November 22, 2011
The ghost of the Bowles-Simpson commission and the specter of another lost opportunity for a major deficit reduction deal are hanging over the congressional Super Committee. On Monday, the committee formally threw in the towel and declared an irreconcilable impasse between Republicans and Democrats over drafting a long-term deficit reduction plan.
Just a year ago, Obama’s bipartisan fiscal commission, headed by Democrat Erskine Bowles and Republican Alan Simpson, defied naysayers by forging a major $4 trillion deficit reduction plan. Their proposal: $3 in cuts to government services, defense and entitlement programs – including Social Security, Medicare and Medicaid – for every $1 of new tax revenue gained by eliminating loopholes. The Simpson-Bowles commission served as a guidepost to the White House, lawmakers and budget and tax policy experts in seeking a long-term deal.
But President Obama’s refusal to get behind his commission’s plan in a timely fashion led to the debt ceiling debacle last summer and the sorry and ultimately unsuccessful deliberations of the 12-member Super Committee. The Simpson-Bowles exercise in futility threw a spotlight on unbridgeable differences between the two parties over taxes and reform of federal health care and retirement programs. That spotlight lit a fire during the Super Committee negotiations, and no one could douse it.
Still, many on both sides of the aisle are saying that no deal is better than a bad deal. Indeed, the political agendas of both parties may benefit by passing up a compromise and allowing automatic spending cuts to take effect beginning in 2013 that will achieve $1.2 trillion of savings by equally cutting defense and many domestic programs. Liberal Democrats can cheer that Congress has put off for more than a year major decisions on government spending cuts, which could retard the painfully slow economic recovery, and conservative Republicans can boast that they stood up to Democratic efforts to raise taxes.
Yet twice now, the two parties have missed an opportunity for a “Grand Bargain” of deficit reduction, which is the only way to close the huge gap in spending and revenues and avert a European style debt crisis down the road. The first time was last summer, when House Speaker John Boehner, R-Ohio, abruptly pulled out of secret talks with President Obama, claiming the president “moved the goal posts” on revenues from an agreed $800 billion to $1.2 trillion. The second time was over the Veterans Day weekend. When Super Committee Democrats made an offer to Republicans to raise taxes and cut spending – including as much as $500 billion of savings in health care programs, higher Medicare premiums for high-income beneficiaries and use of a less generous measure of inflation that would reduce annual cost of living adjustments in Social Security benefits – Republicans once again rejected the proposal.
“I think they [the Super Committee] just had a unique opportunity with extraordinary powers and the chance to solve the problem rather than just kick it down the road…. Unfortunately they didn’t do it,” said Alice Rivlin, the former Clinton White House budget chief who served on the Bowles-Simpson commission. “It’s the basic polarization over entitlement and taxes. They had to do both and they couldn’t get to agreement unless they did both.”
Richard Kogan, a senior fellow at the liberal-leaning Center on Budget and Policy Priorities, said that if the Republicans couldn’t embrace Super Committee Democrats’ Veterans Day proposal, there is no way the GOP would go along with the proposals of Bowles-Simpson, the Senate “Gang of Six,” the Bipartisan Policy Center plan drafted by Rivlin and former Republican senator Pete V. Domenici of New Mexico, or other centrist proposals.
“This is the nature of American democracy through much of its recorded history,” Kogan told The Fiscal Times. “The founding fathers set up a system that makes it really hard to pass legislation. And this recent go-round has simply demonstrated that more or less eternal truth.”
The history of the Bowles-Simpson commission is one marked by a few highs and many lows for those serious minded about the now $15 trillion national debt and annual budget deficits well exceeding $1 trillion. Congress refused to get behind creation of a powerful deficit commission and instead left it to Obama to create one through executive order with far less clout.
After meeting for seven months, the 18-member National Commission on Fiscal Responsibility and Reform overcame enormous political odds to win the support of a majority of the members in November 2010. The group’s plan, which won the praise of many budget reform groups, was largely ignored by Obama and congressional leaders. But it spawned a number of acolytes, including the “Gang of Six,” which tried unsuccessfully to win support for legislation echoing the essential elements of Bowles-Simpson.
Last summer’s negotiations between the White House and congressional Republicans over raising the debt ceiling just narrowly averted the first default on U.S. debt in history. The relatively modest deficit reduction deal finally worked out called for creation of the Super Committee to come up with at least $1.2 trillion of additional deficit reduction proposals before Thanksgiving – or else the automatic spending cuts would be triggered.
As the deadline fast approached for a Super Committee deal, Bowles, a former White House chief of staff under President Bill Clinton, and Simpson, a former Republican senator from Wyoming, became both cheerleaders and scolds for the Super Committee. In recent testimony before the Super Committee, the duo warned committee members they were headed for failure and a missed opportunity of gigantic proportions unless they set aside their differences and negotiated a compromise.
“Conventional wisdom, after all, is that politicians who ask voters to accept sacrifices in the form of lower benefits or higher taxes are punished, and the smart play is to save the issues of entitlements and taxes for partisan attacks,” Bowles and Simpson wrote in a guest column in The Washington Post. “But that is a misjudgment. It fails to take into account the growing dissatisfaction citizens have with politicians who are more concerned with gaining partisan advantage than dealing with the serious challenges facing the country. The American public is ready to make sacrifices for the good of the nation, and they expect their leaders to do the same.”
So in the wake of the Super Committee’s apparent failure, is there any future role for Bowles and Simpson, or is their year-old document pretty much a dead letter? Rivlin thinks Obama made a big mistake by failing to link long-term deficit reduction to short-term job-creating stimulus spending, and then compounded his mistake by failing to endorse the Bowles-Simpson plan in its entirety during his last State of the Union address early this year.
“I think the president made a mistake in not tying together his jobs bill and deficit reduction,” Rivlin told The Fiscal Times. “I think he should have done that from the beginning, from 2009. He might have gotten a bigger economic stimulus if he also recognized we had two problems – the short-run jobs problem and the long-run deficit reduction problem and tied them together.”
But Jared Bernstein, a former Obama administration economic adviser, disagrees, saying Obama had to be careful in how he dealt with the Bowles-Simpson proposals, especially on Social Security. “I mean, as much as we all love Bowles-Simpson, there were and are some big problems with it,” Bernstein said. “They capped spending at 21 percent of GDP. I think that’s unnecessarily restrictive. And they cut much more deeply into Social Security than I think the president was comfortable with.”
That said, Bernstein and others believe that some elements of the Bowles-Simpson package will prove remarkably resilient in future deficit reduction talks, especially its call for tax reform and elimination of tax expenditures or break. With the Bush era tax cuts scheduled to expire at the end of next year, Obama may well have some real bargaining leverage with the Republicans if they want to see those tax cuts extended for wealthy as well as middle class Americans.
Ethan Pollack, senior policy analyst at the Economic Policy Institute and a former staffer on the Bowles-Simpson commission, said, “The focus on tax expenditures is one that will persist over time and one that I think Bowles-Simpson was kind of a pioneer on to a certain extent.”
However, Stuart Butler of the conservative Heritage Foundation, said, “I can’t see Bowles-Simpson reviving as a package. Unless the congressional leaders back something it can never happen and Bowles-Simpson doesn’t have such support,” Butler said. “That said, I do believe that Medicare premium support has legs to it.”
Former Congressional Budget Office Director Douglas Holtz-Eakin, a Republican, added, “Realistically it would take the White House pushing it. I don't see that.”