Huffpost Politics
Dan Froomkin Headshot

Second Group Of Deficit Hawks Calls For Regressive National Sales Tax

Posted: Updated:

WASHINGTON -- The nation and its workers remain in grave economic distress, but it's a bull market for alarmist Washington insiders coming up with draconian solutions to projected fiscal problems that might or might not arise years from now.

A second group came out with a deficit reduction plan Wednesday, exactly a week after the two chairmen of President Obama's fiscal commission floated their controversial draft recommendation. (A third group also has some advice as well.)

This latest group hails from the Bipartisan Policy Center, and its signature proposal may end up being a whopping 6.5 percent national "Deficit Reduction Sales Tax" -- just the sort of thing that is devastating to people who live on a budget while not really mattering so much to the rich.

In its quest to control health care costs, the group also recommends significant increases in Medicare premiums in the short term. And after 2018, Medicare beneficiaries would either be forced to pay out of pocket for any and all cost increases more than one percent greater than the growth rate of the economy -- or they would be invited to leave the government program entirely and find private insurance instead. That would no longer be Medicare as we know it -- or as future retirees expect it.

The group's next most major recommendation for cutting healthcare spending is the imposition of an excise tax on the manufacture and importation of beverages sweetened with sugar or high-fructose corn syrup.

Like the plan from presidential commission chairmen Erskine Bowles and Alan Simpson, this one also would significantly reduce Social Security benefits for most retirees. It doesn't technically call for an increase in the retirement age, like Bowles-Simpson does, but it accomplishes essentially the same thing under another name.

This plan would "index the benefit formula for increases in life expectancy" starting in 2023. In both cases, the net result would be lower monthly benefits. It would also dramatically reduce benefits by changing the calculation of cost-of-living adjustments, and by chopping checks for top quarter of beneficiaries.

Meanwhile, much like Bowles-Simpson, it would actually lower income tax rates for the rich (albeit while removing hugely lucrative deductions). There would be two individual income tax rates, 15 percent and 27 percent, instead of the current six rates that range up to 35 percent. The corporate rate would drop to 27 percent from 35 percent. Capital gains would be taxed at a higher rate, as ordinary income.

Almost all deductions would be wiped away, including the deduction for employee-paid health insurance. The mortgage interest, charitable donation and retirement savings deductions would be replaced with a capped 15 percent credit.

And unlike the most dramatic of the tax options put forth by Bowles-Simpson, this one would not eliminate the earned income tax credit or the child care tax credit, two crucial boons to low earning families.

But the latest proposal is in some ways even more regressive and cowardly than the earlier one, most notably in its imposition of the sales tax and its cloaking of what would be staggering cuts in government programs under the guise of freezes and caps to be enforced by automatic triggers. Discretionary government spending would be frozen at 2011 levels, ostensibly saving $2.1 trillion by 2020.

In the plan's one acknowledgment of the current jobless recovery, the group endorses a one-year payroll tax holiday. Allowing both employees and employers to keep the 6.2 percent Social Security tax they would otherwise pay on salaries would put more money in employees' pockets and, by removing what is essentially a tax on employment, would create 2.5 to 7 million new jobs over two years, according to the group's report.

Former Republican Senator Pete Domenici -- who co-chaired the panel along with former Federal Reserve Vice Chairman Alice Rivlin -- introduced the report on Wednesday using cataclysmic rhetoric.

"We confront a quiet killer that is eating away at the foundation of America," Domenici said -- twice, in fact, just to make sure reporters got it all down. "Every part of government must share in this sacrifice so this quiet killer will not eat us alive before we have a chance to fix what is our doing," he said.

In a Washington Post op-ed this morning, the duo described theirs as "a bold, comprehensive plan."

Rivlin insisted that the end result of all the tax changes would result in a system that is "slightly more progressive," as well as "definitely simpler and pro growth."

But Dean Baker, the co-director of the progressive Center for Economic and Policy Research, told HuffPost Wednesday that for the super-rich, what matters most is the tax rate. "My best guess is that the vast majority of these people come out way ahead," he said.

And Baker took issue with the whole thrust of the report. "It's silly and misleading because the deficit problem, contrary to what they say, is a healthcare problem." His group's healthcare budget deficit calculator allows you to see that if U.S. healthcare costs were comparable to those in other countries, there would not be a deficit problem.

But the new report offers no solutions there. "They don't propose reducing healthcare costs, they propose reducing what the government pays for healthcare. And it's really a fundamental dishonesty," Baker said.

The plan also doesn't consider any sort of Wall Street financial speculation tax, or financial transaction tax.

Baker said he also doesn't get either report's focus on cutting tax rates for the rich. "I'm just amazed that here we have this 'huge deficit problem' and all they seem to be able to think about is how to reduce tax rates," he said.

All three of these deficit-reduction plans are the product of a particular class of Washington policymakers who consider it a sign of their seriousness that they worry about imaginary problems rather than real ones.

Perhaps, with federal borrowing costs at their lowest levels ever, what we need are not more deficit commissions, but a growth commission or a jobs commission.

UPDATE at 2:19 PM ET:

"Neither plan recognizes that America needs recovery and prosperity, not austerity," Tamara Draut, a vice president at Demos, a progressive policy group, said in a statement about the Domenici-Rivlin and Bowles-Simpson plans. "Growing the economy again through public investment is the fastest, fairest way to address our fiscal challenges.

"Of the many fiscal policy proposals offered thus far, only one -- Rep. Schakowsky's Nov. 16 plan -- has asked the core question that will determine the extent of American greatness in the 21st century: what will it take to grow and secure the middle class?"

UPDATE at 5:42 PM ET

Deficit hawks everywhere are celebrating!

A (not very bipartisan) press release just issued by the Bipartisan Policy Center summarizes the praise its plan has received from the Chamber of Commerce, the Concord Coalition, the Committee for a Responsible Budget and the Peter G. Peterson Foundation.

*************************

Dan Froomkin is senior Washington correspondent for the Huffington Post. You can send him an e-mail, bookmark his page; subscribe to his RSS feed, follow him on Twitter, friend him on Facebook, and/or become a fan and get e-mail alerts when he writes.

Register To Vote