By PHILIP SELLINGER With Washington seemingly paralyzed by deficit and budget problems, it’s time to take another look at Simpson-Bowles, the bi-partisan proposal to cut spending, raise revenues, and get our spiraling budget deficit under control. It’s an evenhanded and rational solution to a looming budget disaster.
Three critical events will occur shortly. The Bush tax cuts are expiring in less than a year; automatic cuts from the failure of last year’s Congressional Super Committee are looming; and the failure to extend the national debt limit could once again threaten a government shut-down. Three critical events – with no compromise on the horizon.
One needs only to look across the Atlantic to see increasingly dire examples of what happens when governments fail to harness deficits that are out of control.
Here, bickering between Democrats and Republicans continues to block resolution of a swelling national debt. On the Democratic side, the so-called “Buffett Rule” calls for increased taxes on the wealthy, Meanwhile, Republicans have proposed a budget slashing Medicare, Medicaid, and domestic programs, while cutting taxes. Neither of these small proposals from either side will suffice to reduce the debt over the next twenty years. Neither will resolve the fast-approaching crises. There has to be a compromise somewhere – and there is, if only the two sides will put aside their partisan wrangling.
Two years ago, with the concurrence of the leadership of both houses of Congress, President Obama appointed a bi-partisan Commission to find a plan to solve our impending budget disaster. Headed by former Republican Senator Alan K. Simpson and Erskine B. Bowles, former chief of staff for President Bill Clinton, the Commission spent some nine months hammering out a comprehensive plan. The negotiations were not easy: Not one member liked every element of the plan, but they reached principled compromises of their differences in order to achieve a plan “because our nation will certainly be lost without one.”
The Simpson-Bowles Commission issued its report, entitled “The Moment of Truth,” in December 2010. It stressed that the United States is on an unsustainable fiscal path:
Our challenge is clear and inescapable. America cannot be great if we go broke. Our businesses will not be able to grow and create jobs, and our workers will not be able to compete successfully for the jobs of the future without a plan to get this crushing debt burden off our backs……The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead.
The background facts are stark: In 2010, federal spending was nearly 24% of GDP, the largest level since World War II. At the same time, tax revenues were 15% of GDP, the lowest level since 1950. The last balanced budget, in 2001, evaporated in the wake of two wars, fiscal irresponsibility, and the economic downturn. Given our current course, U.S. debt has been projected to reach 90% of GDP as soon as 2020. By that year, interest payments alone could reach $1 trillion. Indeed, with baby boomers retiring, and health costs spiraling, the Commission projected that by 2025, revenue will be consumed by interest payments, Medicare, Medicaid, and Social Security, requiring borrowed money for every other federal government activity. This will increase interest rates for all borrowers, curtail economic growth, hamstring government, expose our country to foreign creditors, and hamper our response to national security threats.
To overcome these hurdles, the Commission arrived at a bold plan to cut spending, raise revenues, balance the budget and create long-term fiscal health. Certain core values governed the Commission’s deliberations, including: not disrupting the “fragile” economic recovery by insuring that budget cuts start gradually; reforming and simplifying our tax code; addressing Social Security solvency and other entitlement issues; cutting red tape and facilitating job creation; investing in infrastructure, education, and research and development; and ensuring a safety net for the truly disadvantaged. The Commission stressed that sacred cows can no longer be protected. Sacrifice must be shared.
Specifically, the Commission promulgated a multi-pronged plan aimed at creating fiscal health: It would reduce the deficit by nearly $4 trillion by 2020; reduce the deficit to 2.3% of GDP by 2015; slash tax rates while eliminating the alternative minimum tax; eliminate tax loopholes; cap revenue at 21% of GDP while lowering spending to below 22% and eventually to 21%; shore up Social Security, preventing 22% cuts predicted for 2037, while reducing senior poverty and distributing burdens fairly; stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035.
The Commission’s plan has six components, including:
1) Cuts in discretionary spending with enforcement mechanisms. These include spending caps through 2020 and strict measures to enforce those caps; cuts in security and non-security programs; reformed procedures for war spending; realistic budgeting for emergency spending; a 15-cent gas tax increase; elimination of duplication; elimination of Congressional earmarks; and reforms to government operations, including a freeze on Congressional pay.
2) Comprehensive tax reform. The Commission noted that tax loopholes of $1.1 trillion annually “are simply spending by a different name.” Reforms include lowering rates (top rate for individuals of between 23% to 29%); closing loopholes; eliminating industry subsidies; maintaining progressivity; broadening the base; dedicating additional revenue to deficit reduction (instead of new spending); setting a single corporate tax bracket of between 23% and 29%; and changing the way we tax foreign income to make our system more competitive.
3) Health care savings. Savings include reform of Medicare physicians’ payments, cost-sharing, malpractice law, prescription drug costs, government-subsidized medical education and numerous other measures to reform Medicare and Medicaid.
4) Savings in other mandatory programs. Savings include reforming agricultural subsidies, government retirement systems, student loan programs, and the Pension Benefit Guarantee Corp.
5) Social Security reforms ensuring solvency. Reforms include increasing payroll taxes and reducing benefits for the most fortunate, requiring middle-income earners who are able to work to do so a little longer, while reducing poverty for the very poor and very old most in need of help;
6) Budget process changes. Changes include controlling debt, spending, inflation and ensuring proper use of taxpayer dollars.
In short, for the sake of our children and for the sake of our country, the Simpson-Bowles plan called for sacrifice and compromise on all sides. Not surprisingly, it was roundly attacked from all sides, and was not adopted. Democrats objected to many of the spending cuts. Republicans objected to increased revenues being used to balance the budget rather than to reduce taxes further.
Nevertheless, As the Commission reminded us, both political parties share blame for our deficit problems, and both are responsible to solve them: “Washington must lead!” Citizens thus need to encourage their representatives to work together in a bipartisan fashion to embrace the compromises required by Simpson-Bowles.. We cannot allow partisan wrangling to interfere on so critical an issue to our nation’s future. After all, in a world of partisan divide, a majority of the Simpson-Bowles Commission, composed of Democrats and Republicans, reached agreement (although the requisite supermajority was not achieved). During the fight over the debt ceiling last summer, the so-called Senate Gang of Six, three Democrats and three Republicans, agreed to the outlines of the plan. Simpson-Bowles also formed the basis of House Speaker John Boehner’s and President Obama’s attempt at a “Grand Bargain” last summer. Others have endorsed the plan as well. I believe that Washington can embrace the best of Simpson-Bowles if properly encouraged by a citizenry insisting on leadership to address these issues. The problems are not going away.
To quote the popular television show Game of Thrones, “Winter is coming.”
Philip Sellinger is an attorney and Democratic Party fundraiser.