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  • Domenici-Rivlin: Another Vote for Reduced Federal Spending

    The Bipartisan Policy Center’s (BPC) Debt Reduction Task Force – a highly diverse group of private individuals – has laid out a comprehensive approach to closing the deficit and slowing the rise in national debt.

    They do this through a combination of spending reductions, many though not all of which are excellent and transformational (about 53%) and tax increases, all of which are ill-advised (about 47%).  The report’s near silence on Obamacare is noteworthy and unfortunate even to the exclusion of the universally abhorred CLASS Act.  Their cuts to defense stand in stark contrast to the first obligation of Government to provide a strong defense of the nation.

    The plan they lay out, along with the recently released Bowles-Simpson mark,  and Rep. Paul Ryan’s (R-WI) Roadmap,  is yet another attempt to change the calamitous course the federal budget is on today.  Kudos to the Task Force Members for furthering the discussion through hard choices, a discussion which should take place in Washington and across the nation over how big our federal government should be, what we expect from it and what we want our taxes to look like.

    Transformational:

    Most noteworthy, the Task Force has a striking proposal for Medicare to transition to a premium support program.  This transformative change would empower Medicare patients with control over both dollars and medical decisions and result in more efficient delivery of quality care than the current system.  They would also place strong limits on federal health spending ensuring that Medicare will be an affordable and sustainable program.

    Good:

    • Freeze and cap discretionary spending – here they could have gone further with actual cuts, though they include an important enforcement mechanism.
    • Cut spending on farm subsidies, but again the cuts were too timid.
    • Their tax plan sharply reduces top income tax rates and moves from six marginal rates to two.  They also repeal the Alternative Minimum Tax.  They also lower the corporate income tax rate and phase out the exclusion of employer-provided health insurance.
    • Strong budget controls, including discretionary spending caps and putting entitlements on explicit long-term budgets.

    Lost Opportunity

    • On Social Security, they have very modest reforms to Social Security’s finances such as indexing the retirement age for future changes in longevity, reforming the COLA mechanism, slightly moving to more progressive benefits and strengthening benefits for lower income workers.  Except for the COLA change, all of their proposed reforms should go much further.  Unfortunately, their changes really come about from raising the amount of income subject to payroll taxes to $180,000, which is neither wise nor necessary.   This is lost opportunity for strong reforms to fix and improve the program.

    Bad

    • Like Bowles-Simpson, their tax reform plan is a Trojan horse for large tax hikes through the elimination of nearly all tax expenditures.  Moreover, this tax plan contains a large explicit tax hike in the form of a Deficit Reduction Sales Tax at 6.5% that will apply to approximately 75% of personal consumption expenditures including such things as sales of new homes, privately funded healthcare costs, and food.  Though the authors of the report take great pains to avoid the term, in reality this is a value added tax, or VAT which, as an additional tax, will not increase national savings or promote stronger growth and be a permanent cash cow for Washington.
    • Also, like Bowles-Simpson, they propose cuts to the defense budget.  This approach asks the wrong question (How can we cut defense?) instead of the right one: What is required to protect the nation? Defense spending should be made as efficient and cost effective as possible, but savings must be reinvested in defense to make-up for a decade-long hiatus in properly modernizing the force. Cuts to defense now will lead to a hollow and humiliated military much like we had after Vietnam—and rebuilding the military would prove even more costly than maintaining it. Instead, the country needs to provide for defense an average of $720 billion per year (to be adjusted for inflation) for each of the next five fiscal years.

    Building the conversation

    The Domenici-Rivlin report is the kind of big picture radical approach that needs to be discussed with the American people, as must Congressman Paul Ryan’s plan and the left’s big plan – that is whenever they are willing to discuss their long-term agenda with the public.

    Posted in Economics [slideshow_deploy]

    5 Responses to Domenici-Rivlin: Another Vote for Reduced Federal Spending

    1. David F. Murray, Bel says:

      There are a few things that could be added to the list:

      Begin phased elimination (5-8 years) of:

      EPA. Concentrate of what has to be done and forget the rest.

      Dept of Education. Belongs in the states, by the Constitution. Eliminate federal funding for education. Let states collect those taxes and use as needed.

      Dept of Energy. Has not accomplished its goal, or come close. Stop ethanol subsidy. Grow corn for food and silage, This would reduce food prices and allow more exports.

      These agencies demonstrate Parkinson's Law about growth of government.

      Hard problems, need hard choices. Let's begin.

    2. Paul Terry Stone says:

      President Bush's ideas involving private accounts for Social Security reform seemed like the best ones available for permanently handling the problem responsibly. Better ideas may be arrived at and both Heritage and Rep. Ryan may have one but I'm not aware of it yet.

    3. James Smith, Illinoi says:

      You failed to mention reform of military retirement. As a member of the National Guard the proposed cuts do not directly effect me, yet. However, as a citizen that understands the sacrifices of service members through personal experience parts of the proposal are down right offensive! Domenici was quoted in a recent article stating "everybody must sacrifice". I'm pretty certain the actions of our service members throughout their careers, particularly in the last nine years, is the ultimate definition of sacrifice! Not only by the service members themselves but by their families as well. The thought of pulling the rug out from from underneath our service members is disgusting, especially since the changes will effect anyone with less than 15 years of service! In the case of the men and women currently serving actively, I would see this as a breech of contract. The bill of goods they were sold on their initial enlistments may prove to be no better then a fly by night sales scheme.

      All the while, service members will also suffer the same changes and economic burdens as the rest of their fellow americans. Are we maintaining the land of the free at the cost of the brave?

    4. Gary Zaetz, Cary, No says:

      Our nation's efforts to recover our war dead are seriously threatened by the freeze on defense spending advocated by certain Congressional Democrats and the Rivlin-Domenici debt commission. It is shameful that today, 65 years after the end of World War II, there are 72,000 American servicemen and servicewomen still missing from that conflict. A major reason for this failure is the fact that the Defense Department's Joint POW/MIA Accounting Command (JPAC) is severely underfunded. If JPAC is to meet the target of 200 MIA recoveries annually by 2015, as mandated by the 2010 National Defense Authorization Act, the Defense Department needs, at a minimum, to triple the amount of funds it requests annually from Congress for field investigation teams, and Congress must appropriate these funds, even if the Defense Department doesn't request them. Our commitment of 'no man left behind' is too important for the Defense Department to continue to treat JPAC like a neglected stepchild, or for Congress to freeze JPAC's budget and crush the dreams of our MIA families that their loved ones' remains may soon come home. All members of Congress must follow the lead of Democrat Congressman Dan Lipinski and support this badly needed increase in funding for the recovery of the remains of our heroic missing servicemen. They and their families deserve no less.? JPAC must be exempted from any Defense Department budget freeze.

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