Low expectations are what I had for the bipartisan deficit reduction commission, and I have to say I was pleasantly surprised by the draft report that co-chairs Erskine Bowles and Alan Simpson came up with.
What I really like is the plan for fundamental tax reform that would replace the current income tax rates with just three — at 8%, 14%, and 23%.
The commission gets some of this back from the upper end in the Social Security piece, where they would raise the cap on income to which the Social Security payroll tax applies and ratchet back some benefits for upper income earners. It looks like the 23% rate, and the other ones, would also apply to dividends and capital gains, as well as to ordinary income, which would be a big increase over the 15% top rates that now apply there (though those are scheduled to expire). And it's not the ideal of a totally flat tax or of eliminating the 16th Amendment altogether in favor of a consumption tax.
But either way, it sure changes the debate from where it was, with President Obama arguing for increasing the rate on top earners to 39.6% and Republicans arguing for keeping it at 35%, to have this commission come in and suggest a top rate of 23%. Let the Republican establishment now defend a top rate of 35% against Democrat Erskine Bowles who is suggesting bringing it down to 23%. That'll be a fun one.
There's plenty to quibble with. The plan suggests cutting American military bases overseas by one third, for a savings of $8.5 billion a year, which will have defense hawks flapping their wings in dismay. It also suggests saving $1.1 billion a year by integrating children of military personnel into local schools, which sounds easier than it might be; the DOD schools are well regarded, and since "army brats" move a lot, without them, it would be hard to have curricular continuity. If there's a group you probably don't want to balance the budget on the backs of, it's the children of career military men and women.
The academic medical centers and the doctors will be in a fury about the plan to cut $54 billion over 8 years out of "graduate and indirect medical education," a topic we addressed earlier here and here. But I agree that that one is a juicy target, as are farm subsidies, which are also targeted by the commission co-chairmen.
I've also written a lot here earlier, and skeptically, on the topic of means-testing Social Security or otherwise making it more "progressive" than it already is, so I'm not going to rehash it.
Conservatives probably also won't like the idea of increasing the federal gasoline tax by 15 cents a gallon, but as an economic matter it probably makes more sense than Corporate Average Fuel Economy standards, or than cap-and-tax or some kind of EPA-driven attack on car emissions.
Anyway, who knows if this is going anywhere. But it strikes me as constructive to throw some provocative, out-of-the box ideas into the Washington budget debate. And Speaker Pelosi and AFL-CIO president Richard Trumka are already heatedly denouncing it ("simply unacceptable"..."The chairmen of the Deficit Commission just told working Americans to 'Drop Dead'"), which is a pretty good sign.
