DC Notes

September 18th, 2011 at 5:56 pm

Lots of interest in the President’s deficit plan tomorrow.  Media reports suggest that benefit cuts to entitlements in the form of the chained CPI (A number of folks have asked for a post on this which I’ll have up soon) or increase in the Medicare eligibility age are NOT in the plan.

I view this announcement as the President’s effort to add specificity to the framework he presented in April that called for $4 trillion in deficit reduction over 12 years.  I figure that 12 becomes 10 years, they count something like $1 trillion of savings—all from spending cuts–from the Budget Control Act (that thing signed after the debt ceiling debacle) so they lean pretty hard on new revenues in tomorrow’s plan.

The White House already announced their “Buffett Tax” idea to raise revenue by adding a minimum tax rate for households with incomes above $1 million.  Recall that Warren Buffett penned a recent oped for the NYT urging the Treasury to “stop coddling the rich” in the tax code.  He may not be getting a lot of love at “the club,” but the argument broadly resonated and this rule would serve as a backstop to avoid situations where folks like him pay a smaller share of their income in taxes than everybody else (I like the idea…it’s like an Alternative Minimum Tax for millionaires…and it’s simple, which is very important—if your income’s over a mil, and your tax bill after all your special goodies and deductions as a share of your income is below some rate, then you have to pay the higher rate…bing, zap, zoom).

R’s are predictably jumping all over this and any other idea that involves revenue, which makes one wonder how much tomorrow’s announcement by the really matters.  The question is: does it change the probabilities for the super-committee (SC)—does it increase the odds that they avoid gridlock and report out a plan?

Unlikely…so ask yourself this: would you rather have a lousy SC deal or take the automatic cuts (“sequestration”)?   By “lousy” I mean anything without substantial revenues, something on the order of dollar for dollar (new cuts for new revs), and remember two things.  First, we already gave about a trillion in spending cuts in round one (with no revs), and second, the automatic cuts are 50% on defense and exempt entitlements for the most part (there’s a 2% provider cut on Mcare).  Seems like a slam dunk from where I sit.

So, I like where the President seems to be going with this…he’s clearly starting out on his side of the field and taking advantage of a pretty tough trigger that his team negotiated in the budget deal.  And anyway, the main thing is that he stays on the jobs theme and doesn’t get swept back into deficit land.

Finally, I was there back in the day and some of the stuff being reported from the Ron Suskind book just doesn’t ring true.  And the fact that some of the folks quoted are saying they were misquoted suggests that something’s wrong here.  I can tell you that sure, the economics team argued a lot, but over substance, which is what happens when you put a bunch of such folks in a room together in the heart of the Great Recession.  At the end of the day, we either hashed out a unified recommendation for the chief, or we’d agree to disagree and present him with numerous options.

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4 comments in reply to "DC Notes"

  1. Dilip says:

    Did you happen to come across this commentary about Warren Buffet’s op-ed?

    • Chigliakus says:

      The linked post is amusing. He appears to have made up some “utopian” tax system here http://www.themoneyillusion.com/?p=7091 where a regressive consumption tax is supposed to be progressive, somehow. He appears deeply confused about several concepts, namely income, fairness and why we have taxes in the first place. His response to Buffett seems to basically be “I created a ‘fair’ tax system in which the ultimate virtue is savings, and you save a LOT Mr. Buffett therefor you shouldn’t pay any taxes!” I guess the main problem is he never makes a case for why saving is so virtuous, he just kind of assumes it and builds his fantasy tax code from there.

  2. davesnyd says:

    You seem very positive on switching to chained CPI. But it feels like it’s being proposed mostly as a cost cutting measure. Shouldn’t that decision be based on some data that shows that chained CPI is the more appropriate measure?

    I think what the President is doing is all theatrics– about making the Republicans, essentially, come out and say that they don’t give a {darn} about the middle class and are only on the side of the rich. Fine. But that means anything he’s proposing will be DOA.

    If it does pass, will it matter? The millionaires will set up shell corporations or opaque trusts that will be the income earners for tax purposes and be able to sequester the income in a way that it won’t trigger the minimum.

    And, if it does pass, are there any allowances being made for inflation? It seems like a mistake we learned in the AMT that is being forgotten.