Cut, Cap and Balance versus Gang of 6 Deal – No contest
Posted on 22 July 2011
This week the debt ceiling talks yielded two significant proposals. Actually it was three but the third was and is an irresponsible joke that we will call the ‘Don’t blame me’ proposal. The two serious proposals were the already House passed ‘Cut, Cap and Balance’ proposal and the ‘Gang of 6′ deal. If you look at each one, it would be clear to all which one SHOULD be passed but most certainly will not because it actually does something.
CCB would do three things as the name suggests. It calls for significant REAL cuts to the budget to bring it inline with revenues. Since most people get their understanding of budgeting from the media, they probably don’t realize that most congressional CUTS are not cuts at all. They are reductions in the growth of spending. So it would be like a person who earns 100 dollars but routinely spends 120 and is planning to spend 150 the next 100 dollars they get. A senator comes along and suggests that this person restrict their spending to 120 dollars from now on. Poof! That’s a 30 dollar spending cut. But our spender is already spending 20 dollars beyond their means. So the cuts in CCB would be real cuts. So our spender would be forced to cut to at least something less that 120.
I am jumping ahead but that is where balance comes in. Since we don’t just want to keep spending outside of our means, we have to balance. That means that spender has to cut back to 100 OR earn an additional amount equal to what he spends. Since government doesn’t earn, it only taxes or promotes growth to increase revenue, that is the harder side of the equation. When you consider that historical tax receipts as a percentage of GDP routinely range only between 14-20 percent (OMB tables available on Whitehouse.gov) taxation cannot be your only answer. That is because if you raise taxes too high, tax compliance goes down as people either do not pay or create aggressive tax avoidance strategies. Balance would be enforced via a Balanced Budget Amendment to the constitution.
And let’s not forget Cap. We know that it would be very difficult to put years of unsustainable spending growth back to balance immediately. However, by creating enforceable CAPS that are triggered toward spending imbalances, we could track a path toward deficit reduction that is predictable. So our spender may be able to balance, but they might have a three year deficit (60 dollars). So we might agree that he would cut 20 additional dollars each year for the next three to get in balance. That would mean he gets to spend only 80 dollars. Sounds very similar to what you do at home doesn’t it?
It is interesting that according to a CNN poll that they are not advertising, Americans like CCB by a margin of 2-1. Yet Harry Reid calls this the worst piece of legislation ever devised. Which should tell you something.
What about the gang of 6 proposal? The issue here is less about the alleged substance and more about the methodology. I will save the substantive issues for a later day as some of them have merit (tax code rewrite, cuts to various programs, etc). The issue with this plan is that it is not legislation at all. It is a promise that Senate committees will design specific proposals in the future to address doing what it says it is going to do. Remember the concept of passing the bill so you could see what’s in it? Do you trust that any committee in the senate will produce real spending cuts or even if you believe in tax hikes, will produce a tax regimen that doesn’t wind up hurting the middle class. I don’t. And I suspect most American do not either.
So the clear winner for America is CCB. Which is why this Congress and President will not do it.
2 responses to Cut, Cap and Balance versus Gang of 6 Deal – No contest
So, which greedy corporations are funding this silly web site?
George Soros.