If you hate the plan from the president's deficit commission, it might be for one of three reasons: (1) It sets a silly tax cap; (2) It cuts Social Security too deeply; (3) It changes health care too timidly.
I asked a senior commission official about all three critiques. Much of the conversation was on background, so here's a summary of how I presented each concern and how he responded (in italics).
Why Is Budget Maven Paul Ryan Voting No?
Rep. Paul Ryan will be the chair of the House Budget Committee and he has been thinking about deficit reform for years. Why on earth will he vote against a center-right plan that shares many features with his famous Roadmap? What more does he want?
Ryan's concerns were mostly about health care. He wants to repeal Obama's health reform in the short term, and turn Medicare into a premium support program in the long run [Quick explainer: that means making Medicare like a voucher program where seniors get a fixed amount of money based on their income, age, health, etc and they use it buy private plan].
Are the Social Security Changes Draconian?
The panel's approach to Social Security reform leans on benefit reductions more than tax increases. Liberals don't like this, because the poorest 40 percent of Social Security recipients rely on these benefits for about four out of five dollars of post-retirement income. These benefit cuts would amount to a 15 percent cut for the median retiree and a nearly 20 percent haircut for the top quintile by 2060. Is the Social Security plan too conservative?
There are certainly conservative elements to it. But ultimately, it comes down to the fact that we have a huge debt problem and spending cuts will have to be a part of Social Security reform. We need to add more revenue to the system, and we can do that by lifting the taxable ceiling. But we didn't just want to have more Social Security tax increases on top of more earned income taxes on top of higher investment tax increases on top of other tax increases.
Is the Tax Cap Silly?
The deficit commission raises taxes across the board for almost all filers but it also caps revenue as a percent of GDP at 21 percent. This is puzzling, because tax revenue as a percentage of GDP can rise during economic booms and fall during busts without tax law changing a lick. So why the cap?
As long as we're staying fiscally solvent, there's no reason that any extra tax money should NOT go back into the economy, should NOT be returned to the people and to businesses. 21 percent isn't a magic number. We don't just want to keep taxing more to spend more.
These ideas aren't crazy. The magnitude of the health care problem might force us to go there eventually. But for now, these ideas are too big and their implications are too big and their unknowns are too big for us to recommend it in 2010. Instead, we recommend a similar premium support plan for the federal workforce that would act as a kind of pilot for Ryan's ideas.
We also wanted to give Obama's health care reform a chance. There is a chance that some of the pilot projects in the Affordable Care Act will be wildly more successful than we think. In 2020, maybe we should think about premium support or something similarly extreme where the government sets prices for private sector. But for now, we wanted to be more incremental, and Ryan couldn't go along.