Posted by: Debby Durkee | November 11, 2010

A good start for budget cutting.

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A good start for budget cutting.

The editors at National Review Online have perused the proposal by Erskine Bowles and Alan Simpson who co-chair the deficit-reduction task force. The editors have come away pleasantly surprised in some ways and disappointed in others, but on the whole believe this is a very good starting point. No VAT tax was proposed, but Obamacare was no where mentioned. The website has a bunch of information and opinions on this latest budget-cutting proposal, please go to http://www.nationalreview.com

…There’s no VAT in sight…there is a serious series of concrete proposals for constraining entitlement costs, simplifying the tax code, and putting a leash on future federal expenditures. Whereas the Obama-Reid-Pelosi triumvirate had put the country on the road toward a national debt topping 200 percent of GDP — with $1 trillion a year in interest payments alone — the Bowles-Simpson program would stabilize the debt and begin reducing it. The program would keep the debt to 40 percent of GDP in 2037 and would bring annual deficits down to a more manageable 2.2 percent of GDP by 2015, and 1 percent in the following years.

The plan has serious defects, the main one being that it establishes a historically high level of federal claims on the economy — with government revenue equal to 21 percent of GDP — as the new normal. But it is a good start…

It also does not mention Obamacare, which will break the budget in record time.

Mr. Bowles estimates that the program is three-quarters spending cuts and one-quarter tax hikes. But in giving up the complex menu of special-interest tax write-offs, the Bowles-Simpson proposal greatly simplifies the tax code and enables an across-the-board reduction of tax rates — leaving three tax brackets at 8 percent, 14 percent, and 23 percent — with additional savings accruing to taxpayers in the form of lower IRS-compliance costswhile the mortgage-interest deduction should indeed be phased out, that is a policy that should be implemented with the utmost care: It will likely further reduce housing prices, a necessary development that should happen — but happen slowly, lest we set off a new round of crises in the securities markets.

The proposals for entitlement reform are likewise painful but necessary: raising the age of eligibility for Social Security and reducing future benefits payments under that program and Medicare.

…there is no reason to presume that the Pentagon must be the target of specific directed cuts when Washington offers such a target-rich environment. If abolishing the Small Business Administration saves a brigade or two, that may very well be a trade worth making, and national defense remains one of the few core federal priorities in which policy cannot be subordinated to strictly budgetary concerns. If federal departments are to be singled out for cuts, we recommend the Departments of Energy, Labor, and Education. (The USDA’s byzantine agribusiness-welfare program already is in the crosshairs.) Snip –

…Sensible health-care reform — and Obamacare is not it — will be necessary to ensure the long-term solvency of American government. Which is to say, Republicans should regard this as a starting point, not as the finish line. But Mr. Bowles and Mr. Simpson have performed a public service by beginning the conversation on mature and realistic footing.

Please read it all here: http://www.nationalreview.com/articles/253056/opening-volley-against-deficit-editors

Kudlow’s first impressions.

Larry Kudlow likewise finds some things to like, but has suggestions for improving the proposal.

…It goes after entitlements, domestic and defense discretionary. It puts some kind of freeze on federal hiring and salaries. It lowers the corporate tax, flattens the personal tax, and gets rid of a bunch of tax-expenditure loopholes.

However, it should be much, much tougher on spending. By 2015 the baseline should be lowered by at least $500 billion, if not more — not just $200 billion.

And there should be a much more aggressive, true, flat-tax reform, with no more than two brackets of 15 and 28 percent, and preferably one bracket somewhere south of 20 percent. Plus, capital gains and dividends (taxes), which would go up under the commission, should be abolished altogether, along with the estate tax. And corporate tax reform should have a lower top rate and should include full cash expensing for new investment in plants and equipment.

I believe there should be not just a hiring freeze on federal employees, but an across the board slashing of 20 percent in every department and an elimination of federal departments. The EPA could be eliminated in addition to those departments the editors mentioned above. I’m sure there are plenty of places government could not only be trimmed but gutted. Read all of Kudlow here:

http://www.nationalreview.com/kudlows-money-politics/253035/deficit-commission-right-track

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Responses

  1. The major defect in the plan is that Obama is president for 2 more years, and the fiscally sane do not have enough votes to override his veto.

  2. Why wait till 2037 to get budget deficits to 2.2%? Why not have a budget that removes unnecessary expenditures now and have a budget that is balanced? Include in that budget a rainy day fund that anticipates unplanned issues that will arise. Do something meaningful and do it now. All they do is project things out for the next administration or generation to handle. Show some leadership and get it done and then pass it along.


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