Tuesday, November 16, 2010
Many liberals went bananas over the new plan to reduce deficits. The ideas put forth by the chairmen of President Obama's bipartisan deficit commission ignore their priorities, they lament.
Liberals are entitled to be crabby because they've been doing the hard budget compromising since the Clinton era. And what business is it of the chairmen -- Erskine Bowles, a Democrat, and former Wyoming Sen. Alan Simpson, a Republican -- to set an arbitrary (and low) maximum percentage on the tax revenue relative to gross domestic product that our society is allowed to collect? Their job is to find ways to bring down deficits. Period.
But the chairmen's blueprint does include items that progressives should like. Let's look at three of them.
-- Ending the deduction for mortgage interest. Liberal economist Paul Krugman complains, "They suggest eliminating tax breaks that, whatever you think of them, matter a lot to middle-class Americans ... and using much of the revenue gained thereby, not to reduce the deficit, but to allow sharp reductions in both the top marginal tax rate and in the corporate tax rate."
Hold on there. That middle-class people deduct their mortgage interest doesn't make this primarily a broadly used tax break. Only those who itemize their deductions enjoy this benefit, and the bottom two-thirds of taxpayers don't itemize. For renters, it's worth zip.
So the bigger the home loan and the higher the tax bracket, the more valuable is the mortgage interest deduction. As for middle-class homeowners who do use this tax break, many would be better off losing it if that came paired with a lower tax rate.
-- Taxing investment income the same as work income. The richest Americans make almost all their money from investments, not from jobs. Even if the top tax rate were cut to 23 percent from 35 percent, as Bowles-Simpson suggests, taxes would actually rise for rich folk living on investment income now taxed at 15 percent.
-- Protecting the Social Security Trust Fund. Many liberals blew their top over the proposals to trim future benefits. That may well be unnecessary, and more importantly, the chairmen left the trust fund alone.
Social Security is a self-funding program. (In other words, the workers and their employers, not the Treasury, pay for it.) In the early '80s, payroll taxes were raised and benefits cut to build the trust fund for a day when current payroll taxes could no longer support current retirees. That day is approaching, but thanks to the trust fund savings, all promised benefits can be paid out until 2037.
Conservatives like to portray the trust fund as an empty vault. The money that's been put into it for over a quarter century was not loaned to the federal government, they say, but spent. Convince enough people of this, and the right can get away with siphoning the money owed the trust fund into deficit reduction (or more tax cuts for the rich).
Bowles-Simpson may fool around with the benefit schedule, but it doesn't raid the trust fund for reducing the Treasury's deficits. A show of respect for the integrity of the trust fund is no small thing these days.
For all the talk of the painful, painful(!) sacrifices needed to achieve the chairmen's goal of reducing the federal deficit by $4 trillion through 2020, one thing should be kept in mind: Simply ending all the George W. Bush tax cuts would do the same thing.
No one starved in the Clinton era. In fact, people did darn well then. That's something for Democrats to think about now, before Republicans take over the House and start the fiscal voodoo dance all over again.
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Views expressed in this column are those of the author, not those of Rasmussen Reports.
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