Yet another bipartisan commission is proposing a plan to cut the federal deficit. What do you think of this one? From co-chairs Pete Domenici and Alice Rivlin:
To ensure a more robust recovery, we propose a one-year “payroll tax holiday” for 2011, suspending Social Security payroll taxes for employers and employees. We also would phase in the steps to reduce deficits and debt gradually beginning in 2012, so the economy will be strong enough to absorb them.
We would stabilize the debt held by the public at less than 60 percent of gross domestic product, an internationally recognized standard; reduce annual deficits to manageable levels; and balance the “primary” budget (everything other than interest payments) by 2014.
We would dramatically simplify the tax system, establishing individual tax rates of 15 and 27 percent (from the current high of 35), cutting the corporate tax rate to 27 percent (from 35 today), ending most deductions and credits while simplifying the rest, and ensuring that nearly 90 million households no longer have to file returns. To reduce the debt, we would supplement our spending cuts with a 6.5 percent “debt-reduction sales tax.”
We would strengthen Social Security so it can pay benefits for the next 75 years by gradually raising the amount of wages subject to payroll taxes; slightly reducing the growth in benefits for the top 25 percent of beneficiaries; raising the minimum benefit for long-term, low-wage workers; indexing benefits to life expectancy; and changing the calculation of cost-of-living adjustments to better reflect inflation. We would not raise the age at which senior citizens can begin receiving benefits.
We would control health-care costs – the biggest driver of long-term deficits – by reforming Medicare and Medicaid while, starting in 2018, capping and then phasing out the tax exclusion for employer-provided health care. We would reform medical malpractice laws and help address the health costs tied to rising obesity by imposing a tax on high-calorie sodas.We would freeze domestic discretionary spending for four years and defense spending for five, both at 2011 levels, and then limit their future growth to the rate of growth in the economy.
Finally, we would cap domestic and defense discretionary spending (with tight exceptions for true emergencies) and trigger across-the-board cuts if the caps are breached; enact a strict pay-as-you-go statutory rule for tax cuts or expansions of entitlements; and enact long-term budgets for major entitlements while creating a Fiscal Accountability Commission that would recommend policy changes every five years if entitlements are exceeding their budgets.
The Social Security payroll tax holiday for an entire year would be enormously popular and would put extra money in people’s paychecks immediately. Maybe that would be the boost the economy needs. I like the flat tax in principle, but I worry that eliminating charitable deductions (if that’s part of it; the article doesn’t say) would hurt churches and other good causes. And wouldn’t a 6.5% “debt reduction sales tax” hurt the economy, taking away the good other parts of this plan might do? Caps and freezes would probably be good.
Again, what do you think? Do you have better ideas?