’s not tax reform. That’s prayer.

    Additionally, why in the world would the proposal seek to “reform” tax deductions for health expenses? That deduction was gutted by the “bi-partisan” Tax Reform Bill of 1986, which stated that the first 7.5% of health-related expenses could not be deducted. And, that same tax reform bill also did away with the automatic deduction of health insurance costs for individuals forced to self-insure, but it kept the deduction for corporations.

    Deficit Reduction Plan:

    Besides objecting to the arbitrary nature of the amounts chosen to cut various functions of government, I don’t see the logic in this statement, “Vitiate [destroy the legality of] the vote on the deficit-reduction bill if the Social Security reform bill does not receive 60 votes.” Does that mean that progress on the reform of the tax code and debt reduction will be thrown out if Congress doesn’t change Social Security? That makes absolutely no sense, especially since everyone agrees that Social Security is not part of the structural deficit problem.

    Even if absolutely nothing is done to Social Security, experts predict that the program will be able to pay at least 70% of present benefits  for 70 years after it reached the point of net tax receipts not equaling obligations. I have an easy way to solve the Social Security problem. Raise the amount of income subject to the Social Security tax and enact policies that lower the unemployment rate, thus giving the program more money.

    We can argue back and forth about how we address this structural deficit, but something will have to be done in the final analysis.  If the “Gang of Six” has the right plan to do that, they have an awful lot of explaining to do to convince the American people, and to convince me.  

    • After reading this, I’m definitely feeling less favorable towards the Gang of Six plan.  Thanks.

    • Elaine in Roanoke

      The medical deduction gutted in the Reagan-Bradley-Gephardt plan of 1986 said that medical deductions equal to 7.5% of adjusted gross income could not be deducted. Thus, only those deduction above that level can be deducted.