President Barack Obama gave a good speech yesterday that appeared to draw a line in the sand that he would not give a further extension to the EGTRRA/JGTRRA tax cuts that he extended through 2012 for high income Americans. It was essentially his opening salvo in the 2012 presidential campaign, but I found it curious that he claimed that by not extending those tax rate cuts, that he would reduce tax spending by $1 trillion over the next decade.
Eliminating tax cuts are not a reduction in tax spending. They are a tax hike on those affected. It's a semantic argument, and it does relate to how he views income and tax policy.
But more to the point, his plan is full of wishful thinking. For starters, his plan would assume that he's going to win the Presidency in 2012 and that Congress would see things his way and allow for the programmed tax increases to occur - where the rates that are now currently 33% and 35% would rise to 35% and 39.6% respectively. If that were to occur, it's the only part of his deficit reduction package that can be accurately scored for the year it takes effect - Congress and his successor in the White House can adjust the rates and other tax policy items as they see fit, and they can therefore reduce or increase the deficit.
He further couched a significant portion of the deficit reduction in the form of tax simplification, which is something that both sides of the aisle have been clamoring for - except when it comes to their pet projects/constituencies. The rest of his deficit reduction plan consists of betting that the tax hikes and reducing spending around the fringes will result in $1 trillion less in deficit in the form of interest on debt. If those spending reductions don't materialize, the deficit will increase above and beyond what they're claiming will happen.
True tax simplification would eliminate the AMT and merge it in with the existing standard tax calculations since it would eliminate the annual dance in Congress over adjusting the AMT threshold for inflation. The CBO routinely scores legislation based on the law as in effect, and that means that the AMT scoring is routinely off because it doesn't reflect the fact that Congress changes that law annually. Tax simplification means that credits and deductions should be eliminated and the rates reduced to result in a revenue neutral proposal, but Democrats are likely to want the rates increased to increase revenue - that's the true battle here (whether to tackle tax simplification as a revenue neutral matter or as a way of enhancing tax revenues - as an increase in the marginal rates paid by taxpayers).
Most of the rest of the President's deficit reduction plan is based on assumptions and actions that will take effect long after his presidency is over - whether he is out of office in 2012, or whether he wins through 2016.
For the GOP, the plan proffered by Rep. Paul Ryan is little more than slash and burn of programs regardless of whether they serve the greater good and are effective programs or not. Cutting programs such as earthquake and tsunami detection systems to save even $100 million is foolhardy especially considering the Japanese experience where a few moments to minutes notice saved countless lives in a devastating 9.1 earthquake last month - and such measures could reduce damage by billions of dollars if equipment is shut down to protect it against damage.
Gutting clean air and water programs wont bring back jobs, but it will make the air and water much dirtier and contribute to higher health care costs, which is another area in which the President hopes to bring about savings in how Medicaid is funded.
Reducing the social safety net isn't going to bring about the kinds of savings that the GOP hopes for either - it merely shifts the burdens on to localities and the families that are planning for having those programs in place as they enter their retirement years.
Also, all these plans rely on not having to wage further wars overseas or natural disasters that require massive infusions of federal funds to help recover from the damage. The US is regularly hit with major natural disasters, and whether it is a hurricane battering the Southeast or the West Coast being overdue for a major earthquake, it's bound to happen and will throw budget projections off.
Taking the Iraq and Afghanistan wars off the table (as in seeing the money being spent removed from the books at their conclusion) may well help reduce the deficit over the long term - but that's only if the money isn't spent elsewhere. With the US reducing its role in Iraq in 2011, 2012 and beyond, and the US role in Afghanistan up in the air, spending on those two conflicts is likely to continue to decline going forward. That doesn't mean that the money can and should be spent elsewhere- it means that it should not be spent at all.
No comments:
Post a Comment