Cat Food Commission Releases 'Shock Doctrine' Draft Version

Fiscal Commission Recommendations: VA Co-Pays, Top Tax Rate 23%
Wednesday, November 10, 2010 by FireDogLake
by David Dayen

OK, here’s the draft document for the cat food commission co-chair’s mark. In addition, there’s a page with specific “illustrative cuts”, $100 billion in domestic spending and $100 billion in military spending. Between the two, you can get a sense of what Bowles and Simpson have planned. Keep in mind that this is more of a shock doctrine document than a blueprint; they have no support on the commission for all this, and they’re trying to gather it with this early release.

So let’s bullet point some highlights:

• They’re nice enough to wait a whole year to implement the cuts; they wouldn’t start until FY 2012 – in other words, the next budget.

• Their goal is to put revenue and spending at 21-22% of GDP. Their plan would reduce the deficit below the recommended 3% of GDP by 2015, down to about 2.2%.

• They put in spending caps, maybe the worst idea known to man, the kind of program that has turned Colorado so sharply negative that the business community begged the state to lift them. These caps, which are unenforceable, as a current Congress cannot be bound by a previous Congress, would bush spending 18% below the baseline by 2020, a drastic bit of austerity.

• 75% of the solutions in the co-chair mark are spending reductions, 25% are tax increases.

• They want to add co-pays to the Veterans’ Administration and TRICARE, as well as pushing individuals covered by TRICARE into an employer policy. They also want to freeze noncombat military pay for three years. And, they want to end schools for families on military bases, instead reintegrating soldier’s kids into the public school system (because that’s so easy for a military family that moves every other year).

• They would cut the federal workforce by 10%, freeze all salary increases and bonuses for three years, and reduce Congressional and White House budgets by 15%. Surely this is the way to a better and more efficient federal workforce.

• They would eliminate all funding for commercial space flight, as well as the Corporation for Public Broadcasting, and increase fees at national parks and the Smithsonian museums.

• Increase co-pays in Medicaid and cost sharing in Medicare. In addition, the plan would cap Medicaid/Medicare growth, so that the government would have to either increase premiums and co-pays or raise the Medicare eligibility age if the cost grows above the baseline.

• Massively overhaul the tax code. They have a couple different options on this. In the first, there would only be three brackets: at 8%, 14% and 23% for the top bracket. All tax expenditures – $1.1 trillion, including the Earned Income Tax Credit and the child tax credit, would be eliminated. The corporate tax rate would go down from 35% to 26% as well. Option 2 borrows from the Wyden-Gregg tax reform, establishing rates at 15%, 25% and 35%, increasing the standard deduction, capping the mortgage interest deduction (and eliminating it for second homes), limiting the charitable deduction, eliminating other tax expenditures, and capping the employer deduction for health care. Corporate rates would also go down, with loopholes removed.

• They would increase the gas tax by 15 cents a gallon beginning in 2013, to pay for transportation projects.

• They would pay for the “doctor’s fix” by cutting other reimbursements to hospitals and drug companies, as well as through tort reform (yeah, that’ll do it). They would also speed up a lot of the cost controls in the health care law. They also ask, if health care costs are still rising after the implementation of the exchanges, for Congress to consider a variety of options, including this:

Add a robust public option and/or all-payer system in the exchange

• Reduce farm subsidies by $3 billion per year.

• On Social Security, gradually increase the retirement age to 69 by 2075. They would also institute progressive price indexing to cut scheduled benefits for middle and high-income earners. They would index cost of living increases to inflation and not wages. They would also increase the payroll tax to capture 90% of wages, rather than the current 86%. Social Security savings would stay inside the program to keep it solvent, not be used for deficit reduction.

There’s a lot more in there, but those are the highlights. It’s a very aggressive plan.

Deficit Panel Targets Social Security and Taxes

by Jeff Mason and Donna Smith
Wednesday, November 10, 2010 by Reuters

WASHINGTON - The co-chairmen of a presidential commission to cut the budget deficit on Wednesday proposed reducing benefits and raising the U.S. pension retirement age among an array of tax and spending changes.

Taking aim at some of Washington's most politically explosive fiscal issues, the draft proposals were portrayed as achieving $4 trillion in deficit reduction through 2020, but they got a mixed reception from other commission members.

With a final report due from the panel on December 1, Democratic Representative Jan Schakowsky, a commission member, told reporters: "It's not a proposal I could support."

Republican Representative Paul Ryan, also a commission member, said: "There are things in here I like, things I don't like. This is a serious, impressive effort. It's a good start ... We've got a long way to go."

Co-chairmen Erskine Bowles and Alan Simpson also called for changes to the mortgage interest tax deduction, cuts in defense spending, and a reduced base rate for corporate taxes, according to the draft proposal distributed to reporters.

The proposal suggests raising the Social Security retirement age to 68 by 2050 and 69 by 2075 with a "hardship exception" for certain occupations where that would be unrealistic, the draft said.

Bowles, a Democrat, was chief of staff for President Bill Clinton. Simpson is a retired Republican senator. The two were named to head the commission this year by President Barack Obama in a move meant to show the White House is serious about tackling the deficit.

The two also proposed phasing in budget cuts beginning in fiscal 2012 and bringing down federal spending eventually to 21 percent of gross domestic product.

Fourteen of the panel's 18 members are supposed to approve a final report for Obama containing recommendations to balance the budget. But analysts expect it to be difficult to reach that kind of consensus and predict the commission may end up issuing a less conclusive report.

DEFICIT REDUCTION TARGETS

The commission's proposal came as a separate, private-sector panel called for a shake-up of the budget process that would set clear targets for reducing red ink and impose spending cuts and tax increases if targets were missed.

The recommendation by the Peterson-Pew Commission on Budget Reform, a balanced-budget advocacy group that has no official government role, recommended that the president and Congress be required to respect deficit-reduction targets and that serious consequences be levied for falling short.

If a budget enacted by Congress missed a target, the president could propose cuts to bring it in line, the Peterson-Pew Commission recommended.

"If the target were still missed, spending reductions and tax increases would be imposed through automatic trigger mechanisms," the Peterson-Pew Commission said.

The report from Peterson-Pew -- one of a handful of panels studying the deficit problem -- comes days after an election that swept Republicans to power in the House of Representatives partly on a wave of voter outrage over the $1.3 trillion deficit and the national debt of more than $13.6 trillion.

The presidential commission has held five public meetings this year. Closed-door meetings have occurred regularly.

Democrats are resisting spending cuts, while Republicans, emboldened by the election results, are likely to keep refusing to consider tax hikes, according to commission members.

Most budget analysts agree that some mix of both is needed to tackle the huge problem, but aides said it seemed unlikely that the presidential commission would reach a consensus by the time their final report is due on December 1.