'The Gang of Six' Budget-Reduction Plan

By Frank Hill, Telemachus

Sometimes, wonders never cease.

For example, who would have thought that Oklahoma Senator Tom Coburn would be rising up to 'statesmanlike' status with his $9.5 trillion deficit-reduction plan called 'Back in Black' and leadership on the so-called 'Gang of Six' compromise plan now under consideration in the Senate?

When Congressman Tom Coburn was elected to the US House in the 'Revolution of 1994', he was a 'Tea Party' guy before there was even a Tea Party. Many of his ideas were viewed as 'extreme' even by some of his Republican colleagues. He had been trained as an accountant and then built and grew a family optical business which was then sold in 1978 for a considerable sum of money, we presume.

And then he made the logical career choice that any wealthy person would make after selling his or her business: He went to Medical School! He finished in 1983 and started a practice in Muskogee, Oklahoma where he still specializes in family medicine, obstetrics and allergies in his 'spare time' at home from the Senate. He has delivered over 4000 babies during his career.

Back in the founding days of the Republic, that would be called an 'Enlightenment Man'.

Today, he might become known as 'The Guy Who Helped Save The Republic!'

What does the 'Gang of Six' plan do?

It basically combines specific spending cuts and budget mechanisms to hold down future spending increases below a certain expected growth rate in return for eliminating multiple tax deductions, exemptions, preferences and loopholes.

The specifics are not public yet but there apparently is a 'downpayment' of $500 billion in spending savings to be achieved by 2015 through a combination of freezing the overall discretionary budget; instituting a 'chained' COLA adjustment for Social Security; freezing congressional pay and selling federal assets. The long-term health insurance plan, The CLASS Act would be repealed.

In return, there would be a commitment to come up with close to $3.2 trillion in additional savings over the next 6 months in the committees of jurisdiction, to be implemented over the next 10 years across all of the federal government.

In addition, the Senate Finance Committee and Ways and Means Committee are instructed to lower marginal tax rates and eliminate the Alternative Minimum Tax, the dreaded and deadly 'AMT' that many people get hit with each year without even knowing it is out there.

There are no specifics yet but it is also assumed that many tax breaks and exemptions will be curtailed or limited in return for lowering of individual and corporate tax rates, both of which would spur investment and economic activity in and of themselves.

But one key ingredient of the plan also seems to be the extension of the Bush tax cuts forever first and then work the new details of the tax plan around that presumption. Presumably, the marginal tax rates would fall but so would the numerous tax exemptions that have been surgically-implanted into the tax code over the years by wily lobbyists wearing Gucci loafers.

The net result has not been scored yet but Bloomberg is reporting that it could cut tax revenues by $1.5 trillion (by extending the Bush tax cuts forever) before it raises revenue by $1 trillion through the elimination of tax loopholes and exemptions.

There are so many moving parts to this proposal that perhaps the authors of the legislation are counting on every constituency being so blinded by their brilliance that they can't organize opposition to this 'solution' to the debt-ceiling issue during the dog-days of summer in Washington.

We'll do our best to keep you up-to-date on the developments as the fog begins to clear but here are some key things to bear in mind every time you read the news on-line (does anyone read a paper newspaper anymore?) or listen to the Mainstream Media or the Chattering Heads on cable television in the next 2 weeks:

1) We have a MASSIVE problem in the form of burgeoning debt that we simply have got to tackle for the long-term health of our economy and our children.

2) Watch out for the amount of solid, scoreable up-front spending savings that can be achieved at the outset, not 10 years down the road. The debt crisis we have is 'now' and starting to solve it 10 years from now is too late.

3) Consider the actions of the committees of jurisdiction very closely over the next 4 months in Congress as they has out the details of the reforms and spending reductions in everything from Medicare to defense. If they are not direct and easy-to-understand to the average person, then they are probably ephemeral and 'not real'.

4) Watch the reaction of Grover Norquist and his supporters of the 'No Tax Pledge'. This proposal would extend the Bush tax cuts in perpetuity AND eliminate the dreaded AMT, the most dangerous personal income tax weapon the government has to come after your earnings if not eliminated or annually indexed to inflation.

But it also might wipe out many of the tax deductions and loopholes you may enjoy, so-called 'tax expenditures' that we have written about before. Will Congress limit the home mortgage interest deduction in return for lower marginal tax rates? The charitable donation to churches, synagogues, mosques and the Salvation Army, for example?

They may just wipe out targeted tax credits and deductions such as the ethanol tax break, many of which the average American taxpayer has a below zero on the Kelvin scale chance of ever being able to use for their own personal tax returns. When was the last time you used the 'special tax rules for NASCAR venues'?

These tax exemptions were stuck in the tax code and carved out by clever lobbyists and mean this and this only: Everyone who has access to any of the thousands of special tax breaks in the US code are now paying less tax than they would if they did not have the tax provisions. Is that 'fair' to the average taxpayer?

It is for this main reason that we have been supportive of the consumption tax to be implemented once the entire personal and corporate income tax is repealed. No exemptions, except for the very poor. You are taxed based on what you consume, not on what you save or invest. Very clean and simple to understand.

But that ain't happening anytime soon. This might be our last best shot at a major deficit-reduction package and some semblance of 'certainty' at least as it pertains to the tax code.

Let's give the 'Gang of Six' a chance to become real American heroes. And if President Obama signs something that is 'real' on spending reductions and lowers marginal tax rates, maybe all 7 of them will deserve their visage on a rock near Mount Rushmore.

Just not too close.

(Editor's Note: Frank Hill's resumé includes working as chief of staff for Senator Elizabeth Dole and Congressman Alex McMillan, serving on the House Budget Committee and serving on the Commission on Entitlement and Tax Reform. He takes on politics from a fiercely independent perspective at the blog Telemachus).


  1. I am unconvinced. The devil will be in the details. I suggest reading the short analysis by Dan Mitchell at the link.


  2. I am 'reserving judgement' til the details come out.

    But regardless, we have to get a major spending reduction/budget deal to reduce this enormous debt or else they all should be fired (defeated in 2012) and we should hire some adults to go up to Congress and do it for them.

  3. Or maybe not.

    The Gang of Six plan is a farce. It's all platitudes, no specifics, and there is no chance it will pass the House. The $500 billion in "immediate" cuts are spread out over four years -- meaning less than 1/10th of near-term deficits are cut!

    We are running Greece-style 10% GDP deficits for three, going on four, years in a row. What part of Real Cuts Now is so hard to understand?

    Jeebus, just roll spending back to 2007 levels and we would be way ahead of this farce Gang of Six deal.


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