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Two Plans, One Problem

We congratulate Erskine Bowles and Alan Simpson, co-chairs of President Obama’s National Commission on Fiscal Responsibility and Reform, for developing a serious deficit-reduction plan that enjoys the support of both Democratic and Republican members of the commission.

Like the BPC’s Debt Reduction Task Force, which unveiled a consensus bipartisan plan in mid-November to reduce deficits and debt to manageable levels, the co-chairs have proposed savings from all major parts of the budget, on both the spending and revenue sides. We applaud these efforts, because we believe that any viable plan to restore the nation’s fiscal health should reflect a spirit of ‘shared sacrifice’ in which the vast majority of Americans will participate. Both plans take common approaches toward tackling our crushing debt and achieving other goals. In particular, both proposals seek to reduce the debt as a share of the economy and reduce annual deficits to manageable levels; greatly simplify the tax code while cutting personal and corporate tax rates; and strengthen Social Security so that it can pay benefits for at least the next 75 years.

The BPC’s Task Force – 19 former White House and Cabinet officials, former Senate and House members, former governors and mayors, and other leaders – showed that a diverse group of Americans can come together around a comprehensive plan to address the serious challenge of soaring deficits and debt. Although there are many similarities, particularly as the staffs of the two commissions worked closely together, there are some important differences highlighted in this comparative chart as well, including:

  • Recognizing the current fragile state of the economy, the BPC’s Task Force plan would introduce a full-year Social Security payroll tax holiday for both employees and employers – at a cost of $640 billion – which CBO estimates will create between 2.5 and 7 million new jobs over the next two years. While we applaud the Bowles-Simpson plan for encouraging the consideration of a small payroll tax cut (costing between $50-$100 billion), we strongly believe that the full-year payroll tax holiday is needed to jumpstart the economy.
  • The Bowles-Simpson plan places a permanent cap of 21 percent on revenues as a percentage of the economy. The BPC plan, in contrast, relies on recommended policies to determine revenue levels and arrives at 21.4 percent of GDP in 2020.
  • The two plans have differing sources of additional revenue. The Bowles-Simpson plan calls for a 15-cent increase in the gas tax, while the BPC plan calls for a Debt Reduction Sales Tax (DRST) of 6.5 percent.
  • The discretionary cuts are much heavier for both defense and domestic spending under the Bowles-Simpson plan. Their plan would freeze both of them in 2012, cut them to 2008 levels in 2013, hold them to half the rate of inflation through 2020 (about 1% annual growth), and then assume that they only grow with inflation thereafter without any enforcement mechanism (historically, discretionary spending has grown approximately with the economy). This would leave both defense and domestic spending as a significantly smaller share of the economy than they have been at any point in recent decades. The BPC plan calls for a four-year freeze of domestic discretionary spending and a five-year freeze of defense spending beginning in 2012, followed by capping both areas to limit them to the growth of the economy. This policy path would leave both pots as a smaller percentage of the economy than they are today (down to historic low levels), but not drastically diminish their levels – the Task Force believed that both of these spending areas must contribute to the solution, but that they are not the main drivers of our long-term problem.
  • For long-term healthcare changes, the BPC plan proposes specific policies that will effectively rein in the skyrocketing healthcare costs faced by our nation. The Bowles-Simpson plan, meanwhile, acknowledges that health is the primary driver of our long-term spending problem, but simply proposes to cap the growth in total federal government health spending without recommending specific policies that would be able to constrain spending to those levels.
  • Finally, the Bowles-Simpson plan gradually raises the Social Security retirement ages, while the BPC plan accomplishes similar savings by adjusting the benefit formula to account for life expectancy. The impact on those hard laborers who need to retire early is mitigated under Bowles-Simpson with a hardship exemption that would continue to allow some workers to retire at age 62.

The most important point, however, is that both commissions bring America’s greatest long-term economic challenge to the forefront of the political debate and make clear that everything must be on the table. As Erskine Bowles declared, “The era of deficit denial in Washington is over.”

2010-12-03 00:00:00

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