Bowles-Simpson II: A New Plan to Avoid the Sequester

By :: February 19th, 2013

With 10 days to go until the dreaded sequester—the automatic across-the-board spending cuts that most lawmakers profess to hate—the Washington drama machine is starting to get in gear. Today, President Obama stood in front a group of uniformed first responders and warned darkly of layoffs if the spending cuts kick in.

At the same time, two veteran deficit hawks—Erskine Bowles and Alan Simpson—proposed their own new framework for deficit reduction aimed at replacing the sequester.

Simpson and Bowles, who chaired a 2010 White House deficit reduction panel, presented a broad framework aimed at reducing the debt to “below” 70 percent of Gross Domestic Product in 10 years. The debt/GDP ratio has become a favorite new target for both Democrats and Republicans though, naturally, they disagree on what it should be.

Many Democrats and some progressives want to aim for about 73 percent of GDP, which is what it is today. Many Republicans and other deficit hawks are shooting for about 60 percent, which was the upper bound of member state deficits set by the creators of the Eurozone (not that it’s done them much good). For context, the Congressional Budget Office figures that under the most likely fiscal scenario, the debt will approach 90 percent of GDP by 2022.  

While Simpsons and Bowles offered few details today, their framework seems a plausible alternative to the game of sequester-and-gridlock, or what Obama calls “another manufactured crisis every three months.” Of course, the original Bowles-Simpson deficit plan was also plausible fiscal strategy. And it got no love from either the White House or Capitol Hill until after it died from lack of interest.

Their latest plan(which they say does not replace their original): Get about $2.4 trillion in deficit reduction over the next decade. Of course, every deficit reduction target is hopelessly tangled up in the many baselines that afflict the budget debate. But Bowles and Simpson say they’d cut about $1.9 trillion from CBO’s current law projections and about $4.4 trillion from CBO’s alternative fiscal scenario.

They get there through about a combined $600 billion in payment reductions and benefit cuts from Medicare and Medicaid, but no fundamental reform of either program; $600 billion from curbing tax preferences; and  $1.2 trillion from lower caps on military and domestic discretionary spending, adjusting cost-of-living increases for Social Security benefits, and cuts in farm subsidies and other programs. They’d give Congress until the end of the year to develop specific tax and spending changes to meet their targets.

Their plan attempts to steer a middle ground between the Obama Administration, which favors much more modest spending cuts, and congressional Republicans, who oppose using any new revenues to cut the deficit.

It is a perfectly reasonable alternative. As both men readily acknowledge, people will fight over the details and surely argue whether their debt/GDP ratio is the right goal. But that exercise is, or at least used to be, what the legislative process is all about.

What Bowles and Simpson are really saying is Congress and the White House should crawl out of the partisan muck of the manufactured crises Obama was complaining about. A stare-down contest does not substitute for legislating.

It is still early. With a deadline of March 1, the real drama won’t gear up for at least another week. And it isn’t likely many lawmakers will take up the Bowles and Simpson plan yet. But if Congress and Obama ever decide to actually set serious tax and spending priorities, a consensus budget could well end up looking something like what the two men proposed today.  

(Full disclosure: Bowles is a member of the Board of Trustees of the Urban Institute, which is a parent of the Tax Policy Center).

8Comments

  1. AMTbuff  ::  4:01 pm on February 19th, 2013:

    “$600 billion in payment reductions and benefit cuts from Medicare and Medicaid, but no fundamental reform of either program”

    That one element tells the whole story. A plan to close the fiscal gap without reforming the fastest-growing spending programs? I call BS.

  2. Michael Bindner  ::  6:23 pm on February 19th, 2013:

    Their plan sounds reasonable, and they usually do, however the devil is in the details. Obamacare may or may not work. Indeed, if the uninsured are inadequately subsidized or doctors are inadequately paid, either the health insurance industry will implode or doctors will stop seeing certain kinds of patients and everything will spiral out of control. The result will be single-payer insurance (if they wait too long) or a subsidized public option for the uninsurable and the poor. This will have to be funded by additional payroll taxes or some form of consumption tax on either consumers or employers (the latter if there are tax breaks for continuing to provide private care). Until this issue is resolved, it is rather silly not to kick the can down the road to late 2013 or mid 2014 – just in time for the election. In the kabuki dance that is Washington, DC, one wonders if some kind of schedule for this has already been laid out.

  3. SteveinCH  ::  8:32 pm on February 19th, 2013:

    Oh come on AMT, don’t you know the world ends at the end of the 10-year budget window?

  4. AMTbuff  ::  9:31 pm on February 19th, 2013:

    “The result will be single-payer insurance (if they wait too long) or a subsidized public option for the uninsurable and the poor.”

    That’s what proponents of the bill wanted from the beginning. It’s what they intended the bill to accomplish over time. But markets look ahead. They will accomplish the destruction of private health insurance more quickly than even proponents of the bill thought possible.

    Will the public then demand single payer? Or will they demand complete repeal of Obamacare and a return to the status quo ante? My guess is the latter because the era of acceptable private market health coverage at tolerable cost will be a recent memory rather than the distant memory the proponents expected it to be. The public will most assuredly not accept a certain-to-grow VAT to fund government insurance when the alternative is simply to repeal Obamacare and go back to the way it was.

    Progressivism hasn’t ever suffered a major reversal unless you count Reagan’s cutting income tax rates in half. Furthermore when the government runs out of borrowing ability there will be no question of paying for health insurance for the non-poor. It’s a race to see which collapses first: Obamacare or the US Treasury market. Regardless which one ends first, both are doomed.

    These collapses will be the biggest non-revolutionary reversals for progressivism the US has ever seen. Latin America has played this movie many times but it’s new to us. Judging from Latin American history, progressives need not fear failure of their policies: People in Latin America keep electing populists anyway because every major policy failure increases people’s dependence on government. I believe that was part of FDR’s re-election success as well. It’s distantly related to the fact that many women refuse to leave abusive men. Dependency and privation instill fear of change.

    Sorry for my digression. I just wanted to make the point that even if Obamacare collapses and is repealed, the ideological conflict will continue more or less unchanged. It will not be a political disaster for progressives.

  5. Tax Roundup, February 20, 2012: Fire fail and tax reform frenzy! « Roth & Company, P.C  ::  8:18 am on February 20th, 2013:

    […] Gleckman, Bowles-Simpson II: A New Plan to Avoid the Sequester […]

  6. Bowles-Simpson II: A New Plan to Avoid the Sequester | Fifth Estate  ::  11:59 am on February 20th, 2013:

    […] See full story on taxpolicycenter.org […]

  7. Michael Bindner  ::  6:29 pm on February 20th, 2013:

    I agree. The market will head off single payer by agreeing to a subsidized public option for the uninsured, with a consumption or payroll tax to pay it (as well as to adequately fund Medicare and Medicaid doctor fees.

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