Bailout

The deficit commission?s plan

By Felix Salmon

The pair of deficit commission reports (draft here, list of illustrative cuts here) is depressing on both the big-picture and the little-picture level.

The big picture is in this chart — the proposal gets most of its juice after 2020. Which just happens to be the point at which growth in health-care costs automagically is brought down to GDP + 1% “by establishing a process to regularly evaluate cost growth, and take additional steps as needed if projected savings do not materialize”. But healthcare inflation is a gruesomely difficult nut to crack, and if the CBO simply assumed that it could be solved so easily in 2020, its projections would look much rosier too.

Beyond that, the biggest savings proposed by the commission are in various parts of the federal payroll. Nothing else remotely moves the needle: the next biggest saving, beyond the punt of the “cut-and-invest committee”, comes from a reduction in the rate of growth of foreign aid. (You’d think that one could find pretty substantial non-personnel costs in the defense budget, but evidently not: a few cuts like the V-22 Osprey don’t even begin to generate savings until 2015.)

Meanwhile, some of the small savings have to be seen to be believed. The deficit commission, charged with coming up with a bold plan to bring the nation’s finances into order, really does propose:

• Increasing the amount of time spent on instant messenger, to reduce travel costs;
• “Reduce copying use by putting the default option on copiers to double-sided”;
• Merging the Commerce Department with the Small Business Administration;
• Charging a fee to Smithsonian visitors.
• Etc.

There are some good ideas in this report, and it’s definitely good that people are talking openly in public about raising the retirement age (very slowly: it only hits 69 in 2075) and phasing out mortgage interest tax relief.

On the other hand, bold ideas in terms of new taxes — carbon taxes, wealth taxes, Tobin taxes, consumption taxes, you name it — are nowhere to be seen: as Jonathan Chait says, this is “a plan that’s tilted, overwhelmingly, toward Republican priorities”. Which means a large dash of wishful thinking, a bunch of tax cuts (!), and even a cap on the amount of tax revenues that the government can bring in. How that’s meant to help reduce the deficit I have no idea.

Full post as published by Macroprudential on November 10, 2010 (boomark / email).