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Archive for July 19th, 2011

The on-again, off-again “Gang of Six” has come back on the scene and is offering a “Bipartisan Plan to Reduce Our Nation’s Deficits.”

The proposal is quite similar to the one put forth by the President’s Simpson-Bowles Commission, which isn’t too surprising since some of the same people are involved.

At this stage, all I’ve seen is this summary (A BIPARTISAN PLAN TO REDUCE OUR NATIONS DEFICITS v7), so I reserve the right to modify my analysis as more details emerge (and since I fully expect the plan to look worse when additional information is available, the following is an optimistic assessment.

The Good

o Unlike President Obama, the Gang of Six is not consumed by class-warfare resentment. The plan envisions that the top personal income tax rate will fall to no higher than 29 percent.

o The corporate income tax rate will fall to no higher than 29 percent as well, something that is long overdue since the average corporate tax rate in Europe is now down to 23 percent.

o The alternative minimum tax (which should be called the mandatory maximum tax) will be repealed.

o The plan would repeal the CLASS Act, a provision of Obamacare for long-term-care insurance that will significantly expand the burden of federal spending once implemented.

o The plan targets some inefficient and distorting tax preference such as the health care exclusion.

The Bad

o The much-heralded spending caps do not apply to entitlement programs. This is like going to the doctor because you have cancer and getting treated for a sprained wrist.

o A net tax increase of more than $1 trillion (I expect that number to be much higher when further details are divulged).

o The plan targets some provisions of the tax code – such as IRAs and 401(k)s) – that are not preferences, but instead exist to mitigate against the double taxation of saving and investment.

o There is no Medicare reform, just tinkering and adjustments to the current system.

o There in no Medicaid reform, just tinkering and adjustments to the current system.

The Ugly

o The entire package is based on dishonest Washington budget math. Spending increases under the plan, but the politicians claim to be cutting spending because the budget didn’t grow even faster.

o Speaking of spending, why is there no information, anywhere in the summary document, showing how big government will be five years from now? Ten years from now? The perhaps-all-too-convenient absence of this critical information should set off alarm bells.

o There’s a back-door scheme to change the consumer price index in such a way as to reduce expenditures (i.e., smaller cost-of-living-adjustments) and increase tax revenue (i.e., smaller adjustments in tax brackets and personal exemptions). The current CPI may be flawed, but it would be far better to give the Bureau of Labor Statistics further authority, if necessary, to make changes. A politically imposed change seems like nothing more than a ruse to impose a hidden tax hike.

o A requirement that the internal revenue code maintain the existing bias against investors, entrepreneurs, small business owners, and other upper-income taxpayers. This “progressivity” mandate implies very bad things for the double taxation of dividends and capital gains.

This quick analysis leaves many questions unanswered. I particularly look forward to getting information on the following:

1. How fast will discretionary spending rise or fall under the caps? Will this be like the caps following the 1990 tax-hike deal, which were akin to 60-mph speed limits in a school zone? Or will the caps actually reduce spending, erasing the massive increase in discretionary spending of the Bush-Obama years?

2. What does it mean to promise Social Security reform “if and only if the comprehensive deficit reduction bill has already received 60 votes.” Who defines reform? And why does the reform have to focus on “75-year” solvency, apparently to the exclusion of giving younger workers access to a better and more stable system?

3. Will federal spending under the plan shrink back down to the historical average of 20 percent of GDP? And why aren’t those numbers in the summary? The document contains information of deficits and debt, but those figures are just the symptoms of excessive spending. Why aren’t we being shown the data that really matters?

Over the next few days, we’ll find out what’s really in this package, but my advice is to keep a tight hold on your wallet.

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Is America filled with tens of millions of people suffering from harsh material deprivation? That’s what the pro-redistribution crowd wants you to think, but a new report from the Heritage Foundation demolishes that stereotype.

Here are some of the most remarkable findings in the study.

For most Americans, the word “poverty” suggests destitution: an inability to provide a family with nutritious food, clothing, and reasonable shelter. …Yet if poverty means lacking nutritious food, adequate warm housing, and clothing for a family, relatively few of the more than 30 million people identified as being “in poverty” by the Census Bureau could be characterized as poor. While material hardship definitely exists in the United States, it is restricted in scope and severity. …As scholar James Q. Wilson has stated, “The poorest Americans today live a better life than all but the richest persons a hundred years ago.” In 2005, the typical household defined as poor by the government had a car and air conditioning. For entertainment, the household had two color televisions, cable or satellite TV, a DVD player, and a VCR.

Here’s one of the most remarkable findings from the report.

…the typical poor American had more living space than the average European.

And here’s the key data on healthcare and nutrition.

The typical poor American family was also able to obtain medical care when needed. By its own report, the typical family was not hungry and had sufficient funds during the past year to meet all essential needs. …Consumer items that were luxuries or significant purchases for the middle class a few decades ago have become commonplace in poor households. …On average, the poor are well nourished. The average consumption of protein, vitamins, and minerals is virtually the same for poor and middle-class children. In most cases, it is well above recommended norms. Poor children actually consume more meat than higher-income children consume, and their protein intake averages 100 percent above recommended levels. In fact, most poor children are super-nourished and grow up to be, on average, one inch taller and 10 pounds heavier than the GIs who stormed the beaches of Normandy in World War II.

So why does this issue matter? Because the left understands that an agenda of redistribution is more likely to be successful if they can deceive the American people about the true scope of poverty. This polling data cited in the report shows why the left is so anxious to perpetuate falsehoods about how many people suffer from genuine deprivation.

…a poll conducted in June 2009 asked a nationally representative sample of the public whether they agreed or disagreed with the following statement: “A family in the U.S. that has a decent, un-crowded house or apartment to live in, ample food to eat, access to medical care, a car, cable television, air conditioning and a microwave at home should not be considered poor.” A full 80 percent of Republicans and 77 percent of Democrats agreed that a family living in those living conditions should not be considered poor.

Last but not least, we find out that a bad situation may become even worse. The left already uses a grossly exaggerated definition of poverty for political gain. But that’s not enough. As I noted in an earlier post, the Obama Administration wants to use a new methodology that would – no joke – show that there is more poverty in America than Bangladesh.

There is a vast gap between poverty as understood by the American public and poverty as currently measured by the government. Sadly, President Barack Obama plans to make this situation worse by creating a new “poverty” measure that deliberately severs all connection between “poverty” and actual deprivation. This new measure will serve as a propaganda tool in Obama’s endless quest to “spread the wealth” and will eventually displace the current poverty measure. Under the new measure, a family will be judged poor if its income falls below certain specified income thresholds or standards. There is nothing new in this, but unlike the current poverty income standards, the new income thresholds will have a built-in escalator clause. They will rise automatically in direct proportion to any rise in the living standards of the average American. …Another paradox of the new poverty measure is that countries such as Bangladesh and Albania will have lower poverty rates than the U.S.—even though the actual living conditions in those countries are extremely low—simply because they have narrower distribution of incomes, albeit very low incomes.

There is one thing that’s worth adding to all the good information cited from the study. Regardless of how the poverty rate is defined, the massive increase in federal spending on anti-poverty programs has been a terrible failure. Trillions of dollars have been spent since the “War on Poverty” began, but the poverty rate has been flat, averaging about 13 percent.

But what’s most remarkable is that the poverty rate was steadily falling before the so-called War on Poverty began. In other words, once the federal government began subsidizing poverty, we stopped making progress.

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