Tuesday, July 19, 2011

The New 'Gang Of Six' Plan In The Senate - A Tax Increase With Minimal Spending Cuts

A great deal of noise is being made today about a new 'bipartisan compromise 'brewing in the Senate on the budget deal, sparked by some senators known as 'the Gang of Six'.

This group - Senators Kay Bailey Hutchison (R-Texas), Kent Conrad (D-N.D.), Mike Crapo (R-Idaho), Dick Durbin (D-Ill.), Saxby Chambliss (R-Ga.) and Mark Warner (D-Va.) came up with a compromise plan that involves two bills - a $500 billion spending cut now and a later reform bill that supposedly will generate an additional $3.2 trillion in deficit reduction in ten years. The later bill, of course is left vague and largely left up to congressional committees who are only required to meet specific savings targets, although it mandates an $80 billion defense cut and an $11 billion cut in agricultural spending that still protects food stamps.

Conrad said 74 percent of the plan’s deficit-reduction goal would come from spending cuts and 26 percent from 'higher revenues'. It's described by Democrats as a 'balanced' approach, which always means higher taxes to these people.

Here's the reality. The chief source of 'higher revenues' involves repealing the Alternative Minimum Tax, slowing or eliminating Social Security cost of living increases and closing some ill-defined 'loopholes'. The problem is that the plan also assumes that the Bush tax cuts, scheduled to disappear at the end of 2012 will stick around without actually mandating it. The bill says the finance committee is mandated to simplify the tax code to three tax brackets : of 8-12 percent, 14-22 percent and 23-29 percent, but that won't happen until the second bill is passed in the House and Senate and then reconciled. And there's no guarantee it will be. After all a bill like this, that leaves the details vague is going to take a long time to iron out and reconcile before it gets voted on. Meanwhile, the first bill can be shoved through the Senate without delay, with no guarantees that the second bill won't get stonewalled.

Not only that, but even if a second bill does get through the Senate the Democrats control the Senate, and all of the committees. They will write the tax and entitlement changes to suit themselves, and then look for a couple of Republican votes to push them through. And it then stands a good chance of dying in the GOP controlled House, which means it dies - an dPresident Obama gets another campaign talking point.

There's also nothing to stop President Obama from simply allowing the Bush tax cuts to die in 2012, when the election is over. Remember whom we're dealing with and that the president proposed exactly that as part of his 'grand bargain'. That translates into minimal spending cuts and an estimated $3 trillion tax hike, based on CBO numbers with the AMT being repealed and the Bush tax cuts expiring.

What the Gang of Six plan translates as is a GOP surrender. If it goes through the House and Senate, President Obama gets a victory he doesn't deserve, the way is clear for huge tax increases and the debt ceiling gets raised for a paltry $500 billion in spending cuts.

No wonder President Obama loves it.

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