Jan's Plan

Nov 17, 2010 | Taxes| Other Spending

For about a week now, we've been telling critics of the Co-Chairs' Plan to throw ideas, not stones. So, good for Jan Schakowsky.

Rep. Schakowsky (D-IL) is a member of the fiscal commission, who has expressed disapproval of the Bowles-Simpson plan. She has now released a plan of her own- a progressive alternative to the Co-Chairs' proposal. Whereas Bowles-Simpson cut $2 of spending for every $1 of tax increase (excluding interest), Schakowsky does the opposite, raising $2 in taxes for every $1 of spending cuts. The plan does not give year-by-year deficit and debt numbers, instead focusing on the 2015 deficit reduction number: $430 billion. This is about $60 billion more than the Co-Chairs' proposal would cut in 2015. It would be interesting, though, to see how the plans would compare in a broader timeframe.

The categories are broken down in the table below.

Deficit Reduction by Area of Budget in Schakowsky Plan
Category2015 Savings (billions)
Non-Defense Discretionary$9
Defense$111
Mandatory$25
Tax Expenditures$133
Revenue$152
Total$430

Getting more specific, on discretionary spending, she focuses on defense, although she makes some very small cuts in non-defense areas, including a few programs that often are cited in other deficit reduction plans, such as the Market Access Program and the Overseas Private Investment Corporation. On defense, she largely builds off of the options put forth by Bowles-Simpson while also including further reductions in personnel, procurement, and RDT&E along the lines of the Sustainable Defense Task Force.

On the mandatory side, not much is here, though she does make some effort on health care. She would establish a public option in the new health insurance exchange among other things and has a few options that haven't been scored yet: one that would establish a public option for Medicare Part D and one that would force Medicare to negotiate for lower prescription drug prices. The only other change to the mandatory spending side is a 50 percent cut in farm subsidies. Since Social Security cuts were widely criticized by progressives, there are no benefit cuts included in the plan.

The revenue side does a lot of lifting. The tax expenditure side deals with many corporate subsidies--the largest being limiting the deduction for corporate interest payments to a 25 percent credit--while leaving the large individual tax expenditures untouched, besides offering up eliminating the mortgage interest deduction for second homes in the "additional options" section. As for new revenue, Schakowsky would treat capital gains as ordinary income, make the estate tax more progressive, and enact a cap-and-trade regime (rebating half of the revenue). In total, the revenue side brings about $285 billion in 2015. This does not include her Social Security solution, in which the payroll tax cap is eliminated and an additional three to four percent tax is enacted on income above the cap.

The plan also includes a $200 billion stimulus for the next two years based on what would best increase employment. Some of her listed ideas are unemployment insurance, FMAP, and food stamp benefit extensions; increased funding to localities; and infrastructure spending.

An obvious glaring weakness of the plan is that by failing to sufficiently address entitlement costs (especially health care), the debt would start to grow again rather than being stabilized at a reasonable level. This plan can be seen as an option to deal with the medium-term problems, but certainly not the long-term one. And yes, it is incredibly weighted towards tax increases as a solution, given that the long-term problem is a spending problem, but to her credit, Rep Schakowsky does get specific in providing a progressive alternative.

Next step is that we hope folks start offering plans that not only address the deficit and debt, but have a prayer of getting bipartisan support (which it would seem the Bowles-Simpson plan does.) Not an easy task, we know, but a necessary component of turning any plan into actual policy.