Why the House GOP will deep six the Gang of Six

July 20, 2011

Will the House GOP play ball on the Gang of Six debt reduction plan? The Paul Ryan-led House Budget Committee is giving members all the ammo they need to take a pass (bold is mine):

Heavy Reliance on Revenues. The plan claims to increase revenues by $1.2 trillion relative to a “plausible baseline.” It also claims to provide $1.5 trillion in tax relief relative to the CBO March baseline. The CBO baseline assumes the expiration of tax relief, resulting in a $3.5 trillion revenue increase. As a result, the plan appears to include a $2 trillion revenue increase relative to a current policy baseline. If the $800 billion in tax increases from the new health care law are included, the plan appears to increase revenues by $2.8 trillion, without addressing unsustainable health care spending that is driving our debt problems.

Elusive Spending Restraint. It is unclear how much the plan achieves in spending savings. Based on released documents, it appears to primarily rely on cuts in the defense budget through $886 billion in reductions from the President’s budget for “security programs.” In the security category the Gang of Six reduced the security category by $886 billion. Department of Defense (DOD) spending comprises approximately 85% of the security category. The Gang of Six also proposes a firewall that requires this $886 billion is cut from security spending.

Lack of Entitlement Reform. The plan does not address the $1.4 trillion in spending expansions in the new health care law. The health care law increases eligibility for the Medicaid program by one-third and creates a brand new health care entitlement. It does not appear to include reforms to the Medicare program. While it appears to pursue Social Security reform, it could end up creating barriers to enactment of these reforms.

I mean, the stunningly massive tax hike alone is a deal killer, I would think. Now there are some parts Team Ryan seems to like, and maybe they could get added to the McConnell-Reid plan, such as repealing the CLASS Act and various budget reforms. But more than that? I doubt it.

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I concur Mr. Pethokoukis. If one considers the ordinary baseline is revenues of 18% of GDP, that would translate into about 2.7 trillion dollars. That is 27 trillion over 10 years. Increasing taxes by 2.8 trillion dollars means an increase of over 10% of all federal tax collections. That is an enormous tax increase in times of good economy and probably a disastrous increase in times of bad economic news. Gallup just came out yesterday with news unemployment in creased in the first half of July. If that persists it means unemployment in early August will increase. Another potential problem few people realize is that the extra 280 billion dollars will probably not come from the “rich”. Recall the expiration of the tax cuts is thought to bring only 70 billion dollars a year. Either we will soak them by increasing their rate not by 4.6% but rather 18.4% or there will be tax increases for all the 53% of people who indeed pay income taxes or a massive increase in corporate taxes.

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