Simpson, Bowles Offer Detailed Deficit Reduction Plan

April 25, 2013

pic-money-tax-budgetOn Friday, the former chairmen of President Barack Obama’s 2010 National Commission on Fiscal Responsibility and Reform, Erskine Bowles and Alan Simpson released a new deficit reduction plan in the hopes of reviving a debt grand bargain this year.

The chairmen released an updated framework  for deficit reduction in February but have now fleshed out a more detailed plan that they say would save $2.5 trillion over the next decade—or a total of $5.19 trillion when added to $2.7 trillion in deficit reduction already enacted over the past few years.

Co-founders of the Campaign to Fix the Debt–a broad bipartisan coalition calling on lawmakers to address the debt, and with which NSBA was the first national small-business group to partner–Simpson and Bowles continue their leadership on this critical effort with the updated plan.

The new Simpson-Bowles proposal is a two-step plan that has about $800 billion more in spending cuts than President Barack Obama is seeking, and $1.1 trillion more than Senate Democrats have proposed. The plan adopts roughly the same amount of new taxes from tax reform called for in Obama’s FY2014 budget, with $585 billion in tax revenue from a reform process that starts by eliminating all deductions and then adds back in only those most needed. It would adopt a territorial tax system and maintains progressive tax rates, and is less than the $975 billion in tax increases in the Senate budget.

The Simpson-Bowles Plan has five key components. They include:

  1. Tighten and Strengthen Discretionary Caps to demand additional efficiency from Washington in place of abrupt across-the-board cuts by restoring 70 percent of the sequestration cuts in 2013 and limiting the defense and non-defense spending growth to inflation through 2025.
  2. Reform Federal Health Spending to reduce subsidies for better-off beneficiaries, reform and reduce provider payments, reduce fraud, abuse, and overpayments at all levels of the health care system, modernize cost sharing rules with new cost protections, gradually increase the Medicare age with a buy-in at age 65, and re-orient incentives for doctors, hospitals, lawyers, and beneficiaries to improve the delivery of health care and truly “bend the cost curve.”
  3. Identify Additional Spending Cuts to reduce various government subsidies; modernize the military and civilian health and retirement systems; improve the financial state of the Pension Benefit Guaranty Corporation, the U.S. Postal Service, and the Pell Grant program; cut low-priority spending; and impose various user fees.
  4. Enact Comprehensive Tax Reform that uses a “zero plan” model as a starting point to dramatically reduce the size and number of tax expenditures in the code, sharply reduce rates,  improve overall simplicity and move toward a territorial system to promote growth and generate revenue. Tax reform should be written by the committees but enforced with an across-the-board tax expenditure limitation.
  5. Implement Government-Wide Reforms to reduce waste, fraud, and abuse and more accurately measure inflation within the budget and tax code while providing new protections for low-income individuals and the oldest beneficiaries.

Similar to proposals from the president and Senate, the plan calls for a gradual phase-in of deficit reduction to avoid any further shock to the recovering economy. While repealing the automatic spending cuts in the $1.2 trillion sequester, it would lower discretionary spending caps to below pre-sequester levels, saving $385 billion over 10 years. The tax overhaul piece would raise $585 billion in revenue, while the proposed changes to health care, including increasing the Medicare eligibility age to 67 and requiring wealthy Medicare recipients to pay more for their benefits, would save $585 billion. Approximately 70 percent of deficit reduction in the plan is attributed to spending cuts and 30 percent to increased taxes.

Released through the Moment of Truth Project, you can read the details of the new version here.