The best summary of the Gang of Six proposal can be found in this two-page document that’s been floating around. And from what I see, it closely mirrors the Bowles-Simpson report while being sufficiently vague so as not to raise anyone’s ire.
Kent Conrad said this was a 3:1 ratio of spending to tax solutions. But, he was quick to point out, CBO would score this proposal as a tax cut of $1.5 trillion, and actually, I think that number would be bigger. The reason is the Bush tax cuts, which are set to expire at the end of 2012. Under current law, doing nothing would raise $4 trillion by returning tax rates to the Clinton level. But this deal would reduce marginal income tax rates and eliminate the alternative minimum tax. Then there’s a lot of happy talk about “encouraging economic growth” and “enhancing the competitiveness of American businesses and workers against global competition.” What they’re talking about is the same stew of lowering the rates and broadening the base that we’ve seen countless times. So loopholes and tax expenditures would be thrown out, and rates would go down. It’s not specified how this would be done.
Actually, very little is specific in this framework. Of the $3.7 trillion in deficit reduction planned, only $500 billion would be immediate (and all on the spending cut side). The rest would come by directing Congressional committees to find savings in key programs, enforcing that through spending caps. The tax reform would happen on a separate track. Congress would need a 2/3 vote to exceed the spending caps installed in this package, and “emergency” spending would be restricted.
Simply put, this is a recipe for depression. When the economy suffered and stimulus would be required to increase aggregate demand, the 2/3 vote needed would simply put a stop to it. The New Deal would have been out of order under this regime. Same with the Recovery Act. Any spending from the federal government would be restricted as much as it is in the states. So there could only be the status quo or contraction in fiscal policy in the event of a recession, which is a perfect way to create a depression.
There’s also talk in this document of “ensuring the 75-year solvency of Social Security and provide for a decennial review of the program to ensure it remains solvent.” Money from Social Security would not go toward reducing the budget deficit, but this 10-year review would mean that the program would likely be tweaked each decade.
The explanation of Medicare and Medicaid is similarly vague, only discussing how to “Spend health care dollars more efficiently in order to strengthen Medicare and Medicaid,
while maintaining the basic structure of these critical programs.” The doc fix would also be paid for in the deal.
The President, jumping on the bipartisan grand bargain he always wanted, immediately praised the proposal, calling it “broadly consistent with the approach that I’ve urged.” He said that Congress should move quickly on the bill.
But this isn’t even a bill, really, as far as I can see, just a promise to write a bill in the future, and to adhere to a crippling spending cap that would kill the economy in bad times and deny investment in good times. The tax overhaul is similarly unformed.
We’re two weeks from a default event, needless to say. This seems like the worst possible time to get aboard a completely new venture that would have huge implications. Or the best, depending on your perspective.
Nobody’s yet explained to me why House Republicans, having rejected a big deal of the same size with the same amount of revenue increases, would suddenly accept this one, but I’m sure that will be made plain to me somewhere down the line.
Surely cutting $3.7 trillion and completely overhauling the fiscal policy of the United States, as well as the tax code, will pave the way for a liberal utopia and investment in everything we care about, right? That’s the way things work, yes?