Bowles-Simpson Doesn't Address Unsustainable Healthcare Spending

The Bowles-Simpson plan makes an effort, but has shortcomings

By Alex Brill

, Research Fellow at the American Enterprise Institute

February 20, 2013

About Alex Brill:

Alex Brill is a research fellow at the American Enterprise Institute.

Erskine Bowles and former senator Alan Simpson are back, advocating once again for lawmakers to reduce discretionary and mandatory spending, increase tax revenues, and shift focus to a simple but powerful metric: our federal debt burden relative to the size of our economy.

The new proposal credits Congress with as much as $2.7 trillion in deficit reduction, owing to caps on discretionary spending and recent increased taxes on high-income earners. This math leads Simpson and Bowles to call for $2.4 trillion in additional deficit reductions in the coming decade: $600 billion from new revenues and the rest from spending reforms and limits and interest expense savings.

The proposal, while admirable, has two shortcomings.

[See a collection of political cartoons on sequestration and the fiscal cliff.]

First, while I commend them for their tireless efforts to right our fiscal ship by pursuing a "leave no stone unturned" approach that seeks to squeeze efficiencies from across all of government and reform both sides of the ledger, their "balanced" approach overlooks one key fact: Federal healthcare spending is the only government spending that is truly on an ever-increasing and completely unsustainable path. And while they list various ways to curb healthcare spending, they seem not to realize that it is not a lack of ideas but a lack of willpower holding back lawmakers.

Second, $2.4 trillion in deficit reduction is large, but it may not be enough. In 2012, publicly held federal debt was 72.5 percent of the economy, or $11.3 trillion. The Congressional Budget Office projects that by the end of the decade this will increase by $7.6 trillion, to 77 percent of GDP, under the most optimistic assumptions about Congress's actions—no new spending projects, major cuts to doctor and other provider reimbursements taking effect as scheduled, and none of the so-called expiring tax provisions being extended. A more plausible "alternative scenario" projects the debt burden rising to 87 percent of GDP. If this is the case, even a $2.4 trillion deficit reduction package would see the debt burden rising as a share of GDP over the decade.

[See a collection of political cartoons on the budget and deficit.]

Nevertheless, Simpson and Bowles deserve recognition for their continued efforts. Unfortunately, recent history has seen their previous efforts thwarted. President Obama, who established the National Commission on Fiscal Responsibility and Reform that Simpson and Bowles led, largely ignored the Commission's report when it was released. Three years and three days later, despite a tax hike and some spending constraint, our fundamental fiscal outlook remains unsustainable.