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Tricks AND Treats

October 31st, 2011 . by economistmom

trick-or-treat-pumpkin

My column in today’s Halloween edition of Tax Notes (subscription only access) is called “Tricks and Treats Handed to the Supercommittee”–a reference to the variety of recommendations the select, bipartisan deficit-reduction “super committee” received from the various standing committees in Congress.  I will reprint the article in full next week (here and on the Concord Coalition’s website), but here’s a Cliff Notes version of the “tricks” and “treats” I listed:

Tricks:

  • Trick #1:  Big things off the table. Senate Republican tax writers took revenues completely off the table by saying that revenues should not come up relative to the policy-extended (business-as-usual) baseline.  Meanwhile, House Democratic tax writers relied on “tax the rich” revenue-side approaches (exactly the type Republicans most detest) and took Social Security–and what sounds like most of Medicare–completely off the table (concurring with AARP).
  • Trick #2:  The magic of economic growth. Republicans continue to suggest that cutting tax rates would grow the economy and hence reduce the deficit, ignoring the fact that dollar-for-dollar decreases in public saving caused by deficit-financed tax cuts are very rarely offset by anything close to the same amount in increased private-sector saving.  To this same old rhetoric, they have thrown in the claim that regulations on the financial sector should be weakened as well, for the sake of the economy.  Really?
  • Trick #3:  If (only) I were a (budget) hammer. (And not just a paintbrush.)  The budget committees can’t seem to bring themselves around to saying they could be a big part of the solution.  The Senate Budget Committee offered a bipartisan recommendation that offered to “pretty up” the budget process a little bit, suggesting biennial budgeting and some procedural changes to make the “vote-arama” in the Senate less tortuous.  No mention of how strict pay-as-you-go rules, with no exemptions for tax cuts, would make a huge difference.

Treats:

  • Treat #1:  Committees want to do their jobs. There were many letters from the committees of jurisdiction over spending programs, even bipartisan and bicameral letters (from the Agriculture and Veterans Affairs committees) emphasizing that they recognize that spending cuts are inevitable and that it would be far better to have the experts in charge of that spending recommend the best places to cut rather than have the cuts “brute forced” upon them, should the super committee fail to come up with the requisite recommendations.
  • Treat #2:  Recognizing that it ain’t easy. Several letters made it clear that indiscriminate cuts in the deficit can be damaging to both the shorter-term economic recovery and longer-term economic growth (if crucial investments are axed).  The super committee has to be mindful that not all deficit-financed policies–or policies to reduce the deficit–are created equal. And even as the committees display a lot of defensiveness, defending their own particular “territories,” their letters also make clear how all Americans benefit from different parts of the federal budget, and thus how cutting the budget and reducing the deficit will ultimately involve sacrifices from all of us. (And yes, it is a treat to be told that truth.)
  • Treat #3:  Still some common ground. There’s still a lot of quiet, behind-the-scenes discussion of the bipartisan ideas first developed within the Bowles-Simpson and Rivlin-Domenici commissions.  Revenue-raising, base-broadening, tax-expenditure-reducing tax reform that allows rates to stay low or even be reduced could be done in a progressive manner.  The Social Security and Medicare programs could be reformed such that the safety-net features of the program are actually strengthened and net benefits reduced only for the very highest-income households.  And we really could start paying for stuff “as we go along” if the budget process adopted some stronger rules with decent “teeth.”

And from my conclusion:

It seems clear that the deficit reduction supercommittee needs to direct the standing committees on what to do, not the other way around.

To spur action on bipartisan, deficit-reducing tax reform, the supercommittee needs to seek “reinforcements” in more than just the tax-writing committees. In particular, the budget committees and their oversight of strong budget process and rules should play a crucial role in setting a path for “big” and “super” deficit reduction in a limited amount of time.

The supercommittee needs to dictate a bipartisan, compromise position to the tax-writing committees, even before they get started really debating and drafting tax reform. The supercommittee needs to give the taxwriters a revenue-level target for tax reform, not just a top-rate goal or a competitiveness standard or even a Buffett rule. It needs to require taxwriters to treat tax expenditures as if they are the spending programs under their jurisdiction and require that those tax expenditures be more thoroughly scrutinized and debated. Tax provisions shouldn’t be given a free pass just because they’re already in the system. The supercommittee could also require that the revenue targets be achieved by a minimum amount of base broadening over statutory marginal tax rate increases, recognizing that reducing tax expenditures can easily be done in progressive ways and that raising revenue in those ways actually shrinks the size and scope of government…

[I]f the supercommittee creates hammer-like budget rules as part of its deficit reduction package, the budget committees would probably be happy to have an important role in tax reform. It will take active and forceful budget committees to change or advance policymakers’ thinking on what tax reform must be today — not just the old revenue-neutral variety, but the revenue-raising kind of reform.

So, there are candy-corn kernels of optimism to be found–at least in my mind–in the current state of affairs with the super committee.  Happy Halloween!

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