Making a deal
Date posted: September 6, 2011
Legislation that increased the debt limit set up the commission charged with further reducing future increases in the national debt. If a plan is agreed to, what do the people in the know think will be in it? N.C. State University economist Mike Walden responds.
“Well… when discussions about the debt ceiling increase were going on, you heard sort of two sides. You heard a side that wanted to emphasize tax changes. You heard a side that wanted to emphasize spending changes. People in the know, primarily people who analyze politics, say that probably to hit any big deal you’re going to have to include both.
“And the outline of a deal may be something like this: On the tax side, actually tax rates — the rates that we pay for on our individual income we earn — may be lowered. But what we would maybe find is we would have fewer deductions and exemptions and credits to take.
“So, what the implication there would be the tax base would be broadened, but tax rates would be pushed down. Some think that would satisfy folks who don’t really want to really raise taxes, because actually rates would be going down.
“On the spending side as we’ve talked before, adjustments will have to be made in the big three programs — Social Security, Medicare, Medicaid. They may involve things like increasing the eligibility ages, increasing the amount of money that recipients have to contribute limiting benefits for higher income recipients. That’s something that’s not been done.
“Big question on the tax side will be will the initial changes be revenue neutral. Although they could start out revenue neutral, they may not be in the long run. So, anyway, this may be the broad outlines of a plan. We’ll have to see what the commission of the president and the Congress set up reports back in December.
“But many in the know think this is what a plan that will be agreed upon would actually have to include.”
Category: Economic Perspective