Skip to comments.Here’s What’s Wrong with the Simpson-Bowles Deficit-Reduction Plan
Posted on 09/24/2012 7:08:07 AM PDT by Kaslin
Many people want to believe in Unicorns, the Loch Ness Monster, and Bigfoot. I think those people are rational and reasonable compared to the folks in Washington that spend their days dreaming of bipartisan and balanced plans to fix the budget mess.
Here are the two things you should understand. First, you need to grab your Washingtonese-to-English dictionary so you can learn that bipartisan and balanced are almost always code words for higher taxes. Second, budget deals with higher taxes (as the New York Times accidentally admitted) dont fix anything.
The Simpson-Bowles budget plan is a good example of why taxpayers should be quite skeptical. Put together by a former Republican Senator from Wyoming and Bill Clintons former Chief of Staff as part of President Obamas Fiscal Commission, the Simpson-Bowles proposal is viewed by the inside-the-beltway crowd as fiscal Nirvana.
Unsurprisingly, Simpson and Bowles are quite fond of their plan. Heres their key assertion from a column they recently wrote for USA Today.
The Simpson-Bowles commission offered a reasonable, responsible, comprehensive and bipartisan solution that won the support of a majority of Democrats and Republicans on the commission. Most importantly, it would reduce the deficit by $4 trillion over the next decade enough to put the debt on a clear downward path relative to the economy.
Gee, sounds nice, but lets look at the details, all of which can be seen by downloading their report.
A main problem is that Simpson and Bowles misdiagnose the problem. I think its fair to say that their focus, as they explicitly state in their report, is to stabilize and then reduce the national debt. But as I explain in this video, the real problem is a federal government that is too big and spending too much. Red ink is just a symptom of that problem.
Moreover, the report even includes Keynesian policy, stating that budget cuts should start gradually so they dont interfere with the ongoing economic recovery.
But lets set aside rhetorical sins and grade the plan.
Restraining Spending: C+
The plan does impose some restraint on the budget, but the plan even after being in place for 10 years assumes that the federal government should grow by about $1.5 trillion and consume nearly 22 percent of economic output. This is far above the 18.2 percent of GDP when Clinton left office, which should be the minimum target for policymakers.
But the components of the plan make me think they wont even achieve the plans anemic targets.
Eliminating Departments and Programs: D
Reforming Entitlements: C-
Reducing Bureaucratic Bloat: B
Controlling the Tax Burden and Reforming the Tax Code: C-
The best policy, needless to say, is getting rid of the corrupt tax system and replacing it with a simple and fair flat tax. That obviously wasnt what Simpson and Bowles decided to propose, but the flat tax is a benchmark that allows us to judge the components of their plan.
They basically get two policies right and two policies wrong. If they were major league baseball players, a .500 average would make them superstars. In Dan Mitchells policy world, theyre below average.
Lowering Tax Rates: A-
Reducing Double Taxation: D
Limiting the Tax Burden: D-
Eliminating Corrupt Loopholes: B
Im not a fan of the Simpson-Bowles plan, but I do give them credit. They decided to focus on the wrong variable and they have some bad policies, but at least its a real proposal.
Its not anywhere close to the Ryan budget, but its a heck of a lot better than what the Senate Democrats have produced (nothing) and what the President has proposed (kicking the can down the road).
But doing a better job than the remedial students is damning with faint praise. Just in case youre tempted to grade them on a curve, just remember that balancing the budget without tax increases doesnt require any heavy lifting. All policymakers have to do is limit the growth of spending so it grows by an average of 2.5 percent annually over the next decade.
Other nations, such as New Zealand and Canada, got great results when imposing multi-year periods of fiscal restraint. Certainly its not asking too much to expect American lawmakers to exercise similar levels of prudence?
I would be happy with the ‘penny plan’
Freez government spending at current levels and REDUCE them by one penny per dollar every year for 10 years. EVERYONE can find 1% savings somewhere...
That alone would balance the budget
I would PREFER they freeze it at 2008 levels, but the cowards in washington dont have the balls for that
I'm not so happy with this one. It is double taxation on real estate (even if they remove some of the double taxation on investments).
The whole plan stinks. They want to cut entitlements, close tax loopholes (raise middle class taxes) but can’t bring themselves to name even one govt agency they would shutter.
Big thumbs down on this stinker.
A deficite reduction plan isn’t enough. We need a debt reduction plan.
I agree with your endorsement of the Penny Plan.
One of the other fatal flaws in Simpson-Bowles was their starting assumption that ObamaCare would be the law of the land. How could that be a baseline assumption in a bi-partisan commission? That was a drop-dead proposition.
Federal tax revenue NEVER exceeds 20% of GDP. We’re at about 19% now.
Most tax revenue comes from those who can, without much hardship, reduce their income to where their tax liabilities are palatable. My favorite Leftist trotted out the “raise taxes on fat-cat Wall-Street lawyers making a half-million a year; I’ll be reasonable and demand an increase of just 5% - he can afford it!” I ran the numbers and noted that the tax increase amounted to confiscating an entire week’s pay; if you’re gonna take that much more he may as well just not work that week at all and go enjoy a beach somewhere instead - a tolerable cut in income netting the government a whole lot less than was expected.
Reterated: federal tax revenue NEVER exceeds 20% of GDP. Raise taxes on whomever you want however much you want, national economic activity WILL slow, starving federal spending intentions. The ONLY viable solution to the deficit is to CUT SPENDING, and those cuts must reach some 50% across the board NOW (debt service exempted, touch that and it all falls apart).
Just so. That is the major tell revealing the authors as two big-government liberals.