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Saturday, July 30, 2011

Fiscal Fracas: My Solution to the Debt Ceiling Problem

For a couple of weeks now, I’ve been trumpeting a four-part deficit-reduction package as a comprehensive, center-right accompaniment to any debt ceiling increase. Reactions have been mixed, and I know that it has no chance of passing, but it’s not like anyone in Washington would actually take it up, so why should I bother trying to come up with something that could actually make it to the president’s desk?
As I've said repeatedly, whatever compromise ends up averting a crisis, it will be far from the best possible solution. Any plan that would garner enough votes to pass both houses of Congress and the president's signature will contain less-than-adequate curbs on spending and changes in the tax code that fall well short of the real tax reform needed to make this country's tax system simpler, fairer and more productive. So, today I'd like to elaborate on the four pieces of legislation that should be attached to any debt-ceiling increase.

  1. A Balanced-Budget Amendment

  2. This was a major sticking point in the past couple of weeks. Boehner couldn't get a debt-ceiling increase through the Republican-dominated House without attaching a BBA, and the Democrat-controlled Senate wouldn't vote for any bill that included the BBA. I've listened to and read up on the arguments for and against amending the Constitution to require a balanced budget—the debate is far from new—and, on balance, I have to say it's not only a good idea but possibly a necessity. In the first place, it would provide the strongest possible restraint to guard against future spending sprees by Congress that always occur whenever revenues increase. At some point, our economy will recover, and God willing, the federal government's coffers will once again be flooded with cash. History has taught us that, no matter what the composition of Congress, there comes a point where all that additional money is just too much to resist. If we're ever going to balance the federal budget, then nothing short of a BBA will provide the requisite bulwark against fiscal irresponsibility.
    At the risk of pointing out the obvious, voting for a BBA carries virtually zero political risk. Multiple polls indicate that between 60 and 70 percent of Americans who participate in these surveys support it, which makes congressional Democrats' near-unanimous opposition to it somewhat confusing. Consider also that getting it through Congress is only the first step. No less than thirty-eight states must ratify any change to the Constitution, so what we're really talking about here, inasmuch as Congress is involved, is submitting an amendment to the states.
    As for the logistical problems associated with such an amendment, we could start with the language of S. J. Res. 1, the 1997 version of a BBA that won approval from 66 Senators (including the current Vice President), one short of the requisite 2/3 needed to submit a Constitutional amendment to the states. Then there are the arguments about how deficit spending is necessary in times of great economic strife and inevitable in times of war. These are all good arguments, but I'm going to ignore them right now so that I can get to the rest of my plan.

  3. Full Repeal of Obamacare

  4. I'm aware of the "Repeal & Replace" mantra that the GOP has largely adopted, but an adequate replacement to the so-called "Patient Protection and Affordable Care Act" is not something that can be crafted and properly evaluated, debated and sold to the American people in a matter of days or even weeks. Besides, since our country and its health-care system would be better off without Obamacare than it is with the law in place, whether or not we replace it with anything, just repealing the damn thing is arguably an improvement in and of itself.
    The House already passed a bill to repeal the Act in toto; the Senate voted down a similar measure in April. As far as I'm concerned, the language of H.R.2 is satisfactory. All we need now is a Senate with enough reasonable people to approve it.

  5. REAL Spending Cuts

  6. When we talk of spending CUTS, it's important to distinguish between reductions in spending and reductions in the projected growth of spending. Put a different way, are we actually going to spend less than it is now or just less than it had planned to spend? (In some cases, the answer is both. But don't be fooled. Spending less than the "baseline" is often characterized as a "cut," even if it still amounts to a net increase over the current budget.) Ideally, we would actually reduce total outlays by enough to bring government spending down to less than 19% of GDP by ... let's say 2016. That's five years from now, plenty of time for the economy to adjust and Washington to ease a public that's frankly been spoiled for years now on government largesse into a new era of austerity. I say 19% of GDP because it's still more than what the government normally collects in tax revenues but low enough to shrink the deficit down to a manageable size so that we're on track to balance our budget by the time the Constitution is amended to require it.

  7. REAL Tax Reform

  8. It's been 25 years since our government last overhauled the entire federal tax code. We're about due for another comprehensive reform. The basic scheme is not that complicated: eliminate/reduce a lot of these costly deductions and tax credits, and lower income tax rates. Some people may end up with a slightly higher effective tax rate, but a lot of households and individuals would pay less, and the best part (arguably) is that the resulting increases/decreases in the tax burden wouldn't be skewed toward one particular group of people.
    There are so many deductions and credits in the Internal Revenue Code that it hardly seems worth it to list which ones should be eliminated/reduced. It may be simpler to list which ones should be preserved as is. The only two that come to my mind are the deductions for charitable contributions and education expenses. (The latter group really ought to be expanded.) As far as I'm concerned, there is no argument for reducing or eliminating these types of deductions that is less persuasive when used to justify reducing or eliminating any other deductions. Even the wildly popular Home Mortgage Interest Deduction ought to be phased out. Deductions for state and local taxes are fair and helpful but difficult to justify given the current fiscal mess we're in. Ditto the deductions for work-related expenses (travel, meals, lodging). As for credits, you've probably heard a lot of criticism directed at these green-energy tax credits and wasteful boondoggles like Cash for Clunkers, but there are some others that have been around for a long time but do a lot more harm than good. The Earned Income Tax Credit, for example, should have gotten the axe a long time ago. It's basically welfare for people who have a job. I'd keep the child tax credit, but don't increase it for a while. , remember how Obama & the big spenders in Washington tried to sell us on the "stimulus" bill of 2009 by claiming that something like 40% of it was "tax cuts"? Well, to the extent that's true, all of the tax cuts in the Act ought to be repealed, if they're not going away automatically. Here's why: according to an AP article I claim to have read, "many taxpayers are seeing their bills drop under Obama because of more generous tax credits for college students, working families, homebuyers and the working poor. Many of the changes were enacted as part of the big economic stimulus package passed in 2009."
    I should point ut that, in explaining what I think "real tax reform" would entail, I've mainly focused on individual income taxes. That's because, if we want to be fair and, most importantly, smart about this, then we need to devote much more attention to detail when making changes that affect individual income taxes (as opposed to corporate income taxes). This rather simplistic notion of "closing tax loopholes" and lowering rates is much easier to apply to taxes on corporate income for many reasons that I won't go into right now.

Of course, the current president wouldn't sign off on any part of this, and there's no way you'll find a supermajority (2/3) in each house to approve all four parts. But, as I said, I'm not burdened with having to conjure up something that has a realistic chance of becoming law. This article is about what should be done, not what will get done. That's just one of the few small pleasures of being a columnist and not a legislator.

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