Former Office of Management and Budget Director Peter Orszag, now vice chairman of global banking at Citigroup, hit the nail on the head when he told Atlantic Media’s Ron Brownstein recently that “There is virtually nothing the supercommittee could plausibly do that could offset the harm from making the [Bush] tax cuts permanent” because of their very large cost.
Some supercommittee proposals would actually have been damaging to long-term deficit reduction. The plan of Republican Sen. Pat Toomey, for example, would have set tax rates well below the Bush levels and locked them in permanently. Furthermore, it would have devoted the overwhelming bulk of the revenues from reforming tax expenditures to paying for those lower rates. The result would have been that both the large potential savings from tax reform and the potential savings from allowing some or all of the Bush tax cuts to expire would have been taken off the table for the future rounds of deficit reduction the nation will need.
While fiscal commission co-chairs Erskine Bowles and Alan Simpson and the Gang of Six called for cutting rates below the Bush levels, their plans would have raised over $2 trillion in net new revenues, and produced about $5 trillion in deficit reduction overall, relative to the current-policy baseline. By contrast, the Toomey plan would have left most of the needed deficit reduction for the future (it would have achieved, at most, $1.5 trillion in deficit reduction) and secured a scant $300 billion from revenues.
As Orszag noted (and we’ve said before), a supercommittee agreement that locked in unaffordably low tax rates and made it more difficult to raise additional revenues in the future would set back the cause of deficit reduction.