Henry Aaron on the Deficit Commission

Henry Aaron, probably the most respected public sector economist in the country has offered a take on the report of the Bowles/Simpson commission. Here are some highlights:

● The plan calls for a reduction from baseline in federal health care spending of about one-third by 2040, but doesn’t say how that target will be achieved.

● The plan would block grant Medicaid, which would increase the marginal cost to the states of Medicaid— benefit levels and coverage—by anywhere from 100 percent to more than 200 percent. The result would be powerful incentives to cut benefits.

● The plan presents four options for modifying the tax system, but doesn’t endorse any. All would tax capital gains as ordinary income, which means doubling the rate on them.

● All tax plans would end or curb deductions for charitable contributions. That would curtail the capacity of the private sector to provide relief to vulnerable populations, at the same time that the principal programs supporting these very populations – Medicare, Medicaid and Social Security -- would be slashed.

● The deductions for mortgage interest and property taxes would be curbed or eliminated—this, during the most severe housing price collapse in at least seventy-five years.

● Deductions for contributions to IRAs, Keogh plans, and 401k plans would be ended.

● Social Security benefits would eventually be cut by 25 percent for people earning $43,000 today and by 40 percent for those earning $100,000. Note the double whammy—less Social Security and no tax-sheltered savings plans. The plan actually contains some modest increases in Social Security benefits, so that it actually increases the deficit until well after 2020

● The plan says it would fix the Medicare fee cuts for doctors scheduled for next month, but it doesn’t say how – other than to establish a new payment system to reduce costs and improve quality.

● The plan would freeze salaries of federal employees for three years, cut the federal work force by 10 percent, and dump 250,000 contract employees. To offset these cut backs, the plan calls for an increase in productivity of federal workers, but it doesn’t say how.

This report, which is apparently supported only by the two chairman, has to go down as the most useless expenditure of human time in the history of the United States. The commission was supposed to bring an actionable plan that could be voted up or down by Congress. Instead we have a hodge podge of half-baked proposals that are not only not actionable, but are ridiculous on their face.