Schakowsky’s Deficit Reduction Plan Is Game Changer

Rep. Jan Schakowsky’s deficit reduction proposal is a game changer: a serious, moderate, balanced blueprint for addressing the nation’s long-range fiscal challenges, by a leading progressive lawmaker. How her colleagues on the president’s deficit commission respond to it will be a test of how serious they really are about solving the deficit puzzle in a fair and equitable way.

Jan Schakowsky is sometimes described as “one of the most liberal members” of the commission. But the deficit reduction plan she released on Tuesday is moderate, sensible, and actually more effective at lowering the deficit over the next few years than the plan co-chairs Alan Simpson and Erskine Bowles tabled last week ($427 billion in savings by 2015, vs. $250 billion).

Schakowsky’s plan offers progressives a golden opportunity to highlight the differences between a fair and equitable way to tackle deficits and one that puts the vast majority of the burden on those who can least afford it. The best starting point is to look at what it doesn’t do:

  • Doesn’t include a single-payer health care plan.
  • Doesn’t impose a financial transactions tax and, as some have suggested, dedicate the proceeds to Social Security.
  • Doesn’t wipe out the enormous tax breaks for private-sector pension plans, which benefit mostly upper-income people.
  • Only includes $200 billion of additional economic stimulus through 2012.

Here’s what the Schakowsky plan does do:

  • Cuts $120.7 billion from the defense budget, largely by following the recommendations of the bipartisan Strategic Defense Task Force.
  • Eliminates some of the most egregious corporate tax breaks, including a tax subsidy for mergers and acquisitions and deductibility of interest payments on corporate debt.
  • Closes loopholes that allow corporate executives to avoid tax on compensation over $1 million a year.
  • Eliminates the cap on on earnings subject to payroll tax on the employer side, and raises it back to 90% on the employee side.
  • Carries health care reform forward by creating a public option to compete with private insurance providers, and
  • Requiring Medicare to use its bargaining power to negotiate better drug prices.

All of which makes glaringly obvious that the crucial difference between Schakowsky’s plan and Bowles-Simpson is not that it relies more on revenue-raisers than spending cuts – although conservatives will surely highlight this – but who bears the brunt of the pain. Far from being moderate and sensible, the co-chairs relies on irresponsibly extreme measures that would deliver a body blow to working households while leaving the affluent largely unharmed. Their plan would:

  • Freeze domestic spending;
  • Freeze federal employees’ salaries for three years;
  • Slash Social Security benefits for all but the lowest-income recipients;
  • Eliminate tax breaks for retirement savings plans, regardless of income level;
  • Eliminate the earned income tax credit; and
  • Hand new favors to high-income Americans and multinational corporations, for instance by lowering top income tax rates and eliminating taxation on overseas profits repatriated by multinationals.

In addition, the Bowles-Simpson package is replete with “magic asterisks”: savings from unspecified spending cuts that Congress would have to hash out later, mostly involving health care. Schakowsky, by contrast, doesn’t credit any savings except where she can specify where they come from.

Two-thirds the deficit reduction under Bowles-Simpson comes from spending cuts; only one-third under Schakowsky. The emphasis in the co-chairs’ plan is reportedly due to the demand by Republican members of the deficit commission early in its meetings that tax hikes be kept “off the table.” Bowles and Simpson have bent over backwards to oblige them, taking care to balance out any losses the wealthy suffer from elimination of tax expenditures with new tax breaks.

Which merely proves what many progressives have been saying for some time: that Simpson and Bowles – and other deficit hawks – are only interested in compromise when it means making deals with the right. When progressives offer serious, moderate, and concrete suggestions for cutting the deficit, they are ignored. Schakowsky’s proposal offers the deficit commission a chance to disprove this.

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