Where Obama’s deficit commission is headed

February 18, 2010

So, like, this thing isn’t going to work. You all know that, right? Rs pretty much have zero interest in higher taxes. Zero. And Ds pretty much have zero interest in cutting spending anywhere unless the money is shifted to some new program, as with healthcare. I read Greg Mankiw’s list of what Rs should get into turn for higher taxes

1) Substantial cuts in spending. Ensure that the commission is as much about shrinking government as raising revenue. My personal favorite would be to raise the age of eligibility for Social Security and Medicare.

2) Increased use of Pigovian taxes. Candidate Obama pledged 100 percent auctions under any cap-and-trade bill, but President Obama caved on this issue. He should renew his pledge as part of the fiscal fix. A simpler carbon tax is even better.

3) Use of consumption taxes rather than income taxes. A VAT is, as I have said, the best of a bunch of bad alternatives.

4) Cuts in the top personal income and corporate tax rates. Make sure the VAT is big enough to fund reductions in the most distortionary taxes around. Put the top individual and corporate tax rate at, say, 25 percent.

5) Permanent elimination of the estate tax. Conservatives hate the estate tax even more than they hate the idea of the VAT. If the elimination of the estate tax was coupled with the addition of the VAT, the entire deal might be more palatable to them.

Rs aren’t going for a VAT, unless maybe it replaces income, investment and corporate taxes. So the commission will fail, followed by perhaps a debt/currency market freakout. And that will be followed by calls for emergency tax increases.

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No cuts in spending until the Obama gang is gone, it appears. It is probably safe to say that Medicare and cap’n'trade are both DOA, banking re-regulation is a no-show and just about everything else on the Obama agenda – ‘change we can believe in’ – is toast. Slim pickings for the Democrats to run on in November, so more Democrat ‘retirements’ are likely. If the Republicans play it right, they can reprise Newt Gingrich’s 15 minutes of fame in 1994 and this whole progressive agenda can be tossed like so much rubbish. THEN tax cuts and spending cuts become reality. Have faith, fellow conservatives, and lots of patience.

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