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  • What's Wrong with the Gang of Six Plan?

    Desperate for a “balanced” approach to resolving the debt ceiling impasse, President Obama glommed on to the Gang of Six’s plan before the ink was dry.

    The plan has lots of tough-talking language intended to make both sides of the aisle tingle.  But that’s where the balance ends. In reality, it’s a mostly empty bipartisan shell—heavy on tax hikes and promises of spending cuts, but devoid of details on how to make the sweeping transformative changes needed to solve our debt and spending crises.

    A core problem, of course, is that plan’s false assumption that we need “balance”—i.e., both tax hikes and spending cuts—to solve a spending crisis.  Naturally, the only “balance” needed to solve a spending crisis is spending cuts.  Tax hikes only “enable” more bad spending behavior.  But set that aside for a moment.  Just what are the problems with the Gang of Six’s  “Promises, Promises” proposal?

    First, the heavy reliance on tax hikes….. er, revenues.  Yes, they claim their proposed “tax reform” delivers $1.5 trillion in real tax relief.  But the “reform” also generates an additional $1 trillion in revenues for the federal coffers to meet the deficit target (plus another $133 billion for the Highway Trust Fund). But wait, there’s more! Masked in cloudy language about CBO baselines is the fact that they would let the Bush tax cuts expire—hiking taxes another $3.8 trillion. At the end of the day, the Gang’s plan would raise taxes by as much as $4.9 trillion and give $1.5 trillion back.  What they trumpet as a tax cut is really a $3.4 trillion tax hike.

    And not to worry, the Gang assures us, not a penny of the new tax revenue will go to new spending.  It will all be used to pay down the debt.  Riiight!  By definition, every extra dollar of tax revenue permits an extra dollar of spending.

    Yes, the plan suggests some good tax ideas, like rate reductions and corporate tax reform.  But the price tag for the bad ideas is way too high and the details for the good are far too sketchy.

    And what about the crux of their plan: a $3.7 trillion deficit reduction target. Will it arrive there by spending cuts? Taxes?  Some combination of both? It’s anybody’s guess.  The plan presents absolutely no overall spending target, either in dollars or percent of GDP.  So how does it stack up to the House-passed budget, or the House-passed “Cut, Cap and Balance” bill?  Nobody knows.

    All they tell us is their plan would work in three phases. Phase one is what they call an “immediate aggressive deficit reduction down payment” of $500 billion.  Is that spending cuts or “immediate aggressive” tax hikes?   Unclear.   And even if the “down payment” is all cuts, how soon is “immediate”?  Will any cuts take effect this year? In 2012?  Or will they all be made in the immediate, post-2012 future?

    Phase Two of the plan would put various congressional committees to work getting spending reductions, budget process reforms and the tax hike details fleshed out.  Again, everything happens in the future. Results could be delivered in six months, but there is no requirement or mechanism to make sure it happens.  All in all, there are no guarantees of action, no requirements that any cuts actually take place.

    As for the few specifics of what they might deliver, the Gang seeds their plan with ideas for both sides of the aisle:

    • Repealing the CLASS Act—the new entitlement to long-term care for the elderly—is a great idea.  But repeal is likely to happen with or without the Gang’s plan.  Everyone agrees the entitlement’s Ponzi Scheme financing is doomed to fail, making elimination the only viable option.
    • Setting a savings target for Medicare and Medicaid is a small step in the right direction, and fully paying to fix the automatically scheduled cuts to doctors and other health care providers is laudable as well. But the Gang is silent on how it will achieve those savings and solve the Doc Fix.  They leave that to the committee process, which has been perennially unable to do this.
    • Switching the inflation index used for federal spending to “Chained CPI,” a more realistic measure of the cost of living, is sound.  But details like where and when matter. If the new inflation index applies to the tax code, then it’s a tax hike on everyone.
    • Reforming federal pay and launching a small program of asset sales, are good ideas, but the Gang’s goals here are underwhelming.
    • Continuing their war on the successful, the Gang would make our already highly progressive tax code even more progressive.
    • Rooting out fraud, waste and abuse in entitlement spending…well, who could object to that?  Though one has to wonder why Congress is waiting to be told to do it.

    Lastly, there is no certainty whatsoever that national security spending would not be eviscerated in this process.  According to an assessment by House Armed Services Committee Chair Buck McKeon, R-Calif., the Gang’s plan could slash defense spending by nearly $900 billion, despite warnings that our military is showing signs of “hollowing out” and already experiencing major shortfalls in readiness.

    Phase Three is the Gang’s vague goal to make Social Security solvent over 75 years – but only after Phase One passes the Senate.  How you do this really matters.  It’s entirely possible to develop a plan that fixes Social Security over 75 years while materially worsening deficits now. That’s not gonna fly.

    And here’s where the fine print is insidious. The Gang inserted a poison pill for their entire plan: if the Social Security phase does not pass with 60 votes, then somehow the previous deficit-reduction bill is null and void. If this is the case – why offer the bill at all?

    The nation faces two debt issues: the current debt ceiling and the fact that, under current policies, the national debt is set to soar much, much higher.  Credit-rating agencies have announced the obvious – if the United States doesn’t get its debt under control, its credit rating is at risk.  Given the scant details and the vagueness of even the goals themselves, the Gang’s plan will not meet the Moody’s test for ensuring a AAA credit rating any more than would the fundamentally flawed McConnell-Reid plan. And melding the Gang’s plan into McConnell-Reid as some suggest wouldn’t make matters any better.

    At the end of the day, this empty skeleton of a plan delivers nothing but risk.  Risk that spending won’t be cut now.  Risk that spending won’t be cut in the future. Risk – make that a probability – that taxes will go up.  Risk that our debt will go up without the transformational changes needed to put the nation on a sound economic and fiscal path.

    Like its Senatorial cousin, the McConnell-Reid “cut, run, and hide” plan, the proposal offered by the Gang of Six is long on promises and short on concrete action.  Washington should get to work making real cuts spending cuts.  Now.

    Alison Acosta Fraser is director of The Heritage Foundation’s Roe Institute for Economic Policy Studies.

    Posted in Economics [slideshow_deploy]

    7 Responses to What's Wrong with the Gang of Six Plan?

    1. bill says:

      OMG—How could GOP senators support this treachery? Are they liars? Someone should show these Senators an American Flag — maybe that would shake them back to GOP/patriotism — at least according to a recent research study cited by Rush today.

    2. 13Sisters76 says:

      "What's wrong" with the plan? It is a compromise, which means, republicans cave. THAT is ALL it means. You cannot make a deal with the devil. I'm not the slightest bit interested in increasing the debt ceiling so that corrupt pols can keep filling the trough for their supporters.
      Do NOT increase the debt limit and do NOT raise taxes. CUT THE SPENDING where it matters. Shrimp on treadmills? Really?

    3. Redfray says:

      It sounds like a bunch of kids with some money and they want to spend it all gone without knowing what to spend it on? Where is the budget? They need a budget to work out the way the money will be spent. What kind of experience is needed to do a budget like the one the "gang of six" is working on? We need the gang of six voted out along with the one in the middle of the gang. They can not do a budget to get the American tax payer out of debt.

    4. @tmman1957 says:

      It's amazing how fast this "compromise" came about after the passage of the cut, cap and balance in the Congress. This pack of six deal should be known as the six-pack deal from the Senate: "I'll buy you a six-pack so you can get drunk while I screw you."

    5. Marty says:

      Maybe after November we can change their nickname to "The Gang of 6 ex-Senators" – remember to vote people…

    6. Guest says:

      The professional politican's scam is to extort money and then distribute it, in repayment for bribes or other favors, to their friends. There are only two ways to stop the scam: shut off the flow of money to the politican/crooks; flush the overflowing Washington toilet, over and over, until we elect people with a fragment of honesty in them.

    7. Don Etheredge says:

      This country is in serious trouble. The inmates are running the asylum, and the barbarians (socialists, marxists, etc) are salivating over the spoils, just waiting to loot. Our VOTERS are the problem and the cause of this mess. They are ignorant, gullible, naive, and worst of all, aggressive.

      Sorry I don't have a solution. Sounds like "peace in our time" all over again….there may not be a solution. We should have seen this coming when Clinton was president, but waited too long to act. Now we have met the enemy, and he is us.

      The greatest nation in the world has now proven that ignorance can be taught in college.

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