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

by Pete Sepp / /

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

  • By including defense aswell as domestic programs in its findings, the report takes a proper directionfor 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’sfinal savings from eliminating agricultural subsidies are smaller than what itsChairmen first offered – now just $10 billion through the year 2020. TheNTU/USPIRG study called for more than $35 billion in such reductions, andsooner (by the year 2015).
  • The current reportassumes that federal revenues should stabilize at 21% of Gross Domestic Product(GDP) when the historical average is closer to 18%. Just as important is thetiming of that stabilization: according to Commission projections, federalrevenues should climb to hit the 21% mark in 2025 – a full decade before federal expenditures are supposedto 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-capplan sensibly calls for a return to 2008 funding levels, but that amount wouldbe adjusted for inflation and would not kick in until 2013. NTU contends thatallowing outlays to remain high for too long, rather than bringing them downmore aggressively, poses a greater risk of harm to an economic recovery.
  • While President Obama’splan 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 somesignificant reforms in workforce size and employee benefit programs. Still,more structural moves to bring federal compensation into line with the privatesector could be needed.
  • Like its predecessor,the final plan takes solid steps to control unsustainable Social Securitygrowth, such as adjusting benefit formulas to reflect demographic and fiscalreality. However, these gains could be offset by other planks in the report tocreate new benefit programs with volatile costs as well as higher payroll taxburdens.
  • Althoughthe commission’s final outline gives more encouraging words to the need for asimpler, economically-efficient tax system, like the Chairmen’s earlier draftit envisions nearly $1 trillion in net tax increases instead of aiming for arevenue-neutral overhaul. “The latest report acknowledges that its reform blueprintcould yield higher revenues by spurring economic expansion,” Sepp observed.“Why not just allow this effect to help balance the books instead of forcingtaxpayers to pluck even more from their already-thin wallets?”
  • TheCommission commendably foresees phasing out the Alternative Minimum Tax andcreating a more logical “territorial” corporate tax system, but policymakershave yet to devise better mechanisms to ensure that tax rates will fall as thebase is broadened (thereby avoiding discriminatory tax policy toward energy andother sectors). Ultimately, constitutional rules such as a Balanced BudgetAmendment or a 2/3 “supermajority” vote requirement for tax increases will benecessary 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 inits pages but also some important reforms that have been left out,” Seppconcluded. “In the months ahead, policymakers will need to discover numerousmoments of truth about deficit reduction, starting with the realization thatthere’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, smallergovernment, and economic freedom. Note:More detailed analyses of the Commission’s final report are forthcoming. Thejoint spending-cut study NTU prepared for the Commission, along with other workon deficit reduction, is available at www.ntu.org.