Deficit Comish: "Add another 100b to the Tab"

There is a possibility that only one recommendation by the Deficit Commission ("DC") will be embraced and enacted into law. The joke of American history would be if the proposal considered actually added a $100 billion to the deficit.

These folks spent nine months in a room dreaming up ways to attack a lethal disease. They came up with dozens and dozens of ideas that probably should be kicked around. As far as I’m concerned they lost the battle and the war on this critical issue by coming up with something that is completely outside of their mandate. How dare the DC propose something that turns the clock the wrong way:
Congress should consider a temporary suspension of one side of the Social Security payroll tax, financed by transfers from general revenue…..this would cost $50-100 billion in lost revenue.

Whether or not the US should have a tax holiday is a matter for the Administration, the new congress and the American people. For the DC to pitch this it taints everything else.

There are no additional details on the tax holiday plan. That is convenient. They refer to “one side” of they payroll tax. This means they want to reduce taxes for wage earners, but they don’t want to reduce them for employers. This comes to $625 for the 160mm covered workers (assumes a total $100b tax break). As ‘checks from helicopters’ go this is a pretty big amount. But it is not a check. It is a reduction of a tax so income goes up but it only comes to $12 a week on average. That’s not going to change anything. This money will find its way to the Wal-Mart to buy goods from Asia. It will have zero lasting benefit and other than some temp work at the big boxes it will do nothing for employment.

DON’T get me wrong. In my book zero stimulus is the right number. My point is that what the DC has proposed is just some candy. It makes them look silly.

I thought this slide from the appendix was interesting.

The GDP numbers translate into these growth rates:

These are estimates for what I call 'top line' GDP. Notice the hockey stick of growth that we are going to experience from 2011 to 2014. To get to real GDP you have to subtract an inflation number. Possibly the DC consulted with Bernanke on this. To get 6% growth in 2013-14 you have to have a lot of inflation. Ben probably told the commission that he would guarantee 4% inflation for those years. That would put real growth around 2.0%. Note also that in the critical period 2011 to 2020 there is no period of economic slowdown much less a recession.

Short of a big jolt in inflation we will not see that level of economic expansion. The DC plan is built on a economic model that will not be realized. Who’s kidding who?