Considering the suggestions of the Commission on Fiscal Responsibility and Reform

Alan Simpson and Erskine Bowles, the co-chairs of the President’s National Commission on Fiscal Responsibility and Reform issued a 50-page draft proposal a few days ago, outlining what they’d recommend that we do to reign in government spending and significantly cut the nation’s deficit. They maintain that their proposal, which cuts military spending, reforms the tax code, and pushes back Social Security eligibility, among other things, would balance the budget by 2037.

Here’s a bit of the overview from the New York Times:

…The plan calls for deep cuts in domestic and military spending, a gradual 15-cents-a-gallon increase in the federal gasoline tax, limiting or eliminating popular tax breaks in return for lower rates, and benefit cuts and an increased retirement age forSocial Security….

The plan would reduce cost-of-living increases for all federal programs, including Social Security. It would reduce projected Social Security benefits to most retirees in later decades, though low-income people would get higher benefits. The retirement age for full benefits would be slowly raised to 69 from 67 by 2075, with a “hardship exemption” for people who physically cannot work past 62. And higher levels of income would be subject to payroll taxes…

Outgoing Speaker of the House, Nancy Pelosi, called the proposal “simply unacceptable.” Richard Trumka, the head of the AFL-CIO, took things a bit further, stating that Simpson, Bowles and company had just told the working men and women of America to “drop dead.” Economist Paul Krugman said in his New York Times column that it would be unethical to push back the retirement age, as working class Americans aren’t making the same gains in longevity that the rich are. He then went on to say the following:

…It’s no mystery what has happened on the deficit commission: as so often happens in modern Washington, a process meant to deal with real problems has been hijacked on behalf of an ideological agenda. Under the guise of facing our fiscal problems, Mr. Bowles and Mr. Simpson are trying to smuggle in the same old, same old — tax cuts for the rich and erosion of the social safety net…

And, it’s not just that the Commission is suggesting that the retirement age be pushed back for those of us following the baby boomers, and that taxes be cut across the board, that’s got people upset. They’re also suggesting that the mortgage interest tax deduction be trimmed or eliminated, which would hit the middle class disproportionately hard. Here, on that, is another clip from the New York Times:

…The proposal, part of a draft by co-chairmen Alan K. Simpson and Erskine B. Bowles, suggested that the tax code could be streamlined, and income tax rates drastically lowered, by eliminating the $1.1 trillion in annual tax expenditure entitlements — subsidies and breaks given to targeted businesses and individuals. The commission chairmen also offered the option of capping the deduction at $500,000 on mortgages, rather than the current limit of $1 million.

The prospect brought an angry outcry. House Speaker Nancy Pelosi blasted the commission’s suggestions, saying it would force middle-class homeowners to subsidize tax breaks for the wealthy. Officials in the real estate and mortgage industries warned that ending the deduction could cripple an already ailing housing market…

Others, however, think that these are the kinds of difficult decisions that we’re going to need to make if we’re ever going to lift ourselves out of the financial hole that we’ve gotten ourselves into. Here, to illustrate that point, is a segment from my favorite morning news chat show Morning Joe.

I’m willing to keep an open mind and consider anything, but I have to know that the interests of the middle class are being considered, and not just those of the wealthy. And, for what it’s worth, it doesn’t exactly help instill confidence in the process when I hear that many of the staffers on the Commission are being funded by organizations dedicated to the cutting of entitlement programs. While I’m perfectly willing to put off my retirement for a year for the good of the country, if that’s what it takes, I agree with Krugman when he says that that we shouldn’t balance the budget on the backs of America’s working class. And, if it’s true that this whole Simpson/Bowles thing was built upon the premise that the rich needed to pay less in taxes… well, then, I think we’d better start over again. I don’t mind paying my share, but others better be willing to do the same. And, if I’m giving up my mortgage deduction, then we’d better also start closing up the legal loopholes that allow our most wealthy among us to move their money out of the country in order to avoid paying taxes.

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15 Comments

  1. Brandon
    Posted November 14, 2010 at 2:04 am | Permalink

    For what its worth, the mortgage tax deduction has been a key driver of urban sprawl and McMansionization for decades… doing away with it (in combination with an increased gas tax) could have some real positive long-term effects.

  2. Posted November 14, 2010 at 8:06 am | Permalink

    Good point on the mortgage tax deduction, Brandon. I hadn’t thought of that… And I do like very much that they included both the gas tax and military cuts. I feel, however, that both could have been more aggressive. Still, it’s good that they are at least being considered for the first time in a debate such as this.

  3. Posted November 14, 2010 at 9:24 am | Permalink

    As Brandon points out, the mortgage interest deduction is a massive social engineering scheme, in the favored parlance of the right: it encourages people to buy (rather than rent) larger houses on larger lots further from the cities than they might otherwise choose if left to themselves. (For all you homeowners – remember when you were making the choice to rent or buy? I’m sure you remember the propaganda about how buying was the right choice due to the tax breaks, and how you should stretch yourself to buy a house for that reason even if you might otherwise not consider it.)

    The deduction both encourages consumption of larger homes, by promising a larger tax break for larger mortgages, as well as masking the true cost of these mortgages to the borrower. And, as we’ve seen demonstrated over the past few years, encouraging people to stretch themselves into homeownership – and stretch into the biggest houses they can afford – is hardly the path to wealth-creation that we’ve made it out to be.

    But there’s also the issue that the mortgage interest deduction is a somewhat regressive tax – it primarily benefits those on the upper income end of the scale. Wealthier taxpayers are in higher marginal tax brackets, so benefit more from deductions (especially if it bumps them down into a lower tax bracket), as well as typically owning larger and more expensive homes, and so having a larger chunk of interest they can claim. Look at the piece where they’re offering an option of “Maybe we don’t eliminate the deduction – but we just cap it to the first $500,000.” Is this really a blow to the middle class?

    Take away the name, and just look at a description of what we’re talking about: an expensive and regressive tax break that creates massive market distortion in the name of social engineering purposes with questionable benefits.

    In any other case, we’d be howling to end this sucker, with Speaker Pelosi leading the charge – but since we all benefit to some small degree (or want to save it so that, someday, we’ll make enough money that we can benefit), it’s a hot-button topic. As is, we’ll probably have to phase it out – since there are still plenty of folks out there who couldn’t really afford to buy the houses they bought, even losing the relatively small benefit of the mortgage interest deduction could put them over the edge if removed suddenly.

    I haven’t had a ton of time to think about the rest of the pieces of the chairmen’s proposal, but ending the mortgage interest deduction is a clear win.

  4. Mike Shecket
    Posted November 14, 2010 at 10:52 am | Permalink

    Just to echo the previous comment: the mortgage interest deduction benefits those who can afford to buy houses at the expense (primarily) of those who can’t. Not fair.

  5. dragon
    Posted November 14, 2010 at 11:13 am | Permalink

    if it’s true that this whole Simpson/Bowles thing was built upon the premise that the rich needed to pay less in taxes… well, then,

    This would have been funnier if you hadn’t left out the punchline..

    — the commission recommended cutting the highest income tax brackets by 12 points, from 35% to 23%, plus lowering corporate income taxes too–

    Shared sacrifice indeed. Keep polishing the knobs of our Galtean Overlords and paradise will be shinier for all.

  6. Tom_Beebe
    Posted November 14, 2010 at 9:27 pm | Permalink

    Let me throw one more log on the fire: Is not the mortgage interest tax deduction unfair to those who rent? What became of “equal justice under law”? If this seems a bit trite, I would suggest it opens many doors. How is a graduated income tax “equal justice”? You pick the cases; you’ll see over and over how justice has been denied in the cause of “social justice”. May I ask your opinion of a HIGH flat tax on everybody’s DISPOSABLE income? Deduct health care, education and savings as in the interest of making the nation more productive? Tax all else, peraps at the 35-50% rate, if required to fund government’s true resposibilities. PLEASE sent your comments on this to me, tbeebe6535@yahoo.com. Tell me where I’m right, or I’m full of it.

  7. ELT
    Posted November 14, 2010 at 9:34 pm | Permalink

    The NYT has an interactive feature where you can go through and make your own budget cuts.

    Doing the following, for instance, would offset the deficit by $104 billion by 2030.

    Return the estate tax to Clinton-era levels
    Under President Bill Clinton, the estate tax exempted $1 million from any taxable estate. This level would not grow with inflation over time, subjecting more estates to the tax. The rate would start at 18 percent and climb to 55 percent, as it did in the 1990s. The 55 percent rate would begin at $3 million. If Congress takes no action, this would become law on Jan. 1, 2011.

    This one seems like a no-brainer.

    https://www.nytimes.com/interactive/2010/11/13/weekinreview/deficits-graphic.html

  8. Mike Shecket
    Posted November 15, 2010 at 5:14 am | Permalink

    I disagree with any law that doesn’t index dollar amounts to inflation. Inflation is a real phenomenon. Hopefully, if we keep it somewhat in check, it will act on the scale of generations rather than decades or years, but when, eventually, nominal GDP per capita rises to–let’s say–$250,000 a year, can we really still call someone with a million nominal dollars “rich”?

    The AMT has the same problem. It ought to be scrapped and replaced with, perhaps, a new tax bracket for those making (in 2010 dollars) $1 million a year or more…and yeah, index all the tax brackets to inflation.

  9. Knox
    Posted November 15, 2010 at 7:17 am | Permalink

    Is this a TRONK?

    http://en.wikipedia.org/wiki/Jay_Maynard

  10. Kristin
    Posted November 15, 2010 at 9:37 am | Permalink

    Can we talk about agriculture? Those subsidies are indefensible.

  11. Edward
    Posted November 15, 2010 at 9:39 am | Permalink

    I think Knox’s note belongs in the thread about the mortgage deduction, as it appears to me in response to a comment by Mike S.

  12. T. Glass
    Posted November 15, 2010 at 4:39 pm | Permalink

    I’d just like to add FUCK THE RICH! Seriously, this pisses me off. Why are American’s so complacent? Are we that fucking stupid? How did we become such timid sheep in the last 60 years? Where are the leaders with the giant brass balls to stand up and risk their lives like our founding fathers? And I’m not talking about the obese creatures on scooters who buzz around Palin events yelling about patriotism. I’m talking about men like Washington, Jefferson and MLK who would stand up and say what they believed even though they knew it could get them shot? Sorry, but I’m pissed off today.

  13. MoveOn by proxy
    Posted December 1, 2010 at 1:48 pm | Permalink

    Dear MoveOn member,

    This morning the president’s bipartisan commission on the deficit issued its final report and at its center are deep cuts to Social Security—including raising the retirement age—and other vital programs Americans rely on.1

    There are smart, progressive ways to tackle the deficit—-by growing the economy and making sure the richest 2% of Americans pay their fair share. But the commission’s report instead focuses on making those who are struggling the most pay for a deficit that they didn’t create—while furnishing corporations and the super-rich with more tax breaks.

    Congress will vote on whether to make this plan law. So they need hear from concerned voters right away.

    Can you call Sen. Levin right now and ask him to reject the Fiscal Commission’s report? Ask him to support policies that build up the middle class, not just the top 2%.

    Here’s where to call:

    Senator Carl Levin
    Phone: 202-224-6221
    Then, please report your call by clicking here:

    http://pol.moveon.org/call?tg=FSMI_1&cp_id=1493&id=25336-4967533-FfhVtSx&t=1

    The deficit commission was supposed to come up with balanced solutions to cut the deficit. But instead, it’s slashing health care for seniors and veterans, and cutting Social Security benefits—including for current retirees. And all those cuts are used to pay for lower taxes for the rich.

    It’s not just wrong—it’s immoral.

    And not only is cutting Social Security horrible policy, it’s terrible politics too. Poll after poll shows that voters strongly reject cutting Social Security to deal with the federal deficit and prefer measures that would ensure that the rich pay their fair share of taxes.2

    The people who want to cut Social Security are spreading lots of myths meant to make you think there is a looming crisis. Well, it’s not true—there is no Social Security crisis. The program’s trust fund will have a $4.3 trillion surplus by 2023, and can pay all of its obligations for decades to come.3 Also, legally it can’t contribute to the deficit—it only ever gives out benefits it can pay for.4

    Please call Sen. Levin today and ask him to reject the Fiscal Commission’s report.

    Thanks for all you do.

    –Nita, Daniel, Anna, Duncan, and the rest of the team

    1. “Commission’s final deficit report preserves controversial spending cuts; panel to vote Friday on whether to endorse plan,” Washington Post, December 1, 2010
    http://www.moveon.org/r?r=205386&id=25336-4967533-FfhVtSx&t=2

    2. “Poll: Voters Would Rather Tax The Wealthy Than Cut Social Security,” Talking Points Memo, November 10, 2011 

    http://www.moveon.org/r?r=180213&id=&t=2&id=25336-4967533-FfhVtSx&t=3

    3. “To Deficit Hawks: We the People Know Best on Social Security,” New Deal 2.0, June 14, 2010 

    http://www.moveon.org/r?r=89703&id=&t=3&id=25336-4967533-FfhVtSx&t=4

    4. “Social Security is sustainable,” Economic and Policy Institute, May 27, 2010 

    http://www.moveon.org/r?r=89707&id=&t=4&id=25336-4967533-FfhVtSx&t=5

  14. Meta
    Posted December 3, 2010 at 11:07 am | Permalink

    —————————————-
    Breaking News Alert: Majority of Obama’s fiscal commission supports plan to cut deficit
    December 3, 2010 10:56:45 AM
    —————————————-

    Eleven of the 18 members of President Obama’s fiscal commission voted Friday to embrace a controversial blueprint to slash deficits by nearly $4 trillion over the next decade — too few to command a quick vote in Congress, but far more than even the panel’s most ardent supporters had predicted just a few weeks ago.

    The panel has proposed dramatic cuts in military spending, raising the future retirement age and eliminating popular tax breaks.

    For more information, visit washingtonpost.com

    —————————————-

  15. Andy C
    Posted December 3, 2010 at 1:15 pm | Permalink

    Hold on MoveOn, you’re hijacking a thread on renewing tax cuts for the rich with a letter about the Fiscal Commission’s report. Two totally different things. Maybe Mark will post (if he hasn’t already) in the Fiscal Commission’s report for you to post on but until them don’t imply they’re one in the same.

2 Trackbacks

  1. By The mortgage tax deduction and why it should go on November 14, 2010 at 10:32 pm

    […] in a post about the President’s Commission on Fiscal Responsibility, I mentioned that co-chairs Alan Simpson and Erskine Bowles suggested the elimination of the […]

  2. By Let’s say I am a rich man « To The Lamp on November 15, 2010 at 12:19 pm

    […] “The suggestions of the Commission on Fiscal Responsibility and Reform” and related post… (markmaynard.com) […]

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