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The Debt Commission Plan: No Deal

The wonks have finally gone through the debt commission's plan, and the findings are... not so good. The Center on Budget and Policy Priorities -- a liberal group more favorable to deficit reduction than most liberals -- goes through the main problems here. In short, there's too much pain imposed on people with low incomes.

More problematically, the Tax Policy Center has broken down the distribution of the tax changes. The commission's plan would be more progressive, and would tax the rich at higher rates, than the Bush era tax code. But it would be less progressive and would tax the rich at lower rates than the Clinton-era tax code.

That's a total non-starter. The Bush tax cuts are slated to expire, and President Obama has stated he will not accept a permanent extension. You can argue either side of which policy baseline -- Bush-era tax rates or Clinton-era tax rates -- is the fair baseline to start from. But the fact is that the Bush tax cuts are slated to expire. Liberals don't need to do anything to get Clinton-era rates on the rich to return. There's simply no way Democrats can agree to assume Bush's low, low tax rates on the rich as a starting point, and then have the commission claw back some of those rates. That would mean rich's people's contribution to shared sacrifice would be something that is slated to happen anyway. I understand the need to trim back the welfare state, but we're not going to trim it back far enough for the rich to enjoy sub-Clinton-era levels of taxation.

I would really like to see some kind of bipartisan agreement to reduce the deficit, and I understand it would require changes that people like me would not impose if we had our druthers. That's the nature of making policy in a polarized environment with a supermajority Senate requirement and a public opinion landscape hostile to almost any specific measures to raise revenue or reduce outlay.

But it's worth keeping in mind that, while liberals may not have a strong hand, conservatives have an even weaker hand. First of all, the default option is for spending to rise rapidly. Second, much as conservatives like to imagine that tax revenue determines the size of government, in fact spending levels determine the size of government. Third, while the public doesn't want to raise taxes to pay for the level of government it prefers, it wants to cut spending even less. When push comes to shove, liberal priorities such as lower defense spending and higher taxes, especially on the rich, are a lot more popular than cutting Social Security or Medicare.

Conservatives do have a couple advantages. They have the ability to exact a high political price if Democrats attempt to put the government on sound fiscal footing without their consent. They've done this with taxes, in 1993 and other times, and they did it with the Affordable Care Act, a crucial element in curtailing health care cost inflation.

The long-term deficit is a kind of mutually-assured destruction scenario, where two adversaries must cooperate, though each has an incentive to push for cooperation on the most advantageous terms. In a scenario like this, a player who cares less about the consequences of failure, or can persuade his opponent that he cares less, has a commanding advantage. Republicans have gained such an advantage by demonstrating a total disregard for the consequences of deficits and the apparently genuine embrace of lunatic fiscal doctrines like supply-side economics and "starve the beast." (Imagine how the Cuban Missile Crisis would have played out if Khrushchev was convinced America's nuclear arsenal was harmless, and Kennedy knew this.)

Republicans screamed loudest about the debt commission, and in so doing persuaded the commission to tailor its plan to their liking. The closer one looks at the Bowles-Simpson plan, the more clear it becomes that this is not the appropriate basis for a compromise.

The commission's plan has some useful concepts. But, as Paul Krugman points out, having some useful concepts isn't enough:

what on earth are people who say things like, “This proposal can be a starting point for discussion” thinking? We’ve been discussing and discussing, ad nauseam; the commission was supposed to provide a finishing point for discussion. Instead, it produced a PowerPoint that is one part stuff that has long been on the table, one part conservative wish-list, and one part just weirdly ill-considered.

Again, liberals should expect a fiscal adjustment to do a lot of things they wouldn't do if they could design a solution on their own, because the ideal liberal solution isn't politically feasible. But there's a floor and this plan falls below it. What's more, as Mark Schmitt argues, there are other fish in the debt commission sea:

With the thing going nowhere, Simpson and Bowles seem to have simply grabbed whatever they had on the table and declared it a plan, hoping it would get the others engaged. Instead, it seems to have made the whole project irrelevant.
That’s why I’m more interested in the deficit-reduction report that is due this Wednesday from the task force assembled by the Bipartisan Policy Center's task force, chaired by former OMB Director Alice Rivlin and former Sen. Pete Domenici. And there’s a set of people in Washington, mostly not elected officials, who understand the federal budget inside out, who (I think) wouldn’t produce the kind of amateurish product that is Simpson-Bowles.

Sadly agreed. There will probably need to be a debt commission, but not this debt commission.