Another Deficit Reduction Plan

Another Deficit Reduction Plan

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President Obama promised the chairmen of the fiscal commission that he would include some of their ideas in his 2012 budget that will be unveiled in early February. But which ones?

For an early glimpse at another source for the president’s thinking, read the proposal put forward today by the Center for American Progress (CAP), the left-of-center think tank headed by John Podesta, former President Clinton’s chief of staff and one of Obama’s closest advisers.

The CAP plan attacks the National Commission on Fiscal Responsibility Reform plan as “seriously flawed.” Instead of the commission’s 70-30 mix of budget cuts to tax increases to bring the budget into “primary” balance by 2015 (primary balance refers to spending equaling revenue before paying interest on the national debt), the CAP plan calls for a 50-50 mix on spending cuts and tax hikes. Moreover, like the plan offered by Rep. Jan Schakowsky, D-Ill., CAP skewed the budget cuts toward defense.

The CAP plan also blasted as “foolhardy” the commission’s proposal to link deficit reduction to an overhaul of the tax system. “A fundamental and massive reform of the tax code to make it simpler, fairer, and employment- and growth-oriented is needed,” Podesta wrote. “But . . . deficit reduction should not hinge on Congress and the president reaching agreement on something as complicated and contentious as comprehensive tax reform.”

Key points in the CAP plan on the spending side:

• Adjust inflation measures to more accurately reflect current spending patterns, which would cut $15 billion a year from mandatory entitlement programs;
• Cut $60 billion from the defense budget; and
• Cut $12 billion from discretionary non-defense budgets.

On the tax side, CAP would:

• Eliminate $35 billion in special corporate tax subsidies, including those targeted toward “agribusiness and insurance companies.”
• Remove the cap on the employer side of the Social Security payroll tax, which would generate $76 billion a year in new revenue for that program;
• Slap a 2 percent surtax on incomes over $1 million and an additional 3 percent on incomes over $10 million to raise $29 billion;
• And impose a $5-per-barrel imported oil tax, which would generate $22 billion and “reduce our reliance on foreign oil.”

There are a few overlaps between the deficit commission and CAP plans – corporate tax loopholes and cuts to defense spending - but not many. Look for the president to include a number of CAP-generated ideas in his budget proposal, which the Republican-controlled House of Representatives will declare it dead-on-arrival before substituting a number of the fiscal commission ideas.

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spent 25 years as a foreign correspondent, economics writer and investigative business reporter for the Chicago Tribune and other publications. He is the author of the 2004 book, The $800 Million Pill: The Truth Behind the Cost of New Drugs.