Discussion: (0 comments)
There are no comments available.
View related content: Monetary Economics
In December 2010, the President’s Fiscal Commission failed to garner the necessary supermajority to pass its plan to reduce the deficit by $3.9 trillion over ten years. Now, with the Congressional Joint Committee on Deficit Reduction, commonly known as the Super Committee, starting work on its effort to propose $1.5 trillion in deficit reductions, some have speculated that history is about to repeat itself. However, a closer examination of the two bodies’ purpose, structure, and powers reveals a night-and-day difference–the Super Committee is designed to succeed, while the Fiscal Commission was not.
First, the two bodies have different purposes. The Fiscal Commission’s goal was to identify “policies to improve the fiscal situation in the medium term and achieve fiscal sustainability over the long run,” exactly the type of high bar grandiose objective that has led to failed attempts to solve the gridlock on fiscal reform for decades. The Super Committee’s target, while insufficient to completely solve our country’s long-run fiscal challenges, is big enough that lawmakers have within reach the means to make a significant step forward in addressing our fiscal imbalance.
The Super Committee requires only a simple majority vote to recommend a plan. The Executive Order that established the Fiscal Commission required a supermajority vote (14 of 18 Commissioners) to pass its recommendations. Furthermore, one-third of the Fiscal Commission members were private citizens, appointed by the President, who did not face the political constraints that make deficit reduction so difficult. All members of the Super Committee are Senators and Representatives and were chosen by the Congressional leadership.
“The Super Committee will need to think hard and fast if it is to design a better tax system with less government meddling and lower tax rates.” – Alex Brill
Most importantly, the Super Committee is embedded in the legislative process. While the Fiscal Commission was established by an executive order with the President as the intended audience for its recommendations, the Super Committee was established by law, and its recommendations are guaranteed expedited consideration in Congress with no opportunity for filibusters or amendments. It is a lawmaking exercise, first and foremost. And furthermore, a sliding scale backstop ensures that if the Super Committee’s policies save less than $1.2 trillion within the budget window, automatic across-the-board spending cuts will sop up the remaining deficit reduction target. The prospect of automatic cuts to both defense and nondefense spending beginning in 2013 gives the Super Committee an incentive to succeed that the Fiscal Commission never had.
While each of the 18 members of the Fiscal Commission were truly dedicated to their task, success was not in the design. They had no means by which to overcome the structural limitations under which they were organized. With a simple majority requirement, a truly bipartisan structure of only lawmakers, and the real threat of sequestration, the new Super Committee is designed to succeed.
Despite its obstacles, the Fiscal Commission made some good tax policy proposals, whose intent the Super Committee would do well to heed. First, support for curtailing “tax expenditures” and reducing individuals’ statutory tax rates was enjoyed by most if not all Commissioners, and is sound tax policy. Lowering tax rates is always a pro-growth reform, and base broadening, if properly constructed, can be too. Second, a majority of the Commissioners favored reducing the corporate statutory rate and moving toward a territorial tax system, which would also promote growth and economic efficiency.
Not all aspects of the Fiscal Commission’s tax plan promote growth and efficiency. For example, the Commission’s proposal to raise the tax rate on capital gains and dividends would discourage capital formation and reduce wage growth over time. The Super Committee certainly should not make the tax burden on capital formation higher than it already is. In fact, pro-growth base broadening must distinguish carefully between the changes that promote efficient allocation of resources and those that discourage saving and investment.
The Super Committee’s job is a challenging one, especially considering their November 23 deadline for a vote on a deficit reduction package. In addition to finding mandatory spending cuts and entitlement reforms, the committee faces significant hurdles in translating the broad income tax recommendations of the Fiscal Commission into legislative reality.
Transition rules may prove quite complicated, and the day when the tax code can be rid of most tax expenditures could be a decade from now. And the members must wrestle with the politically sensitive questions of what tax expenditures to protect and what overall level of tax burden is appropriate. These problem are not insurmountable, but with just ten weeks to work, the Super Committee will need to think hard and fast if it is to design a better tax system with less government meddling and lower tax rates.
Alex Brill is a research fellow at AEI.
There are no comments available.
1150 17th Street, N.W. Washington, D.C. 20036
© 2015 American Enterprise Institute for Public Policy Research