Today, Obama’s fiscal commission released initial proposals to curtail the burgeoning US deficit. While it’s only a “preliminary report” and there’s no telling what, if anything from it will actually be instituted by the administration and Congress in the coming years, here are some serious game-changing recommendations:
What The Deficit Panel Wants to Cut
- Defense Spending – $200 billion in domestic and defense spending cuts in 2015. Cut weapons purchases by 15% and terminate the V-22 program while trimming F-35 purchases.
- Cutting the Bloated Government Payrolls – Cut 250,000 contractors from domestic agencies, eliminate ALL earmarks, freeze government (non-defense) salaries and bonuses over 3 years starting in 2012. Cut the federal workforce by 10% by 2020.
- Taxes/Deductions – Drop the Alternative Minimum Tax, remove most tax deductions, remove/limit the mortgage interest deduction (covered in great detail at Darwin’s Finance), and simplify tax brackets to 15%, 25% and 35%. Tax dividends as ordinary income. Finally, change the corporate tax structure as well. See all 2011 Tax Deductions.
- Social Security – Push Social Security solvency out to 75 years by reducing annual cost-of-living adjustments (see this year’s COLA furor), and to increase the retirement age from 67 to 68 by 2050, then to 69 by 2075 (I predicted this a while ago – see reaction to Social Security age increase). There is some caution in lumping in Social Security changes since that program should be reformed on its own and not counted as part of deficit reduction due to its “supposed” standalone status.
This is just the tip of the iceberg. There are myriad other cuts, but these comprise the majority of the big savings.
What It Means
The deficit panel came up with 58 total ideas, anticipated to save $200 Billion per year in spending. What’s especially shocking and demoralizing is that even with these significant cuts – leaving virtually nothing untouched, all it really does is “reduce” the annual deficit to the tune of 15% of today’s amount, and 33% of the projected 2015 deficit. To repeat, these cuts don’t actually even put us at break-even, we just wouldn’t be taking on “as much” debt as planned under the current trajectory.
Not In My Back Yard
Inevitably, EVERY group will protest ANY cuts to their interests. Homeowners will be upset to removal of the mortgage interest deduction, even though tax bracket rates are expected to drop to offset some of the pain (who knows, maybe a middle-income family like ours would actually see a benefit?). Corporations will balk at certain changes, military hawks will shudder at the notion of decreased defense spending and international aid. In the end, the only way the US can prosper is for everyone to take a haircut. That’s what’s happening in the EU and it has to happen here – countries need to be saving money rather than spending it for decades just to wipe out their debt obligations. Austerity hurts. But we’ve been running up a tab for decades with no exit strategy. So, it’s coming time to start paying up.
What Are Your Thoughts on the Recommendations?