I am conflicted about the deficit-reduction plan just released by former Sen. Alan Simpson (R-WY) and Clinton chief of staff Erskine Bowles, who were charged by President Obama with finding a compromise that could cut through the political gridlock, but have instead ticked off every interest group and ideological faction in Washington. There is actually a lot to like in the Simpson-Bowles plan, which is why it is so disappointing that their proposals have been so coolly received. At the same time, however, there is also a lot to be skeptical about.
The first cause of my skepticism lies in the question, “Why now?” Long-term government debt is a serious issue, but there is no evidence that it is causing us problems right now. Conservatives often frame an economic issue as a moral one, as if “living within our means” always makes the economy more productive — sometimes it does, but not always. The economy is not sluggish because of government debt. After all, inflation, the ultimate consequence of excessive government borrowing, is actually too low.
No, the economy is lousy because people still do not have jobs and there is still not enough aggregate demand, facts to which Simpson-Bowles offers nothing in response. The plan does not ameliorate the economic crisis that voters actually care about, but instead makes plenty of concessions to Republicans regarding the debt that their wars, tax cuts, and unpaid-for spending caused over the eight years of the Bush presidency.
Still, at least, in contrast with national Republicans, the Simpson-Bowles plan gets points for coherence. Let’s start with the good:
The plan would eliminate a popular tax deduction, the mortgage-interest deduction, which costs a ton of money and primarily benefits the wealthy. This is a political sacred cow, and Simpson-Bowles puts it on the table, for which it should be commended. It also recommends increasing the gas tax and cutting farm subsidies, two important but inevitably unpopular changes.
Similar sentiments apply to the plan’s discussion of defense spending, which, it insists, should be reduced by over $100 billion in 2015. This is no doubt a start, and already we are seeing the Republican Party split at the seams between serious deficit hawks and flunkeys for the military-industrial complex.
Simpson-Bowles also has an admirable take on reducing long-term health care spending, which is really the key to the whole deficit-reduction puzzle. In attacking the other pieces of the plan, liberals have overlooked the fact that Simpson-Bowles endorses the cost-control measures of the Democrats’ signature legislative achievement, the Affordable Care Act. For example, it proposes to strengthen the Independent Payment Advisory Board by subjecting all health care providers to its recommendations (the ACA gave hospitals a reprieve until 2018). Simpson-Bowles should get credit for flying in the face of Republicans’ claims that health care reform was a budget-buster, and for suggesting that if we do not meet our cost-control targets, we should implement a public option to help us do that.
Now for the bad news: First come taxes. Not only would Simpson-Bowles end the mortgage-interest tax deduction, but it would also eliminate all tax credits and deductions, including the Earned Income Tax Credit, which benefits the working poor. Furthermore, the plan puts over 90% of the money saved from ending these tax credits and deductions into lowering tax rates, not reducing the deficit or saving some of the programs it proposes to cut. Why a deficit-reduction plan would not actually try to reduce the deficit and would rather give away tax cuts, is beyond me. The only explanation is that Republicans would not go along with the plan otherwise. Most likely of course, Republicans will not go along with it anyway.
Also, what about those programs the plan proposes to cut? Liberals have made a fuss about Social Security, which Simpson-Bowles would nudge towards welfare by increasing benefits for the lowest earners while increasing taxes and reducing benefits for the highest, possibly undermining the program’s long-term political viability. But I would like to focus on the domestic discretionary budget, which is where Simpson-Bowles finds a huge chunk of its budgetary savings.
It is very easy to slash and burn the domestic discretionary budget. It has been done for decades by both parties to the point where there really are not any savings left to squeeze out of it. Simpson-Bowles proposes cutting the federal workforce by 10% and freezing employees’ salaries for three years. These cuts accept on faith the conservative assumption that the government is doing something now that it should not or need not be doing. But what, exactly is the government doing wrong? Prosecuting and incarcerating criminals? Funding medical research? Building levees, tunnels, and bridges?
The fact that Simpson-Bowles spends equal time and energy on domestic discretionary spending and Social Security as on health care, the biggest cause of long-term debt, is disconcerting, to say the least. My worry is that it will be easy for Republicans to latch on to the domestic spending cuts, and possibly the reductions in income tax rates, while overlooking everything else. If this happens, it will be hard for Democrats to say no.
Why would it be hard for Democrats to say “no”? Because it always is. Witness the collapse of the Obama administration’s position that we should extend the Bush tax cuts for Americans earning less than $250,000 a year, but allow the tax cuts for those earning more than that to expire on schedule. I cannot think of a better issue for Democrats to use against Republicans: Republicans will not let the middle class get a tax cut unless the rich get one too.
The Republicans want to vote on extending the tax cuts all together so that they can say they passed one big tax cut for everyone, just as they did in 2001. The Democrats need to propose a separate bill to extend tax cuts just for the middle class and dare the Republicans to block it. Unfortunately, they probably will not.
Hence lies my concern about the Simpson-Bowles plan. In a vacuum, it is not such a bad proposal. However, the best things about it — ending regressive tax deductions, cutting defense spending, strengthening health care cost controls — will be DOA in the Republican House. The question is whether Democrats will be able to stand up to Republicans when they grab hold of those aspects of the plan that fit with their interests and ideology. Will they be able to do this? Personally, I have serious doubts.
Sam Barr ’11 (sbarr@fas) promises that he only talks to himself when it’s important.




