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Opinion

Opinion

Compromise possible for super-committee

August 6, 2011

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Conventional wisdom holds that the congressional super-committee established by the debt-ceiling deal to propose further deficit reduction will go nowhere. I’m not so sure. There is a grand compromise to be had. It does, however, require precise sequencing. To succeed it must proceed in three stages:

1. Tax reform.

True tax reform that removes loopholes while lowering tax rates is the Holy Grail of social policy. It appeals equally to left and right because, almost uniquely, it promotes both economic efficiency and fairness. Economic efficiency — because it removes tax dodges that distort capital flows (and thereby diminish productivity) while cutting marginal tax rates (thereby spurring growth). Fairness — because a corrupted tax code with myriad breaks grants deeply unfair advantage to the rich who buy the lobbyists who create the loopholes and buy the lawyers who exploit them.

Which is why the 1986 Reagan-Bradley tax reform was such a historic success. It satisfied left and right, promoted efficiency and fairness, and helped launch two decades of almost uninterrupted economic expansion.

But didn’t that agreement take years to hammer out? Yes. Today, however, the elements are already laid out by the Simpson-Bowles commission. The super-committee doesn’t have to reinvent the wheel. It simply has to make choices.

2. Revenue neutrality.

Every dollar of revenue raised by stripping out a loophole is to be returned to the citizenry in the form of lower tax rates. Initial revenue neutrality avoids ideological gridlock over tax hikes and ensures perfect transparency during any later alterations of that formula.

Start with the obvious boondoggles, from the $6 billion a year wasted on ethanol subsidies to your Democratic perennials — corporate jets, oil company breaks, etc. That’s the fun part. Unfortunately, whacking that pinata yields but pennies on the dollar. The real money is in the popular tax breaks: employer-provided health insurance, mortgage interest and charitable contributions. Altering some of these heretofore politically untouchable tax breaks would alone be a singular achievement.

I’d suggest abolishing the health care exclusion, which encourages wasteful medical spending. I would also gradually abolish the mortgage-interest deduction. Start by excluding second homes and mortgages greater than, say, $500,000. Lower that threshold by $100,000 chunks as the housing market meets certain threshold indexes of recovery.

As for charitable contributions, here I go soft. I’d leave the deduction intact on the Madisonian grounds that subsidizing private charity — donations to institutions chosen by the citizens, not the state — disperses power and strengthens civil society, the principal bulwark against state domination.

Your preferences will be different. So will the super-committee’s. It doesn’t matter. What’s important is to make choices that are deep, radical and revenue-neutral.

But, you say, is not the committee’s mission to reduce debt? This, as yet, does nothing. Correct. But it’s the indispensable premise for achieving the ultimate in debt reduction:

3. The Grand Bargain.

Once you have serious revenue-neutral tax reform in place, the ideological horse-trading that is required for massive deficit reduction — tax hikes versus entitlement reform — can begin.

Republicans will resist the former, Democrats the latter. But tax-reform-first makes possible the compromise that eluded John Boehner and Barack Obama. Boehner was willing to increase revenues by $800 billion. Obama was reputedly ready to raise the Medicare age and change the Social Security cost-of-living formula.

Remember: Tax reform will already have slashed rates radically. In one Simpson-Bowles scenario, the top rate plunges to 23 percent. Conservatives could at that point contemplate increasing net revenues by slightly tweaking these new low rates, say, back to Reagan’s 28 percent, still much lower than the current 35 percent and Obama’s devoutly desired 39.6 percent. The deviation from revenue neutrality would yield new tax receipts for the Treasury, in addition to those resulting from the economic growth stimulated by the lower rates.

Democrats would have to respond by crossing their own red line on entitlements. That means real structural changes. That means raising the Medicare and Social Security ages, indexing them to longevity (until 70 becomes the new 65) and changing the inflation formula. Perhaps even means-testing Social Security (after one has recouped what one originally paid in).

The result of such a grand bargain would be debt reduction on a scale never before seen. World confidence in the American economy would rise dramatically. Best of all, we would be back on the road to national solvency.

It can be done. In three months. In three stages.

— Charles Krauthammer is a columnist for Washington Post Writers Group. His email is letters@charleskrauthammer.com.

Comments

soothsayer 3 years, 4 months ago

Fire Obama next November. Problem solved.

cato_the_elder 3 years, 4 months ago

Fire Obama and all liberal Democrats next November. Problem solved.

Richard Heckler 3 years, 4 months ago

When will democrats learn three things?

  1. Following the economic direction of Tea Party Neoconservative Christian Fundamentalists frustrates the entire planet

  2. That government MUST step up to the plate = establish a major 3 year job program that does not include USA industry and USA banks yet will employ millions upon millions. Banks and USA industry do not want to employ Americans.

  3. I want my tax dollars putting people to work making money and creating new economic growth. This is a best bang for the tax buck. Rehabilitate federal highways, rehab sidewalks in every community = healthy for Americans and bring on clean collar employment.

Retaining Bush tax cuts,not saving $4 trillion and putting forth zero job bills obviously was not the answer.

Neither Tea Party neoconservative republicans nor democrats stepped up to the plate

What was missing from the deal? A budget that would have saved $4 trillion.

Plus Millions of new jobs that would create new economic growth and the “Peoples Budget” that which does everything this country needs:

* Creates good-paying jobs
* Fully maintains our social safety net
* Invests in education
* Ends our costly wars
* Closes the tax loopholes that have made offshoring jobs profitable
* Ends oil and gas subsidies that pollute our country at taxpayer expense
* Creates a national infrastructure investment bank to help us make intelligent investments for the future

The “People's Budget” represents not just common sense; it represents the will of the American people.

What the “Peoples Budget” does very specifically:

http://cpc.grijalva.house.gov/index.cfm?sectionid=70&sectiontree=5,70

http://www.npr.org/2011/04/15/135435883/the-nation-obama-should-fight-for-peoples-budget

http://www.democracynow.org/2011/4/14/while_obama_touts_compromise_with_gop

http://www.thenation.com/blog/159939/fighting-peoples-budget

Flap Doodle 3 years, 4 months ago

FORGET the people's budget! Read the PEOPLE"S cube. http://thepeoplescube.com/peoples-blog/it-s-not-a-credit-downgrade-it-s-a-moral-upgrade-t7599.html Not reading the people's cube = dumb and irresponsible and planet killing !!!!

Getaroom 3 years, 4 months ago

And where there is a post from Merrill there is "snappy popping off" and besides, who needs the Crackle with all that other noise. Haven't we seen that post before Snappy? So much cutting and pasting must be exhausting. Always so informative and planet saving Snappy. Gosh! I wonder how this blog would survive without your enlightening responses to your arch rival Merrill. The Peoples Cube, a marvelous alternative to Faux News, I bet Krauthammer is jealous of you having gained all that wisdom. Did you get your journalism degree from Beck University? Sure, believe everything you read and hear on TPC and The FOX Hackers Network = intelligence and truth killing drivel. You must be a member of the super super super super wealthy club Snappy. That means you are providing all those millions of jobs you super wealthy people promised - right? Keep shooting your self in the foot Snappy Popping Off - at least until that secret muslim socialist fascist dictator takes your guns and ammo away.....blablablablabla.

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