Please see update at bottom.
The new deficit reduction plan from Alan Simpson and Erskine Bowles calls for $5 trillion in savings this decade -- $6 trillion including interest -- roughly the same as their outline in December 2010. So it's basically the same plan, right?
Wrong. Look at where the cuts come from this time. Whereas the first plan was a roughly even mix of higher taxes and lower spending, the new plan calls for 44 percent* less revenue. When you count the interest payments saved by running smaller deficits, both plans would cut around $4 trillion within a decade.
The swing toward spending cuts is pretty shocking to me, and I have emailed some budget analysts to make sure I'm fairly comparing the plans.
Why might Bowles and Simpson have proposed such a radically different mix of new taxes and spending cuts? Two reasons.
First, there aren't enough people in Washington who want to raise taxes on anybody making less than $250,000 to make the original $2.6 billion figure work. Second, Congress has demonstrated a fairly strong appetite for scheduling budget cuts. This plan -- which builds on the spending cuts under the Budget Control Act and the new higher tax rates on income over $450,000 -- shifts the weight of deficit reduction toward spending cuts. As a result, it's even more cut-happy than John Boehner's plan from December (broken down by Matthew O'Brien).
Here is where the $2.4 trillion in new savings (beyond the BCA and tax increases already passed) come from:
Reduce 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 (Feb-‐Dec 2013)
Enact comprehensive, pro-growth tax reform that eliminates or scales back most tax expenditures, with a portion of savings from tax expenditures dedicated to deficit reduction and the additional savings used to reduce rates and simplify the tax code (Feb-‐Dec 2013)
Strengthen limits on discretionary spending (Feb-‐Dec 2013)
Reduce non-health mandatory spending by reforming farm subsidies, modernizing civilian and military health and retirement programs, imposing various user fees, reforming higher
education spending, and making other changes (Feb-‐Dec 2013)
Adopt chained CPI for indexing and achieve savings from program integrity (Feb-‐Dec 2013)
"Strengthen limits on discretionary spending" sounds like awfully good Washingtonese for "cut more discretionary spending." Sounds easy. Could be dangerous. Discretionary spending (education, R&D, infrastructure, and other stuff people generally like to have from a government) is already on track to fall well below its 1970 levels as a share of GDP. This plan would cut -- I mean, strengthen? -- the core of government even deeper.
I always thought that the most admirable element of the first Bowles-Simpson plan -- whether or not you consider yourself a deficit hawk -- was the brutal honesty that fulfilling our promise to medically insure the poor and old, while protecting the working poor, while building better roads and broadband, while paying for a military, while doing everything else we've come to expect from the government would require tax increases beyond the top two percent. This plan all but gives up on the idea that balancing the budget requires a roughly equal mix of tax hikes and spending cuts.
*Update: My initial calculations were off by a few decimals, and when you count decimals in hundreds of billions of dollars, it's probably worth a correction. Marc Goldwein writes:
"The original Simpson Bowles was more like $6.5 trillion, not $5 trillion, with about $2.5 from revenue, $3 from spending, and $1 from interest. We've enacted about $700 billion in revenue, $1,550 in spending cuts, and $450 in interest savings. (see Figure 1 for more precise numbers)."
He also points out that chained CPI and anti-fraud measures would both raise tax revenue.
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