Bowles-Simpson Isn't Bold Enough on New Revenue

Bowles and Simpson have backtracked on their earlier and bolder proposal

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By David Callahan

, Cofounder of Demos

February 20, 2013

About David Callahan:

David Callahan is a cofounder of Demos, a public policy organization, and now edits the Demos blog PolicyShop.

Alan Simpson and Erskine Bowles have styled themselves as the straight shooters of fiscal policy. They are the guys who tell the hard truth, as opposed to cowering before powerful interest groups. The original Simpson-Bowles proposal, in 2010, riled any number of powerful players with its call for major cuts in Social Security and defense spending, and the elimination of nearly all tax breaks and credits for corporations. That proposal also included a call for major new revenues—some $2.6 trillion in additional taxes over 10 years, or nearly half of all deficit reduction called for by the plan.

The new Simpson-Bowles proposal is not nearly as bold. In particular, the duo call for just $600 billion in new revenue over the next decade, which would come from closing tax loopholes.

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

Leaving aside the problem that the new proposal is so heavily tilted toward spending cuts, Simpson and Bowles have missed an opportunity to speak an obvious truth to the powers that be in both parties, which is that taxes on most Americans are too low given the challenges this country faces. And closing a few loopholes doesn't do enough to align revenues with spending needs. The truth—which neither party wants to hear—is that taxes need to go up not just on the rich, but on nearly everyone.

Last year, an analysis by the New York Times found that taxes are now lower for many U.S. households than at any time in decades:

Most Americans in 2010 paid far less in total taxes—federal, state and local—than they would have paid 30 years ago. . . the combination of all income taxes, sales taxes and property taxes took a smaller share of their income than it took from households with the same inflation-adjusted income in 1980.

This is not sustainable. Not with Baby Boomers retiring and the United States facing rising competition from China and other nations that require us to make major new investments in our human and physical capital. And not with the huge budget deficits the country faces.

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

Twelve years ago, when the Bush tax cuts were enacted, many budget analysts pointed out that these cuts were unaffordable because the budget surpluses then were illusory and temporary. Those analysts were right. Yet the recent "fiscal cliff" deal let over 80 percent of the Bush tax cuts become permanent, costing the Treasury several trillion dollars over the next decade.

Even if tax reformers could navigate through a political minefield to raise $600 billion in revenues, as Simpson and Bowles hope—a big "if"—that new revenue doesn't nearly compensate for the revenues lost by extending the Bush tax cuts.

If Simpon and Bowles are really the straight shooters they pose as, they would be leading the charge for serious new revenue. Instead, they have actually backtracked from their earlier, and bolder, proposal. That's too bad.