Bowles and Simpson Release New Deficit Reduction Framework

February 20, 2013

pic-federal-budgetErskine Bowles and Alan Simpson—co-chairs of President Obama’s 2010 Deficit Commission—released a fiscal framework on Tuesday to deal with the national debt. The framework proposes addressing both entitlement and tax reform as a way to offer a path towards compromise for both Republicans and Democrats.

According to the co-chairmen, instead of enacting a comprehensive debt reduction plan, lawmakers have opted to pursue fiscal reforms in steps—the first two have been accomplished through the Budget Control Act of 2011 and the American Taxpayer Relief Act enacted in January.  Simpson-Bowles are now proposing two additional steps—step 3 focused on additional cuts and reforms and step 4 focused on securing our long-term debt trajectory.

The new plan would reduce the deficit by $2.4 trillion over the next ten years. Roughly one quarter of those savings would come from health care reforms and another quarter from tax reform. The remaining savings would come from a combination of mandatory spending cuts, stronger discretionary caps, and lower interest payments, among other things. House Republicans want to cut the deficit by $4 trillion, while the White House has set a $1.5 trillion goal. The Obama administration has also said that any deficit-reduction package must include new tax revenue as well as spending cuts.

Specifically, the Simpson-Bowles plan would identify $600 billion in spending reductions through changes to health-care programs such as Medicare and Medicaid. Their proposal is roughly $200 billion more than the White House is willing to support. Bowles-Simpson recommend reducing Medicare and Medicaid spending by improving provider and beneficiary incentives throughout the health care system, reducing provider payments, reforming cost-sharing, increasing premiums for higher earners, adjusting benefits to account for population aging, reducing drug costs, and getting better value for our health care dollars.

Another $600 billion in deficit reduction would come from curbing or ending a number of tax expenditures, with a portion of saving from tax breaks dedicated to deficit reduction and the additional savings used to reduce rates and simplify the tax code.

The final $1.2 trillion in the proposal would come from lower caps on discretionary spending—the type Congress approves annually—changing the way cost-of-living increases are calculated for Social Security checks and other government benefits, cuts to farm subsidies, and changes to military and civilian retirement programs, among other things.

“The new plan,” Bowles said, “is intended to push both sides out of their comfort zone and move them closer to a deal.”

Bowles-Simpson plan to release more detailed recommendations at some point in the coming weeks to flesh out their framework after consulting with members of Congress.

 Please click here for more on NSBA’s deficit reduction proposal.