The 2010 Bowles-Simpson deficit-reduction plan withered on the vine for good reasons, and this latest outline for a new proposal is just as likely to be ignored. Aside from a massive tax hike, the details are sparse—designed to allow policymakers to fill in the blanks.
The plan suggests replacing sequestration and asks for double the amount in deficit reduction. The cuts and more are necessary to avoid a debt crisis in the near future. However, President Obama failed to even come up with details for the $1.2 trillion in already enacted spending cuts that brought us sequestration. Without better guidance on how to find at least $600 billion in additional savings, the prospects for success are low.
The few details Erskine Bowles and Alan Simpson do include call for a tax increase disguised as tax reform. They ask lawmakers to eliminate or reduce most tax expenditures. Bowles-Simpson's suggestion to lower marginal tax rates to offset some of the tax hike from removing deductions and loopholes makes the proposal bipartisan in name only. Like a wolf in sheep's clothing, the plan would consume an additional $600 billion of taxpayer's money, on top of the $618 billion already enacted in the fiscal cliff deal. This net tax increase on investors and small businesses would drag down growth.
The proposal is particularly weak on entitlement reform—the major drivers of spending and debt. It lacks the bold structural reforms needed to strengthen Social Security and Medicare for those retirees who depend on them while making them affordable for taxpayers.
On Medicare, the outline calls for some of the very same price-fixing policies that we know don't work. There is some common ground on increasing Medicare premiums for higher earners, reforming cost sharing, and adjusting benefits to account for population aging—if that means increasing the age of eligibility.
On Social Security, adopting the chained consumer price index (CPI) as a more accurate inflation measure would help program finances. But much more needs to be done.
The one encouraging development is that Erskine Bowles and Alan Simpson place a greater emphasis on spending reductions in this round, recognizing that ballooning spending is what's driving the nation deeper into debt. What's needed now are concrete spending reductions and entitlement reform to pull the budget out of the ditch by balancing in 10 years.
About Romina Boccia Research Coordinator for the Roe Institute for Economic Policy Studies at The Heritage Foundation
Dean Baker Codirector of the Center for Economic and Policy Research
Alan Simpson Former Senator
Kelly Ross Deputy Policy Director at AFL-CIO
Alex Brill Research Fellow at the American Enterprise Institute