Three Reactions to the New Simpson-Bowles Deficit Reduction Plan

February 19th, 2013 at 6:16 pm

That deficit demolishing duo of distinction —Simpson/Bowles—is at it again, out with the shell of a new plan to reduce the deficit by $2.4 trillion over the next decade.

My first reaction was “really??…another new plan??…we need that!??”  My second was “why $2.4 trillion?”  We at CBPP have argued that our first order goal should be to stabilize the debt over the decade, and to do so would take about another $1.5 trillion in deficit reduction ($1.3 trillion in policy savings and the rest in interest savings).  My third reaction was, “Why did the White House elevate these guys and was that a mistake?”

Re reaction #1 (do we need another plan?) these two dudes are deeply ensconced in this debate—and quite passionate about it—and there’s no stopping them from weighing in.  Among the minority that’s actually looked closely at what they’ve proposed, you won’t find anyone who agrees with all of their ideas, as they’d be the first to admit.  But they certainly have very high standing on the issue of the national debt.

That said, this new plan doesn’t look to be very helpful (reaction #2).  The White House is on board with the $1.5 trillion for debt stabilization, which would replace the sequester with as-yet-unspecified balance between new revenues and more spending cuts (the administration’s budget plan will be out in a matter of weeks in their budget—another reason for S/B to hold their fire for now).

This will already be an extremely heavy lift and one that if not done thoughtfully, will inflict more fiscal wounds on an economy still struggling to heal (something S/B warn about, to their credit).  S/B’s main rationale for another $900 billion in deficit savings seems to be that they want the debt to GDP ratio to hit 70% in ten years as opposed to the 73% that we target in our report.

As I’ve argued in lots of places, there are good reasons to stabilize at lower levels and even better reasons not to get so wound up about the level of the debt ratio, as much as the change.  A credible budget plan should first stop the debt from growing faster than the economy and do so in a way that doesn’t hurt the current recovery or compromise critical investment, retirement security, and investment functions of the government.  There’s diverse thinking about how to do this, with EPI on one side, us in the middle, and S/B pushing for more.

Well, we need to see their details, which they say will be out in “coming weeks,” but their framework implies cuts to NDD (non-defense discretionary) and to health programs that go well beyond what I believe is necessary at great risk to these critical functions.  For example, I expect their details will show $400-500 billion more in discretionary cuts (likely divided between defense and non-defense, but don’t count on Congress to maintain that split).  As Richard Kogan points out here, however, under the current NDD caps, these programs will already be squeezed.

And their $600 billion in health care cuts goes beyond the President’s proposed $400 billion and implies, bolstered by some of S/B’s language today, increases in the Medicare eligibility age, a singularly bad idea that would not only shift costs, as oppose to generate savings, but would add costs to the system in toto.

Finally, as Ezra Klein points out, their new plan looks like it tilts a lot more toward spending cuts and away from new revenues, and is thus not nearly as balanced as their original plan.

So, reaction #3: did the WH create a monster by commissioning them to come up with a fiscal plan in the first place?  It’s a good question that has been surprisingly unexplored.  Certainly, the WH took a ton of flack for creating the commission and then allegedly ignoring their recommendations.  Except they didn’t.  They embraced a number of S/B’s central ideas, including balancing new revenue and spending cuts, protecting low-income programs, and targeting about $4 trillion in terms of stabilization.

Of course, the administration could have done that without a commission and since then, S/B have become a moving target, one that seems increasingly divorced from careful, balanced fiscal policy that doesn’t endanger the economy or needlessly slash away at social insurance and key discretionary investments including those that protect and invest in the poor.  So while I don’t know what the final verdict will be, appointing the commission may ultimately be seen as an “own-goal,” as they say (that’s where you kick the soccer ball in your own goal).

Note: Commenter Bearpaw reminds me that the S/B commission never made official recommendations.  They  failed to get the needed votes for an official endorsement.

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21 comments in reply to "Three Reactions to the New Simpson-Bowles Deficit Reduction Plan"

  1. Blake says:

    I still fail to understand why anyone pays attention to the filth that comes out of their mouths. They regularly, frequently and repeatedly say things that clearly illuminate how little they know about that which they speak and more attention is the oxygen they (and their tax-cutting/social safety net cutting buddies) feed upon. Remove the oxygen and they should return to their place at some Peterson-funded think tank where civilized society can finally ignore them.

  2. Ken Houghton says:

    “appointing the commission may ultimately be seen as an “own-goal,” ”

    Ultimately? It was at best an “unforced error” (h/t DeLong) in 2010; at this point, it’s pulling your goaltender and deciding to play a man down.

    • Jared Bernstein says:

      Fair point [sic], but that’s as far as I’ll go with soccer analogies. Move to football or basketball.

  3. Aidan says:

    I’ve always thought that once the deficit commission plan was in motion, the biggest mistake was not appointing Bob Greenstein to the Erskine Bowles role.

    • Jared Bernstein says:

      Word to that.

      • Aidan says:

        Curious if you have any insight into this process – I think you were still in the White House at this time, correct? Was Bowles the only candidate considered on the “liberal” side? Mike Grunwald’s The New New Deal documents that Greenstein came into the transition team with enormous respect and credibility across the board – someone who could talk to lefties, centrists, and conservatives. He was certainly better qualified on federal budget issues than Erskine Bowles. It’s never made even a little bit of sense to me.

  4. foosion says:

    >>We at CBPP have argued that our first order goal should be to stabilize the debt over the decade>>

    My predictable comment: our first order goal should be more growth equitably distributed. In a high unemployment slow growth environment, focus on the debt is counter-productive.

    • Jared Bernstein says:

      Right–I should have said, ‘our first goal re fiscal policy’

      • foosion says:

        Our fiscal policy goal should be to increase growth when it’s too slow and to decrease the deficit when the economy can afford it. Counter-cyclical policy.

        Consider what cutting healthcare costs to the level of any country with better healthcare outcomes would do for our fiscal health. If we really cared about the deficit, that would be our focus.

    • Dan Kervick says:

      Agreed. If we were engaging in aggressive public investment and public enterprise to drive economic progress and pick up the massive slack left by an inadequate private sector, revenues would be pouring into the government while automatic stabilizer outlays would be falling. Then our only problem would be an excessive decline in the deficit. Every minute spent fussing over the deficit and the debt is a victory for social indolence and disaster capitalist attacks on economic vitality.

    • Pablo says:

      People aren’t going to invest, spend and grow until they believe that government will take necessary steps to deal with deficit. Politicians have a deep seated bias toward spending. If you want to stimulate short term it is critical to address entitlements as well.

  5. Bearpaw says:

    “Certainly, the WH took a ton of flack for creating the commission and then allegedly ignoring their recommendations.”

    The commission didn’t make any recommendations. There was a final proposed plan which the commission did not approve.

    • Fred Donaldson says:

      Bearpaw is correct, but when you don’t win the football game you can always come up with some line like “we had more passing yards in the third quarter.” The BS plan belonged to two people, a remnant from Clinton’s White House, and a former Senator, son of a U.S. Senator, who has probably never worried about how he will pay for his next meal.

      From the Fiscal Times, CNBC, WAPO and members of the WH economic team, we have heard a constant call to reform “entitlements”, but rarely a word to reform the biggest entitlement of them all – inheritance. The recent reform there was to lower the inheritance tax and save the very rich a fortune in taxes that are apparently targeted to come out of the regular folks’ “earned benefits.”

      In many countries voters elect working people to public office, who understand that you don’t take from the poor and give to the rich, but we rarely see that happen here, because it takes a millionaire to enter the Washington “village.”

  6. wkj says:

    We’re lucky the talk of Bowles being appointed as Secretary of the Treasury never came to anything.

  7. R. Nemo says:

    The problem is that people like Simpson and Bowles don’t understand money or debt. DOA I would presume. More noise from stupid lawyers in over their heads.

    • Pablo says:

      Bowles had a very successful career in the private sector. What do you mean by not understanding money or debt?

  8. Pablo says:

    What happens to these forecasts if interest rates rise? Most planners are starting to incorporate the possibility of higher rates over the next few years.

    • Ryan says:

      According to Appendix 3, they are using CBO assumptions regarding interest rate changes. It would seem to me that the most likely scenario under which interest rates should rise would be if the economy were to approach full employment in the aggregate. I should think we would gladly trade these two alternative scenarios.

  9. Ryan says:

    A few comments…

    Reaction 1. They are taken so seriously precisely because no one fully agrees with all of their ideas (including their committee). This, reinforced by the idea that everyone must suffer some pain, as pain is the opposite of the gluttonous excess we were all apparently living with before the crisis, is why they are taken seriously.

    Reaction 2. Not helpful, but I retain skeptisism of the need to stabilize debt. This is not because it is important, it is because the statement is important obscures the vital debate needed regarding recovery four years ago. Until I see movement, for political reasons, I will not concede your point.

    Reaction 3. My fear in acknowledging that debt needs to be stabilized is the rightward shift for Obama. We can negotiate with the opposition, and not ourselves

    • Pablo says:

      What level of debt to GDP are you comfortable with?

      CBO: “We project that debt held by the public will reach 76 percent of GDP this year, the largest percentage since 1950. And, under current laws, we project that debt in 2023 will be 77 percent of GDP—far higher than the 39 percent average seen over the past 40 years—and will be on an upward path.”

      “Such High and Rising Debt Relative to the Size of the Economy Is a Significant Concern”

      • Ryan says:

        Two points, because I don’t have a good answer.

        1) I would prefer to address debt sustainability with a full employment economy, as the problem becomes easier to solve and we avert the human tragedy we see now.

        2) Approaching full employment will increase the denominator in that ratio, which reduces the ratio.