Notwithstanding the significant problems with the latest Bowles-Simpson deficit reduction plan – and they are significant – I would support it as a commission member for three basic reasons:
First, it addresses the problem of soaring deficits and debt in a serious way. Second, it improves public policy in important ways. And, finally, it builds momentum for President Obama and Congress to craft an even better plan in the coming months.
Let’s take these one at a time.
First, warts and all, the Bowles-Simpson plan is better than the starkest alternative – which is no plan and, worse, no action on Capitol Hill to adopt this plan or any other.
That would consign the United States to a future of soaring deficits and debt that would raise the risks of an economic crisis in the years immediately ahead while weakening the economy more and more over the long term.
The national debt would soar, and interest on the debt would soar, leaving the government with less room and little flexibility to provide for its citizens at home while securing peace abroad. The U.S. would also have far less resources to invest toward making the country stronger, and more able to respond to national emergencies.
As the economy improves and interest rates rise from historically low levels, interest costs rise, possibly causing a “debt explosion.” In this case, the federal government would need to borrow more just to make its interest payments and, in the process, it would lose control of its fiscal destiny. Meanwhile, our rising debt will eventually shake the confidence of our creditors, who will demand higher rates of return (i.e., interest rates) or even decide not to continue lending to us, which will threaten a run on the dollar that will force even higher interest rates and set off surging inflation.
Even if we avert a crisis, our annual deficits will absorb savings that would otherwise go for investment in productive enterprises, such as factories and equipment. The less we invest, the less productive our economy will be, and the less that living standards will grow, which will mean a less prosperous future for our children and later generations.
Second, the Bowles-Simpson plan has several attractive features, none of them more so than its call for fundamental tax reform.
The plan would cut personal and corporate tax rates significantly while cleaning out our absurdly complicated tax code. To achieve that end, the plan calls for largely scrapping the more than $1 trillion in annual tax expenditures that tend to give their biggest largesse for those at the top while prompting people and businesses to make decisions based too much on tax policy and not enough on fundamental economics. A reformed code of this kind would be easier for everyone to understand and would make U.S. businesses more competitive overseas.
In another attractive proposal, the plan would strengthen Social Security for the long term in most of the right ways – raising the retirement age (which would send a strong signal to older Americans to stay in the workforce longer), switching to a more accurate measure of inflation (which would slow the growth of annual benefit increases), boosting the income threshold on payroll taxes (taxing more of the income of those at the top), and protecting benefits for those at the bottom.
Third, for those commission members who worry about the warts of Bowles-Simpson, they should recognize that a “yes” vote is not a vote to enact the plan into law as is.
The commission’s 18 members, 12 of whom are members of Congress, can – and should – seek to improve upon it while they encourage the White House and Congress to enact a viable plan of some sort.
Are the cuts in defense and domestic discretionary spending unrealistically deep, threatening our national security and our ability to invest at home? Maybe so. Is the global cap on federal health care programs unrealistically tight, potentially forcing policymakers to take a meat axe to health programs on which tens of millions of Americans rely? Ditto.
But commission members should look at the big picture, which is that we face a tsunami of deficits and debt if we do nothing. They should vote yes and build momentum for congressional action. We have time to improve upon the details.
Lawrence J. Haas is former Communications Director to Vice President Gore and, before that, to the White House Office of Management and Budget. He's now a public affairs consultant who writes widely about foreign and domestic affairs, including fiscal policy.
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