Are Debt Commission Recommendations Politically Viable?

President Obama tasked a commission to look at solutions to our bulging deficit.  This November 10th, 2010 NY Times article highlights their recommendations.  While many of the proposals are sure to anger various factions in Congress, I do think it is a good start.  This bipartisan commission mainly resorted to spending and tax rate cuts, but I actually think tax liability for most Americans will rise when one considers eliminating the popular mortgage interest deduction.  The deficit commission had an impossible task, but their answers focused on improving efficiency at the expense of equality.

One of the most important elements involved expanding the tax base by eliminating popular deductions, but balancing that with tax rate cuts investment and consumption.  While they propose eliminating popular corporate deductions, this would be balanced by lowering the corporate tax rate from 35% to 26%.  While the elimination of the mortgage interest deduction would be politically unpopular, that would be alleviated by an across the board tax cut.  The marginal tax rates could fall from 10% to 8% for the lowest income quintile and drop from 35% to 23% for this highest income quintile.  This change in the tax code can yield increased revenues of up to $80 billion by 2015.  This would actually simplify the tax code, but would still cause taxpayers angst when they realize how valuable those deductions are.

Cuts in Social Security and national defense are sure to upset both Democrats and Republicans alike.  In addition to raising taxes on benefits received by wealthy seniors, there are gradual plans to increase the retirement age from 67 to 69 with an exemption for non able-bodied workers that are 62 years or older.  As for national defense, this is addressed in greater detail in the November 10th, 2010 CNN Money article written by Jeanne Sahadi.  First, noncombat pay would be frozen and bases overseas would be closed.  Both measures would yield savings of about $17.7 billion.  In addition to affecting morale of our troops, one can think that our European allies would be concerned with base closings and the spector of an invigorated Russia looming in their midst.

Federal government would see a downsizing and that might be politically viable.  They hope to gain savings of $18.4 billion by cutting 250,000 contractors, along with freezing pay for federal workers for three years which would amount to $15.1 million.  That could lead to operational disruptions, but might start a shift from the public sector to the private sector and that could boost overall productivity.  Private sector employment could see a boost in talent and their production would probably result in more production of goods and services.

In summary, it is highly doubtful that all of these proposals will pass the political viability test.  However, it will serve as a wakeup call to Americans about how serious this crisis is.  Strong leadership in the White House and Congress will be necessary in letting parties from all political spectrums that tough choices have to be made.  They need to understand that tax increases and government spending cuts will not work without drastically affecting the quality of life for many segments of America.  As we look toward the new year, it is hoped that some of these provisions are seriously considered.