Competing Deficit Reduction Plans from Nonprofit Think Tanks

May 26, 2011; Source: Wall Street Journal | The Peter G. Peterson Foundation has made the nation's fiscal health its top priority, issuing analyses and challenges to a wide variety of economists to solve the federal fiscal mess. Recently it gave six national think tanks each $200,000 to generate fiscal sustainability plans that the Congressional Budget Office would be able to score for 10 and 25 years in the future.

According to WSJ, two of the think tanks are on the left side of the political spectrum (the Economic Policy Institute and the Roosevelt Campus Network), two on the right (American Enterprise Institute and the Heritage Foundation), and two "in between" (the Center for American Progress and the Bipartisan Policy Center), though most people would probably move John Podesta's CAP to the politically left wing column. The Journal offers a helpful tip to think of CAP as a proxy for President Obama, Heritage for Republican House Budget Chairman Paul Ryan, and the BPC whose plan was drafted by retired Republican Senator Pete Domenici and longtime Democratic financial expert Alice Rivlin for the Bowles-Simpson fiscal commission whose report was pronounced DOA virtually before the ink met paper.

According to the Journal, "(t)he big takeaway is this: The debate over how to reduce the deficit is truly a philosophical one about the size of government. AEI and Heritage get there by cutting spending and cutting taxes-and cutting spending more. EPI, by contrast, gets there by spending more and taxing more-and increasing taxes more. The right sees government at about 20% of gross domestic product, the left at 23% or 24%."

A big area of disagreement is not only how much to tax, but how. The carbon tax is popular with all but Heritage and AEI. Half of the think tanks in this exercise call for a tax on financial transactions, and Domenici and Rivlin support a 6.5 percent national sales tax.

Particularly important however is this WSJ comment: "here's the headline: All six would curb tax 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." Nonprofits know that some parts of their finances are in those tax code items. NPQ will look at the specific proposals of the six thank tanks on this score and report back to our readership. – Rick Cohen