New Bowles-Simpson Plan Calls for GOP, Democratic Concessions

The deficit hawks want far more deficit reduction than the White House is proposing.

In this March 8, 2011 file photo, National Commission on Fiscal Responsibility and Reform, Co-Chairmen Alan Simpson, right, and Erskine Bowles, testify on Capitol Hill in Washington. Don’t look for President Barack Obama to endorse a Medicare voucher plan or turning Medicaid over to the states when he unveils his approach to controlling the government’s health care costs on Wednesday. But less government money for providers and more costs shifted to beneficiaries will still be in the plan. The president is expected to draw from proposals issued by his debt commission and from the work of a small group of senators of both parties trying to devise a strategy that will force Congress to deal with the cost of health benefits.

National Commission on Fiscal Responsibility and Reform, Co-Chairmen Alan Simpson, right, and Erskine Bowles, testify on Capitol Hill in Washington on March 8, 2011.

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Alan Simpson and Erskine Bowles have yet another plan to save the nation from spiraling deficits, and they want both Republicans and Democrats to give some ground. Bowles, a former Democratic White House chief of staff, and Simpson, a former Republican senator from Wyoming, have become some of the loudest voices in the deficit reduction debate since being appointed in 2010 as co-chairs of the President's National Commission on Fiscal Responsibility and Reform.

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Simpson and Bowles have released their new proposal via the Moment of Truth Project at the Committee for a Responsible Federal Budget, a bipartisan Washington organization that pushes for deficit reduction. The proposal calls for increasing tax revenues, as well as reforming entitlements and the tax system. Altogether, the plan will reduce the deficit by an additional $2.4 trillion during the next 10 years, and avoid the $1.2 trillion in sequestration cuts set to go into effect on March 1.

"They are dumb and they are stupid, stupid, stupid," said Bowles in a breakfast with Politico's Mike Allen Tuesday morning, of the across-the-board sequestration cuts. "There's no business in the country that makes its cuts across the board," he said, adding that smart businesses "surgically cut those things that have the least adverse effect on productivity."

He's not the only one concerned about those cuts. Congressional Budget Office Director Doug Elmendorf told lawmakers last week that sequestration could mean a loss of 750,000 jobs in 2013. Put into context, that's about four or five months of job growth at current rates—U.S. nonfarm employers added 157,000 jobs in January.

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An outline of the new plan calls for replacing the "mindless, across-the-board cuts from sequestration" with "smart reforms." Among those reforms are cuts to Medicare and Medicaid spending via reducing provider payments, boosting premiums for high earners, and reducing drug costs. Likewise, they also call for tax reform, including cutting down on tax expenditures (otherwise known in some policy debates as "loopholes"). In addition, they call for adopting the chained CPI, an alternative measure of inflation that would allow for greater savings in certain programs.

By the standards of the new package, no single voice in Washington's deficit wars is entirely correct. The plan calls for far more deficit reduction than the White House's proposed $1.5 trillion. Bowles said Tuesday morning that Republicans would also have to allow for some increased revenues, an idea that has been a nonstarter with the right; congressional Republicans have generally advocated spending cuts as the main path to reducing deficits. Meanwhile, he said, Democrats would have to make concessions on healthcare.

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Deciding exactly how much deficit reduction Washington should undertake is a matter of managing trade-offs between short-and long-term growth. While increasing the deficit now would boost the economy, it would subtract from economic growth a decade down the road. Conversely, reducing the deficit by $2 trillion would hit GNP, one measure of economic growth, by 0.3 percent in 2014 and boost it by nearly a full percentage point in 2023. Reducing deficits by $4 trillion would reduce GNP next year by around 0.6 percentage points but boost growth by far more in the long run, by 1.7 percent as of 2023.

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