The New York Times is reporting that the bipartisan deficit reduction committee appointed by President Obama early this year has produced a draft report of its recommendations:
WASHINGTON — A draft proposal to be released Wednesday by the chairmen of President Obama’s bipartisan commission on reducing the federal debt calls for deep cuts in domestic and military spending starting in 2012, and an overhaul of the tax code to raise revenue. Those changes and others would erase nearly $4 trillion from projected deficits through 2020, the proposal says.
The plan would reduce Social Security benefits to most future retirees — low-income people would get a higher benefit — and it would subject higher levels of income to payroll taxes to ensure Social Security’s solvency for at least the next 75 years.
The article is quite terse. Among the elements of the proposal appear to be reducing marginal income tax rates, eliminating or curtailing some current deductions, some form of means-testing Social Security, raising the Social Security retirement age, military spending reductions, and a 3:1 ratio of spending cuts and revenue increases. I endorse all of those measures, at least in principle.
However, there are some things that fill me with foreboding. The NYT article doesn’t mention further cuts in Medicare spending. Without reductions in federal healthcare spending all other measures will be in vain. And then there’s this:
The Senate majority leader, Harry Reid of Nevada, and Representative Nancy Pelosi, who will remain the House speaker until January, have promised in writing that the Senate would vote first and, if it approves a plan, the House would vote as well.
Should the package of proposals fall short of the necessary 14 votes in the deficit commission, as many people expect, proponents of deficit reduction, including some administration officials, hope that at least some of its recommendations could be the basis of efforts to pare deficits once the economy fully recovers.
The emphasis is mine. Fully recovers to what? Some sectors of the economy will never recover to the heights they saw just a few years ago. The prices of tulip bulbs have never gone back to the levels they saw during the Tulip Mania of the 17th century and that was nearly 500 years ago. We were in the midst of a bubble a few years ago, for goodness sake.
What desperately needs to happen is for the Congress to act decisively and then to stop. The uncertainty will be as killing to the economy as the deficit and the current misallocation of resources that the last couple of years have seen the Congress dutifully bronzing for eternity.
Is the panel’s report dead on arrival? If that’s the case I’m afraid we’ll have a choice between deflation and hyperinflation. Our creditors won’t tolerate our current level of profligacy indefinitely.