February 19, 2013
Deficit gurus Alan Simpson and Erskine Bowles have upped the ante on President Obama, but it’s unlikely their latest debt reduction plan announced Tuesday will ever get past the drawing board.
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The former chairmen of Obama’s own National Commission on Fiscal Responsibility and Reform said the debt must be trimmed by $2.4 trillion over the next decade, about $900 billion more than what the president committed to during his State of the Union address last week.
But neither Simpson nor Bowles knows the magic trick to bridge political differences about the debt in what is their fourth public proposal on the matter. Their multi-year road show has attracted attention without getting the needed traction inside the White House or on Capitol Hill.
Both warn about bond markets deserting federal debt at some point down the road, sparking higher interest rates and inflation that pinches middle class Americans. Yet the markets are remarkably placid thus far about the more than $16.4 trillion national debt, equal in total size to the annual Gross Domestic Product.
So Simpson is pursuing another motivator—Obama’s legacy.
If Obama doesn’t reform entitlement and Social Security spending—the long-term drivers of debt—“he will have a failed presidency,” the former Wyoming Republican senator said at Tuesday breakfast sponsored by POLITICO. “I don’t think he wants that at all. He’s too smart.”
Simpson repeated what passes in DC as the f-word—failed—for much of the event. They have access to White House staff to push their plan and claim the president is on their side, but Simpson hasn’t talked with Obama for 18 months and Bowles, the former White House chief of Staff for Bill Clinton, last spoke him right before the November election.
Bowles played something of the good cop, saying of Obama, “I believe that he’s willing to make these cuts in the entitlement programs that we have to make.”
But in a crucial difference with the administration, their plan seeks to bring down the debt as a share of GDP. Obama simply intends to stabilize it close to the current levels.
Democrats and Republicans alike will find plenty to despise in the new Simpson-Bowles deficit reduction plan. It calls for $600 billion in cuts to Medicare and Medicaid, about $200 billion more than Obama is willing to entertain because of its possible impact on current beneficiaries.
Savings from these programs would come from "improving provider and beneficiary incentives throughout the health care system, reducing provider payments, reforming cost-sharing, increasing premiums for higher earners, adjusting benefits to account for population aging, reducing drug costs, and getting better value for our health care dollars," according to their plan.
GOP lawmakers will largely object to the $600 billion in new tax revenues from limiting deductions and closing loopholes. They would prefer the savings go toward lower tax rates. Interest groups will also defend each of the 180 different deductions involved, making genuine reform an act of political courage, Simpson noted.
The balance of the $1.2 billion in cuts would be the result of stricter caps on discretionary spending, trimming farm subsidies, and using a less generous measure of cost-of-living increases for government benefit programs including Social Security.
But a critical component of the savings is reducing the share of the budget going to interest payments on the debt—which at its current trajectory could top $1 trillion by the end of the decade. That money crowds out spending that could otherwise go for education, infrastructure, and scientific research.
“There’s nothing more powerful than compound interest,” Bowles said.