Deficit Panal Draft

On Wednesday (November 10th), the "bipartisan" Deficit Reduction Commission released (Wall Street Journal) a preliminary draft of the proposals being considered for inclusion in its final report due on December 1st.  All things considered it may well be a good first step to reducing the federal budget deficit and helping to simplify our overly complex tax code.  We'll see what actually gets included in the final report (having to be approved by 14 members of the 18 member commission).

The draft is being attacked for either overly restricting the ability of the federal government to spend our money (by the left) or not going far enough in reducing the size of government (by the right).  The plan certainly has flaws, but we would be foolish not to expect those in what is going to be a compromise.

Here is what I think is good about the draft proposal:

• Elimination of the AMT
• Lowering of corporate tax rates
• Simplifying the individual tax rate brackets
• Increasing the age at which you get full Social Security (It's not like they proposed raising it immediately and the fact of the matter is that Social Security wasn't designed to provide retirement benefits for decades as it is currently doing for many of its recipients.)
• Reducing some itemized deductions for a much higher standard deduction.
• NO  VALUE ADDED TAX!!!! (My biggest fear with regard to this commission was that it was going to suggest a value added tax as a supplement to the current income tax system, that it wasn't mentioned at all is a huge plus.)

What I don't like:

• Taxing capital gains at ordinary rates
• Means testing social security benefits (You put money into the system and you shouldn't be penalized because you "don't need it".  That wasn't the "agreement" when you started putting money into the system and it shouldn't be able to be changed now.)
• Ensuring permanent deficits (If spending and revenue are capped at the same amount (21% of GDP), you can be assured that the amount to be spent will always reach the cap, but there will be plenty of times when the revenue won't reach the cap.  This ensures that the federal debt will never be paid down.)

Overall, I think the proposal is a good starting point.  It will be interesting to see what actually gets seriously considered by the President and Congress.