Wednesday, May 11, 2011

Kent Conrad Caves

From: National Review Online

to the socialist wing of the Democratic Party. From The Hill:

[Senate Budget Committee chairman] Kent Conrad (D-N.D.) on Tuesday presented a budget proposal to Senate Democrats that calls for an even balance — 50 percent to 50 percent — of spending cuts and tax increases to reduce the deficit.

The emerging consensus on Capitol Hill is there should be at least $4 trillion in deficit reduction over the next 10 years. To meet that goal, Congress would have to increase tax revenues by $2 trillion over the next decade with an equal amount of spending cuts.


Conrad has moved his budget proposal to the left in order to gain the support of Sen. Bernie Sanders (I-Vt.), an outspoken progressive on the budget panel. Sanders has called for “shared sacrifice” in reducing the deficit and wants to increase taxes on families earning over a $1 million a year.

That is a far cry from the Bowles-Simpson commission’s proposal to employ a 3-to-1 ratio of spending cuts to tax increases, which Conrad supported. Truth be told, Conrad had long been a sensible player when it came to deficit reduction, but that hardly seems to be the case anymore if he is letting an avowed socialist (Sanders) drive the budget debate within the Democratic conference.

Sen. Jeff Sessions (R., Ala.), top Republican on the Senate Budget Committee, is not impressed. “I think that is a clear capitulation of the Democratic leadership to the left,” Sessions tells National Review Online. “I’m confident Senator Conrad would have done more with the budget if the Democratic conference had gone along with him.”

“Certainly it will not get a single Republican vote,” he adds. “This is a statement that they’re moving a partisan budget, without any expectation of Republican support.”

UPDATE: More details about Senate Democratic budget emerge:

Millionaires would be hit with a 3 percent surtax under a draft Senate Democratic budget.

A Senate aide told The Hill Wednesday that the draft 2012 budget outline presented at Tuesday’s Democratic policy lunch by Senate Budget Committee Chairman Kent Conrad (D-N.D.) called for a 3 percent surtax on income over $1 million a year.

Conrad’s proposal would use a 50-50 split of spending cuts and tax increases to reduce the deficit, and was seen as a move to the left to satisfy progressives in the Senate Democratic caucus.

The leftward shift is also sure to play a role as Democrats lay down a marker in discussions over raising the $14.3 trillion debt ceiling with Republicans, who have said the House GOP budget is their starting point.

Still, the surtax could have trouble winning support among the more centrist Senate Democrats. Sen. Sheldon Whitehouse (D-R.I.), a Budget Committee member, said Wednesday that no final decision had been made on whether to include that sort of idea in the 2012 proposal.

UPDATE II: Conrad says he has been delaying the markup hearing on his budget in part because he is waiting for a new “path” from the Congressional Budget Office that incorporates the savings from the recently passed FY 2011 continuing resolution (the so-called “budget deal”) that would reduce federal spending by about $750 billion over the next decade.

At issue is the extent to which Conrad can “take credit” for those savings or whether they are effectively built in to a new established baseline. Obviously, Conrad would love to have a “free” $750 billion towards his proposed $2 trillion in spending cuts. In fact, when President Obama outlined his “new” “budget” “plan” last month in a speech at George Washington University, incorporating these news savings (that he had vociferously opposed) was about the only significant change he “proposed” (apart from extending the traditional 10-year budget window to 12 years).

If Conrad is unable to count those savings as spending cuts, his entire budget could fall apart, particularly given the Democratic conference’s complete unwillingness to cut spending.

Either way, Conrad has not made clear as to what baseline he is using to score his $4 trillion in deficit reduction. As it stands, the CBO’s baseline already assumes a $4 trillion tax increase as a result of the Bush tax rates expiring and the Alternative Minimum Tax not being patched. So for all we know, he could be calling for a tax hike of $6 trillion.

UPDATE III: Not that Conrad doesn’t know this as well as anyone, but their is no shortage of research to suggest that, among countries trying to stabilize their debt problems, those that rely too heavily on tax increases as compared to spending cuts fare far worse.

Noted Harvard economist Alberto Alesina, for example, recently concluded: “Spending cuts are much more effective than tax increases in stabilizing the debt and avoiding economic downturns. In fact, in several episodes, spending cuts adopted to reduce deficits have been associated with economic expansions rather than recessions.”

More here.

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