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Press Release


Taxpayer Group: Fiscal Commission’s Final Report, Like Its First Draft, Is a Work in Steady but Limited Progress

December 2, 2010
By Pete Sepp

(Alexandria, VA) – Just as the initial draft from its Chairmen did three weeks ago, the final report from President Obama’s deficit reduction commission has made good progress toward slimming federal expenditures, but its proposals to fatten federal coffers need more revision. That’s the view from the 362,000-member National Taxpayers Union (NTU), which today provided supplemental remarks to those NTU gave last month on the commission’s first document. Among the findings:

  • By including defense as well as domestic programs in its findings, the report takes a proper direction for spending reduction. Many recommendations comport with a joint study NTU and the U.S. Public Interest Research Group (USPIRG) sent the commission five weeks ago, but fall short in several areas. For example, the commission’s final savings from eliminating agricultural subsidies are smaller than what its Chairmen first offered – now just $10 billion through the year 2020. The NTU/USPIRG study called for more than $35 billion in such reductions, and sooner (by the year 2015).
  • The current report assumes that federal revenues should stabilize at 21% of Gross Domestic Product (GDP) when the historical average is closer to 18%. Just as important is the timing of that stabilization: according to Commission projections, federal revenues should climb to hit the 21% mark in 2025 – a full decade before federal expenditures are supposed to drop to 21% of GDP. “Americans have been burned before by the ‘tax first, cut later’ approach, and they need reassurances that it won’t happen again,” NTU Executive Vice President Pete Sepp noted.
  • The discretionary spending-cap plan sensibly calls for a return to 2008 funding levels, but that amount would be adjusted for inflation and would not kick in until 2013. NTU contends that allowing outlays to remain high for too long, rather than bringing them down more aggressively, poses a greater risk of harm to an economic recovery.
  • While President Obama’s plan for a two-year freeze in federal civilian pay was a modest step forward, the commission has been bolder in outlining a three-year freeze with some significant reforms in workforce size and employee benefit programs. Still, more structural moves to bring federal compensation into line with the private sector could be needed.
  • Like its predecessor, the final plan takes solid steps to control unsustainable Social Security growth, such as adjusting benefit formulas to reflect demographic and fiscal reality. However, these gains could be offset by other planks in the report to create new benefit programs with volatile costs as well as higher payroll tax burdens.
  • Although the commission’s final outline gives more encouraging words to the need for a simpler, economically-efficient tax system, like the Chairmen’s earlier draft it envisions nearly $1 trillion in net tax increases instead of aiming for a revenue-neutral overhaul. “The latest report acknowledges that its reform blueprint could yield higher revenues by spurring economic expansion,” Sepp observed. “Why not just allow this effect to help balance the books instead of forcing taxpayers to pluck even more from their already-thin wallets?”
  • The Commission commendably foresees phasing out the Alternative Minimum Tax and creating a more logical “territorial” corporate tax system, but policymakers have yet to devise better mechanisms to ensure that tax rates will fall as the base is broadened (thereby avoiding discriminatory tax policy toward energy and other sectors). Ultimately, constitutional rules such as a Balanced Budget Amendment or a 2/3 “supermajority” vote requirement for tax increases will be necessary to protect taxpayers from long-term fiscal irresponsibility.

     “The title of the commission’s report, ‘Moment of Truth,’ describes not only many of the recommendations contained in its pages but also some important reforms that have been left out,” Sepp concluded. “In the months ahead, policymakers will need to discover numerous moments of truth about deficit reduction, starting with the realization that there’s no substitute for honest spending restraint.”

The 362,000-member NTU is a nonpartisan, nonprofit citizen group founded in 1969 to work for lower taxes, smaller government, and economic freedom. Note: More detailed analyses of the Commission’s final report are forthcoming. The joint spending-cut study NTU prepared for the Commission, along with other work on deficit reduction, is available at www.ntu.org.