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The Bipartisan Policy Center vs. the Simpson-Bowles Commission

By Ezra Klein

I need to spend some more time with it, but my initial reaction to the Bipartisan Policy Center's stimulus-and-deficit-reduction recommendations is that they're more comprehensive and thoughtful than what Simpson-Bowles released, and this chart (pdf) comparing the two plans makes me more confident in that judgment. I'd note that the person on the Simpson-Bowles commission who knows the most about the deficit is probably former OMB director Alice Rivlin, and she's the principal author of the BPC's report.

By Ezra Klein  | November 17, 2010; 2:41 PM ET
Categories:  Budget  
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Comments

I don't know. Looking at the chart BPC's plan has a couple items that look less progressive. Their miltitary spending is higher and they raise revenues through a 6.5% sales tax without any mention of a gas tax, where at least Simpson-Bowles has a small gas tax.

Posted by: nathanlindquist | November 17, 2010 3:57 PM | Report abuse

Browsing the report, it seems to me that this is a truly centrist set of recommendations (which means it's too far right for me, but what you should expect from a bipartisan research group). In this case, that means that about 50% of the stuff will outrage liberals more and about 50% will outrage conservatives more. (as compared to the Simpson-Bowles report which felt more skewed to the right at 75-25)

No part of the budget is considered sacred, and there are serious cuts to both entitlements as well as defense. There are cuts in tax rates but eliminations of deductions. There also seems to be a lot of consideration of keeping the system of revenue gathering progressive.

There's reducing government benefits in many areas, but there's also using government power to reduce costs. And the authors seem to acknowledge the fact that stimulus is, you know, a real thing that helps the economy.

The sales tax will jump out at a lot of people, but so should the idea that Medicare will have to compete with private insurers. I don't completely understand their explanation in that section -- would private insurers get a subsidy from the government to keep them competitive in the 65+ market? Because otherwise of course, they'd have to charge unholy premiums to even make it worthwhile to get into that market.

Posted by: vvf2 | November 17, 2010 4:01 PM | Report abuse

nathan: True, I would have liked to see that rather than a sales tax, as well as an acknowledgment that a strong public option would reduce the deficit, as the CBO found.

http://cboblog.cbo.gov/?p=1183

Posted by: vvf2 | November 17, 2010 4:13 PM | Report abuse

Germany tried hiking its VAT from 16% to 19% on January 2007, during the midst of a strong worldwide economic boom.

http://www.dw-world.de/dw/article/0,,2026126,00.html

From 2005Q4-2006Q4, German consumption expanded by 2.7%. From 2006Q4-2007Q4, German consumption fell 1.3%. This compares to the 1.6% annualized pace of decline the U.S. experienced in consumption from 2008Q3-2009Q2.

Now consider that under this proposal not only are we going to implement a 3% national sales tax in 2012, and then pushing it up to 6.5% in 2013, but also there will be a huge fade in disposable personal income as the payroll tax holiday expires.

This suggests to me a stronger consumption surge than Germany experienced, combined with a sharper contraction - sharper than the 2008-2009 consumer recession.

With the extra money in their pockets and higher prices on the way, I can see a surge in big ticket item sales in 2011 followed by a multi-year slump.

I understand the economic benefits of taxing consumption rather than income, but I think this proposal would create a lot of volatility in economic activity, but the average growth rate for 2011-2013 would be unimpressive.

Posted by: justin84 | November 17, 2010 4:29 PM | Report abuse

in scanning the report, i am most concerned about the proposed sales tax increases as well as the proposed loss of some deductions. sales tax on the consumption side could further hurt the already struggling retail economy.
one thing i didn't see in all of the proposed federal cuts, were cuts to any federal benefits. Why can't congress, the senate and the federal employees buy their healthcare just like everyone else, or go without, as many are having to do in this economy?same thing for any pension plans...invest in 401k plans or iras, just like the rest of america. i am not sure what the total savings would be, but from a symbolic standpoint i think it would be tremendous.

Posted by: tburney | November 17, 2010 7:29 PM | Report abuse

I think that the sales tax is going to be a tough sell out here in CA, where our sales taxes can already be high (ours are 8.75%; it depends upon the county and the city. I think SF is around 10%). I think that an increased gas tax makes a lot more sense, but I don't know if the revenues generated would be equivalent.

Posted by: Beagle1 | November 17, 2010 9:20 PM | Report abuse

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