Alan Simpson and Erskine Bowles, who led a national fiscal commission to a bipartisan set of recommendations in late 2010, have released a new budget plan that shows once again that a mix of spending cuts and revenue increases can rein in deficits without short-term damage to the economy.
“It is not a plan for partisan purists,” Concord Coalition Executive Director Robert L. Bixby writes in a new blog post, “and that is why it could play a vital role in the coming months as Democrats and Republicans struggle to find a way forward on a budget compromise.”
The new Simpson-Bowles plan picks up where talks on comprehensive fiscal reform broke off last December between President Obama and House Speaker John Boehner. Simpson and Bowles describe it as “an effort to show both sides that a deal is possible; a deal where neither side compromises their principles but instead relies on principled compromise.”
The original Simpson-Bowles plan won support from a bipartisan majority of the National Commission on Fiscal Responsibility and Reform more than two years ago. Washington has made some progress on budget reform since then, primarily from tight spending caps on appropriations and a tax rate increase for upper-income households.
But as Simpson and Bowles point out, more remains to be done to alter the long-term growth trajectory of federal debt.
They propose $2.15 trillion in savings from policy changes over the next 10 years, which would reduce interest costs by another $350 billion. In addition to specific programmatic reforms, the plan would adopt a new government-wide measure of inflation (“chained CPI”) that many economists consider more accurate than what is currently used.
There would be an additional package of reforms that includes an illustrative Social Security solvency plan and restraints on federal health care commitments beginning in 2018.
“A noteworthy feature of this plan is that it is not a random catalogue of spending cuts and tax increases designed solely to reduce the deficit,” Bixby says. “The recommended policies are aimed at improving the efficiency and effectiveness of government programs, including health care delivery and provisions of the tax code.”
He also points out that the changes would mostly be phased in to avoid a sharp economic contraction.