The Wall Street Journal is reporting on some of the recommendations that the Deficit Commission is considering including in its final recommendations. At least according to this article, the focus will be on closing major tax breaks to raise revenue, rather than meaningful spending reductions.

As the WSJ explains:

Sacrosanct tax breaks, including deductions on mortgage interest, remain on the table just weeks before the deficit commission issues recommendations on policies to pare back with the aim of balancing the budget by 2015.

The tax benefits are hugely popular with the public but they have drawn the panel’s focus, in part because the White House has said these and other breaks cost the government about $1 trillion a year.
At stake, in addition to the mortgage-interest deductions, are child tax credits and the ability of employees to pay their portion of their health-insurance tab with pretax dollars. Commission officials are expected to look at preserving these breaks but at a lower level, according to people familiar with the matter.

The officials are also looking at potential cuts to defense spending and a freeze on domestic discretionary spending. It is unclear if the 18-member panel will be able to reach an agreement on any of the items by a Dec. 1 deadline.

I would be sympathetic to phasing out many of these tax breaks, in the context of comprehensive tax reform (simplifying the tax code, eliminating reductions, and lower the tax rates on the broader tax base). The mortgage deduction, for example, has encouraged Americans to carry huge mortgage debt, buy more house than they need, and left them vulnerable to a big drop in housing prices (like we’ve experienced in the last few years). The health insurance tax break also has distorted the health insurance market, in particular since only those who obtain insurance through employers get a break, leaving those in the individual market disadvantaged.

Yet the problem here is that the Deficit Commission seems to think that the government’s problem is that it’s suffering from a lack of revenue, and therefore they are considering just proposing a spending freeze on discretionary spending, rather than on actual cuts, while hunting for ways to take more from the private sector to sustain the bloated government beast.

Lack of revenue isn’t the problem. Yes, there’s been a dip in receipts during this recession, but the big picture has been of growth in receipts, but growth in spending that far outpaced growth in receipts.  Tax revenue is expected to bounce back in the next few years (according to the President’s most recent budget), but the problem is that spending is already so high and growing so fast that it will be very tough for revenues to catch up.  

Taking more from the private sector isn’t the answer. The Deficit Commission needs to refocus on the root of the problem which is on overspending.