The Center for American Progress Gets Specific

Today, the Center for American Progress released a plan to get specific on our growing deficits and debt. Or, rather, they've released five illustrative plans, specifically endorsing one--the 50/50 plan--as a balanced compromise.

Basically, they fashioned this report in the same way they did "A Thousand Cuts" (and we did for the tax side). CAP takes the Fiscal Commission's goal of having primary budget balance (the budget excluding interest) by 2015--which they estimate would require reducing the 2015 deficit by $255 billion--and present illustrative options with mixes of 0 percent, 33 percent, 50 percent, 67 percent, and 100 percent spending cuts/tax increases. They specifically endorse the 50/50 option, but as they say, they "are not endorsing a 50-50 split for reaching primary balance as a matter of principle," instead their "specific approach to doing so." CAP correctly states that only using one side of the budget equation would be politically unfeasible and often socially and economically undesirable.

We won't get into the 0, 33, 67, and 100 percent options much. Basically, the revenue side relies mostly on more progressive taxation through various surtaxes and raising rates. The spending cuts--at their largest--involve all areas of the budget, including tax expenditures.

We will, however, go into the 50/50 plan. The revenue side includes three main proposals:

  • Impose surtax of two percent on adjusted gross income between $1 million and $10 million and a surtax of five percent for AGI above that
  • Eliminate the payroll tax cap on the employer side
  • Impose $5 per barrel fee on imported oil

The spending side hits most areas of the budget, though its cuts are mostly concentrated in defense and tax expenditures. These cuts are:

  • Make mostly acquisition reductions in defense
  • Make small cuts to wide variety of non-defense programs/agencies, such as the FAA, ICE, NASA, and NIH
  • Eliminate many corporate welfare tax expenditures
  • Switch to the chained CPI throughout the federal government (including Social Security COLAs)
  • Reduce farm subsidies

The distribution of the plan by category is presented in the table below.

CAP 50/50 Plan Savings (billions)
Category 2015 Savings
Upper income surtax $30
Payroll tax cap elimination $76
Imported oil tax $21
Subtotal, Taxes $127
Mandatory $22
Defense $59
Non-defense discretionary $12
Tax expenditures $35
Subtotal, Spending Cuts $128
Total Savings $255

One notable absence from their plan is health care. CAP says that they would like to wait and see on the effects of health care reform, and that they don't believe much additional savings could be realized by 2015. While we agree that the Affordable Care Act can bring in significant savings from health care spending, we believe that there are other reforms that could be undertaken in conjunction with ACA to get bigger savings. 

Which brings us to a big flaw in the plan: the myopic 2015 goal. Deficit reduction proposals, even if they have a medium-term goal, should keep the long-term in mind. While it might not be practical to get meaningful savings in health care in the next few years, it is obviously our biggest long-term budget issue, one that needs to be addressed in every plan. The same goes with Social Security. CAP's two provisions for Social Security would not ensure solvency by themselves and they do not even mention solvency in their report. In their defense, though, they do say that getting to primary budget balance by 2015 is only a "big first step" in addressing our budget issues. We'd be interested to see their long-term proposals.

This plan does have some flaws, but the possibility for some bipartisan support makes it an intriguing progressive plan. We thank CAP for getting specific and hope that policymakers take into acount all of the plans that have come out; especially the bipartisan, majority vote this past week on the Fiscal Commission's final plan.