Simpson-Bowles economic plan - WIN

I've written about my support of the Simpson-Bowles plan many times, but I'm finally doing a capsule review as I've done of Obama's, Romney's, and Cain's plans. A debt-reduction commission was created by Obama in early 2010 after Congress after the Republicans in the Senate refused to give a mandate for a commission and guarantee a vote on their recommendations.

The commission was bipartisan with members from the House, Senate, business, and economic experts. They worked from April 2010 until December 2010. In the end, 11 of 18 commission supported the report, with the dissenters split nearly equally between Dems and Repubs. (Thanks, Wikipedia, for this background.)

This plan is actually very readable with all major recommendations put into categories and bullet pointed, like this:

RECOMMENDATION 1.1: CAP DISCRETIONARY SPENDING THROUGH 2020. Hold spending in 2012 equal to or lower than spending in 2011, and return spending to pre-crisis 2008 levels in real terms in 2013. Limit future spending growth to half the projected inflation rate through 2020.

Budget Cuts

Roll back discretionary spending to $688 billion for security and $410 billion for non-security spending. Let agency heads recommend the budget reductions for their department; Congress will not be allowed to micromanage and protect a fiefdom.

Cut congressional and white staffing and budgets by 15%. Reduce federal workforce by attrition. Institute pay freezes and much tighter travel budgets.

Tax Reform

Raise gasoline taxes $.15 a gallon for adequate funding for transportation (currently partially funded through borrowing).

Eliminate most deductions. All dividend and capital gains will be taxed as the same rate as earned income. The commission offered three choices to determine which brackets to establish:

• If there are no deduction and no credits, the brackets would be 8, 14, and 23%.
• If there are credits for low-wage workers and their families, the brackets would be 9, 15, and 24%.
• If there are credits for low-wage workers and somewhat limited deductions for mortgage interest, health insurance, charitable giving, and retirement savings, the brackets would be 12, 22, and 28%.
• Exemptions would be maintained as is. The standard deduction would become an exemption. A family of four would exempt $26,000 from taxes.
• Business income tax would be 26 or 28%.

Health Care Spending

• Freeze doctor reimbursement for 2013 and have a 1% reduction in 2014. 
• Reform the payment formula. Repeal the longterm care part of ACA (already done). 
• Institute a simpler, higher deductible higher copay. 
• Require the same drug rebate for some on Medicare as already used in Medicaid. 
• Increase fraud division. 
• Decrease contributions to states for Medicaid administration costs. 
• Reform malpractice law and create specialized courts. 
• Start pilot programs for health insurance vouchers for federal workers (already in ACA and part of Ryan plan for Medicare). 
• Create a board like the IPAB payment board to set reimbursement rates. 
• Once reforms are in place, establish hard caps that allow spending increases that match the percentage growth in GDP plus 1% per year.

Mandatory Spending Reforms

Change federal pension rules to bring them in  line with lower rates in the private sector. Reduce spending on agricultural subsidies. There is also a bunch of smaller savings on student loans, general fees, mines, private pension insurance, energy, post office.

Social Security

Change benefit formulas to provide better support for low-income, very old, and long-term disabled. Provide less generous support at the high end. Raise the retirement age, tax more income, make state and local workers join SS.

Enforcement

Cut spending somewhat gradually. Start tax increases after first year of substantial spending cuts. The CBO will score spending bills and send them  back to committee when they exceed the allotment for their category of spending. OMB can require across the board cuts if Congress passes offending bills.

An appointed ongoing committee will recommend 2% cuts every year by identifying programs that are no longer needed or not working as planned. They will also recommend consolidation of redundant programs.

No off-budget spending for wars.

Congress will define what constitutes "emergency" and "disaster" spending. They will establish a special fund for disaster relief based on 10 year average.

My Critique

It's a  great plan. I think the exemptions are a bit low. It doesn't zero out the deficit in its ten-year projection, which I think should be a goal in any plan because we can't pay down our debt until we have a zero deficit. Those are my two specific criticisms. That doesn't decrease my awe at the achievement of the commission. They were actually able to reach agreement in many areas:

• Cutting the federal workforce
• Discretionary spending limits
• Healthcare spending (where agreement is especially hard to reach)
• Social Security
• Provisions to enforce the budget agreements

The one area where they couldn't reach a final agreement was tax reform, and even then, they agreed on a framework and three workable options within that framework. Whittling tax reform plans down to option A, B, or C, and getting agreement to present just those options is still a solid achievement.

You can compare the Simpson-Bowles plan to mine, but I wish you wouldn't. On the other hand, go ahead and compare it to Romney's plan and Obama's plan. For laughs, compare it to Cain's plan. Remember when he was the frontrunner?

The Payoff

Within the first 4 years of the plan, we reduce our deficit to 2.3% of GDP, then down to 0.8% by 2025. In the meantime, normal growth in GDP will make our debt smaller as a percent of the economy.

Green - current trajectory

Red - Bush tax cuts expire

Blue - Simpson-Bowles WIN!

Edit 12/27/11. Added my second criticism, that the plan didn't zero out the deficit.

The 16% Tax on Everything

You don't hear about Republican plans to roll this one back.

This is how much healthcare costs in the US, currently 16% of our GDP and on its way to becoming 20% by 2020. Compare this rate to Canada (perhaps our closest demographic match), which spends 10%, Ireland which spends 8%, and Switzerland, which is probably the Switzerland of health care, 12%.

In some ways, it's not fair to compare the US with other countries because our lifestyle is not as healthy. On the other hand, countries buying or competing with our exports don't care why we spend so much. The only thing that matters is that it makes us less competitive.

When will we start looking at trimming our healthcare costs? I can't believe it isn't time yet. The biggest impediment to reform isn't satisfaction with the current system, it's that healthcare is quite the political football.

The Republican Approach

The Republicans, who are bullish on cutting other taxes, are less sanguine on cutting medical expenditures. They have their private-sector solutions: stripping the corruption out of malpractice rewards (and taking fair higher compensation with it), letting people buy overpriced and/or fraudulent health care insurance over state lines, turning Medicaid into block grants to states, and voucherizing Medicare, so that our seniors can try to buy overpriced and/or fraudulent insurance too. Granny won't be thanking them.

The Democratic Approach

The Democrats have some plans too. One (ostrich) wing thinks Congress could  pass a single-payer system if ... er... Fox News didn't inflame the country with lies. Democratic policies have to be negotiated between near socialists like Bernie Sanders and blue-dogs like Ben Nelson. Not surprising then that the Affordable Care Act (Obamacare) is a mish-mash of what they could get through Congress before the Republicans took over the House. It's jimmied to get a good score from the Congressional Budget Office (CBO), but it'll blow up later when we're subsidizing premiums on overly-mandated health insurance and long-term care.

The Super Committee

I fear that the super committee will be skittish about cutting healthcare spending, particularly Medicare. After all, crying foul on Medicare (or death panels!) has won more elections in the last two years than it's lost. That simply means that healthcare for federal workers and Medicaid will be cut more. Considering our Congress, their staff, judges, and the executive branch use federal employee healthcare, somehow I imagine that Medicaid will suffer the most. No, I don't mean Medicaid will suffer, just those on Medicaid, those annoying free-riding poor.

By the way, we don't pay 16% for healthcare on absolutely everything. Imports from other countries don't carry same healthcare burden. But that's not especially comforting.

Establish a global budget for total federal health care costs and 

limit the growth to GDP [growth] plus 1 percent.

--One of the Simpson-Bowles debt commission's recommendations 
to reduce healthcare expenditure

Serious About Deficit Reduction Pledge

"I, ________________, pledge to the American people, including Glover Norquist (are you listening?) that I will: ONE, respect the difficult work of the Congressional super committee on deficit reduction; TWO, encourage all members of the committee to continue working even if negotiations get heated; THREE, carefully consider all reports from the committee, both majority and minority; FOUR, avoid all grandstanding on the recommendations of the committee; FIVE, vote for the recommendations unless SIX, there's a damned good reason AND a better plan available that can pass both House and Senate; and SEVEN, verify within one year that the legislation I voted for actually reduced the deficit a non-trivial amount."

Any member of Congress could and should sign this pledge. Imagine--a bipartisan pledge. Another plus: any American can fulfill provisions 1-4. I wish I had thought of this pledge earlier, because we've already had a perfectly good committee working on this. Maybe there should be an EIGHTH provision: With apologies to Messrs. Bowles and Simpson, I will not squander this opportunity like the last one.

The Debt Limit Deal

I'm glad the bill passed the House and the Senate. The House vote was 269-161, with 174 Repubs and 95 Democrats voting yes. My own representative voted against, prompting me to email a stern disapproval for his rejection of compromise. The vote in the Senate was 74-26.

The rejectionists seem to fall into two camps: the Tea Partiers who want such deep cuts that default is perhaps the ideal way to get them, and the liberals who don't realize yet that the money train can't continue. The lack of a reasonable sense of fear on both sides amazes me. Tea partiers think that government is so bloated that we can do away with 40% without a crisis bigger than 9-11. The liberals must be math-impaired. There is no way that current trend in social program costs is affordable. I want to sit the liberals down and make them crunch some numbers, and then see if they can justify their beliefs.

Overall I'm happy with the compromise, but I would have preferred a few more cuts early on. The bipartisan commission and the triggers are perhaps the best part of the bill. The last bipartisan commission actually worked pretty well. Its report, which is quite detailed and very solid, should have been the basis for an orderly debate on the issue. I don't understand why it wasn't accepted when it was released. With this crisis (courtesy of the Tea Party), most of the country is finally ready for the discussion, but why should 8 months make such a difference? There hasn't been a huge change in the economy or federal budget, so it must have been that our attention (and balls) were grabbed and squeezed, and we finally looked at the problem. It's too bad that's what it takes, but maybe that's part of being an American--living with so many happy people who don't recognize a problem until it almost swallows them.

I'm sad to see Orrin Hatch among the No votes in the Senate. He used to be someone with solid principles, someone who saw the humanity in his adversaries, someone I might have liked as President. But it's a lot harder now for red state politicians to be that kind of respectful and respectable elected official. In light of that, huge kudos to the red state republicans who voted yes--Murkowski, Kyl, McCain, Boozman, Isakson, Crapo, Risch,  Lugar, Roberts, Cochran, Wicker, Blunt, Johanns, Burr, Hoeven, Portman, Thune, Alexander, Corker, Cornyn, Hutchinson, Barrasso, Enzi. I sincerely hope you don't lose your seats in primary challenges. If that happens, maybe do what Lisa Murkowski did and let the entire state decide.

Finally, it would be a lapse not to thank the freshman Republicans in the House for being such hard-nosed, pain-in-the-ass, difficult, nasty, single-minded pricks who happen to be right to focus on the debt issue and make it stick. We need jerks like you sometimes (like now), but I won't love you for it. Sorry, it's not fair, but this is the way it is, at least until my thinking evolves some more.

Update 11/7/11: I needed a reminder of who negotiated this deal. The New York Times credits Obama, Boehner, and McConnell. Biden and Reid were heavily involved just recently, so they're probably due some credit too.