Columnist David Wessel actually went through all six deficit-reduction plans released today. His takeaway? It’s all about the size of government. “The right sees government at about 20% of gross domestic product, the left at 23% or 24%,” writes Wessel. “The difference is huge, both in dollars (about half a trillion a year in taxes and spending) and in a range of policies.” Which policies, exactly? Defense, taxes and health:
On defense, a fifth of government spending, there’s simply a gap among the six plans in the Peterson exercise (in the neighborhood of $200 billion a year between right and left) on how much to give the Pentagon once Afghanistan and Iraq wind down.
On revenue, the differences aren’t only about whether to boost taxes — the big one — but also about how to tax the people. No one much likes today’s income tax, but there’s little consensus on alternatives. Four of the Peterson groups (spanning the ideological spectrum) would impose a carbon tax, both to raise money and resist climate change. Three (on the left) endorse a tax on financial transactions. Mr. Domenici and Ms. Rivlin offer a 6.5% national sales tax.
But here’s the headline: All six would curb income-tax breaks, loopholes, deductions and credits, a.k.a. “tax expenditures” or “spending through the tax code,” because Congress uses them as alternatives to explicit spending. “Until recently,” the Peterson Foundation observes, “tax expenditures drew little scrutiny outside budget circles, but the Bowles-Simpson commission put [them] at the center of the public policy debate.” This unanimity points to the likelihood that any tax increases to which Republicans acquiesce in a deficit deal will curb tax expenditures rather than raise tax rates, perhaps even touching (while not eliminating) tax breaks for mortgages and employer-financed health insurance.
On health, there’s agreement — duh! — that reducing future deficits requires restraining health-care spending, and that means Medicare. But the exercise demonstrates that agreement stops there. There are two fundamentally different approaches. One relies on market forces, making beneficiaries pick up more of the tab and relying on them to be discerning shoppers and on competition among providers and insurers to control costs. The other relies more on government muscle, enforcing aggregate caps on spending and shifting Medicare from fee-for-service to give providers incentives to care for the whole patient, not to sell individual services. In short, the debate isn’t only about how much savings to squeeze from Medicare, but also about which unproven avenue to restraining health costs is best.