As you know, the Deficit Commission released their final report, which can be found HERE. I've been reading through it, and there's something you all should know.
...It's not terrible.
We've gotten so worked up over the ridiculous early draft leaked a few weeks ago that we've dismissed it out of hand. But many of the largest problems are gone now - the EITC, child tax credit, and mortgage rate deductions all remain in effect, and Social Security payments go up by a huge margin for the lowest half of the income distribution. As the reality-based community, we owe it to ourselves to know what's really in here.
Follow me after the jump for the details.
Here are the most notable changes from the earlier, leaked version:
Tax code changes
This was one of my main complaints about the leaked plan - it got rid of all tax deductions that help the working and middle classes. However, the final version keeps the following things in place:
Earned Income Tax Credit
Child Tax Credit
Mortgage Tax Deduction (but only on primary residence)
Health Insurance Tax Exclusion
Retirement Savings Tax Exclusion
Stuff that still goes away:
Tax breaks for corporations, most notably Big Oil and Big Agra
The Carried Interest Loophole
The income tax rates go down across the board, particularly on the high end - but the most important part of the tax changes is that all income will be taxed, including dividends and capital gains! This is the main thing that keeps our tax code from being as progressive as it appears, as the rich and ultra-rich get most of their income from investments and stock options, not salary. This table from Tax Policy Center shows the effects:
Note the change in average federal tax rate or each quintile, and most notably for the top 1%. This is not the hose-the-middle-class draft that was leaked earlier.
Social Security
The most important change: this plan establishes a minimum Social Security benefit. This is huge - it'll ensure that those who are most in need will receive enough benefits to make ends meet. Check out the initial benefits for someone retiring at 65 under current law and under this proposal (via e21):
The bend points in the formula will be lowered from 90/32/15% to 90/30/10/5%, but the addition of a minimum benefit will ensure that most everyone ends up with a higher initial payment. Oh, and that new 5% bend point? That's because more people need to pay their share of Social Security taxes - the cap is being raised from $108k to $170k (in 2010 dollars).
The COLA adjustment is being reduced, from the CPI-W inflation measurement to the chained CPI-U. Many economists feel that CPI-U is a more accurate measurement of inflation, though I would argue that retirees spend money on things that see prices rise faster than standard inflation (like medicine).
Lastly, the much-talked-about increases to the retirement age. It will be raised by one year... in 2050. Another year in 2075. There will be waivers for those who still need to retire at 62.
The Economy
Lastly, no changes take place until 2012 at the earliest, and almost all take place from 2013 on, so as to not cut spending or raise taxes during a recession. Also, the plan heavily pushes a payroll tax holiday as a form of additional stimulus in 2011.
So Yeah
I'm not sure if this is a plan worth supporting, but its important that we argue against (or for) what it actually says, and not what the insane leaked draft version said. It should have been telling when Dick Durbin voted for it (and Max Baucus voted against it). He talks about his vote in this op-ed. And there's some things I really like in here. We should be pushing Congress to institute the minimum Social Security benefit and taxing capital gains/dividends as income no matter what happens to the rest of this proposal.
In short, just check out the actual final plan. It's not as bad as you think.