Policy Documents

The Deficit Panel’s Best (and Worst) Ideas

Eli Lehrer –
November 11, 2010

There will be lots of ink spilled on the National Commission on Fiscal Responsibility and Reform’s report over the next few weeks. I haven’t read the report but have seen a leaked set of slides and the co-chair’s statement.   After a quick look at, here are some thoughts as to best and worst ideas in the Commission’s plan:

Five Good Ideas:

1. Using a More Accurate Calculation of the CPI: Nearly all economists who have looked at it seriously agree that the current calculation of the consumer price index tends to overstate inflation. This tends to increase social security spending and, since tax brackets are indexed for inflation, reduce revenue.

2. Containing Overall Healthcare Spending: The commission recommends containing overall health care spending to inflation plus 1 percent.  This may well mean that out of pocket health care costs will rise for many people but, of course, it’s ridiculous that rich seniors get subsidies.  (That some of the methodologies recommend doing this seems very problematic to me.)

3. Raising the Social Security Retirement Age: An increase in the social security retirement age is certainly a political hot-button. But, with people living longer, it’s absolutely necessary.

4. Limiting Tax Expenditures: Like Ronald Reagan’s 1986 tax reform, the Deficit Commission’s plan (at least what I’ve seen of it) reduces marginal rates while closing loopholes and eliminating special favors in the tax code.

5. Cutting the Army Corps of Engineers Budget and Requiring Inland Waterways to Pay Their Own Way: There are lots of domestic spending cuts that make a lot of sense but this one, which is highlighted by the commission, is particularly good. Federal water policy has, for decades, damaged the environment and supported big business. This policy won’t only save money, it will protect the environment too. (A well known environmentalist literally hooped and hollered when he heard this was in the report.)

Five Bad Ideas:

1. Instituting Net Tax Increases: In all likelihood, some types of taxes—gas and payroll taxes—are going to have to go up to avoid a total train wreck. At least until there’s a very strong recovery (and maybe not even then) raising income taxes isn’t a good idea. Although it cuts rates, the proposed plan will increase the actual tax bills for many Americans. Bad idea.

2. Instituting a Minimum Social Security Benefit: Although this idea has a number of high-profile supporters (including some on the right) it would demolish the concept that Social Security is social insurance and transform it into some type of welfare.  Even if such a minimum-income for the old is a good idea (and it has a number of serious high-profile supporters), it’s probably best to fund it outside of Social Security.

3. Not Balancing the Budget: The plan doesn’t get to a balanced budget until 2037 which, basically, means “never.”

4. Not Making Enough Defense Cuts: America needs a strong military and should be able to beat any country in the world. But the Pentagon continues to invest in weapons needed to fight one-on-one battles with other nation states. This just isn’t necessary. We can fight terrorists pretty well without doing it.

5. Eliminating Funding for Commercial Spaceflight: Ever since it first landed men on the moon in 1969, NASA has struggled to find a purpose. The Obama administrations’ plans—which focus on seed funding for private companies—promises to improve access to space (which has enormous defense and commercial utility) without spending more money. Cutting off the private sector now would be a mistake. Cutting the non-scientific portion of NASA’s budget—everything from airplane research to the international space station—will offer more savings and do more good than ending funding for commercial spaceflight.