In Praise of Bowles-Simpson

The Bowles-Simpson proposals are a great public service, I think, even though the form and timing of the announcement were disconcerting. The full deficit commission is due to report soon. It would have been better to announce a single plan then, supported by an impressive majority of the members; doubtless the two co-chairmen would have preferred that too. Presumably, with no such consensus emerging, they decided to rush a joint proposal out rather than have it die in private talks without seeing light of day. Trouble is, the other members might see this pre-emption as a license for them to go their own way too. This would defeat the main purpose of forming the commission in the first place: bridging political differences. If we end up with a mess of competing proposals, none commanding cross-party support, we will be back where we started.

The proposals are not a "blueprint". They include sets of options, spelt out in some cases with strange precision ("reduce copying use by putting the default option on copiers to double-sided"). At the same time, no rationale is offered for basic stipulations, such as the goal of holding public spending at no more than 21 per cent of GDP. Yet the chairmen's overall deficit-reduction strategy must be right. Do a lot of comparatively gentle things. The more you put on the table, the less drastic you have to be in any particular area. Bowles and Simpson put almost everything on the table--and force you to think about the fiscal consequences of sparing your favorite items. This is how the discussion must be framed.

Some of the proposals probably ought to be bolder. On social security, for instance, the main points are: index the retirement age to longevity in such a way that it would rise from 67 under current law to 69 only by 2075; make the benefit formula more progressive; and tweak the inflation-indexing formula so that it is slightly less generous. The savings add up; the changes would be phased in so gradually as to be imperceptible (except for the elderly poor, who would be better off than under current law). It's mild to a fault. I don't understand why so many Democrats are aghast at this.

The co-chairmen apply the same logic to tax reform. Spread the burden by broadening the tax base. Marginal rates for most taxpayers come down; revenues go up. Would this make the system less fair? Note that they propose to tax capital gains and dividends as ordinary income. This change should be item number one on the wish-list of every liberal tax reformer. Depending on the details, a Bowles-Simpson tax system could be more progressive than the present code; so far as the super-wealthy are concerned, it almost certainly would be. (Warren Buffett would no longer have a lower marginal tax rate than his staff.) Again, however, many Democrats are disgusted. Do they see high marginal tax rates as an end in themselves? Apparently, they do.

The instant reaction to the proposals, though unsurprising, is nonetheless depressing. Nancy Pelosi calls the plan unacceptable. Grover Norquist agrees. Often it is a good thing to be attacked by the two extremes--that's when you know you are right. But it is not enough for left and right to cancel each other out. Ideas like these will get nowhere unless the broad middle of the country supports them, and that requires the kind of leadership the US currently lacks.

For more on the disappointing liberal reaction, read Derek Thompson. e21 has a good piece by Charles Blahous on the social security part of the proposal (thanks, Greg Mankiw).