Simpson Bowles Can Help America Avoid a 2013 Recession

n May 22, the Congressional Budget Office joined with over 100 leading American economists who  predicted that if the Bush tax cuts are allowed to expire and current legislated spending cuts come to pass, America will be heading toward a financial cliff which will lead America into an even deeper recession in 2013.

One solution to avoid such a scenario continues to gain traction: implement the recommendation made by the Simpson-Bowles commission.

If you don’t remember what the Simpson-Bowles “National commission on Fiscal Responsibility & Reform” recommendations were, you are not alone. Since the commission released its findings on November 10, 2010, both parties have attempted to convince the public that the recommendations are far too extreme for implementation. While few Americans agree with all or even the majority of the recommendations, none can refute that they address entitlement reform, tax reform, and defense spending cuts; the holy trinity of both parties' respective bases. 

While 61% of Americans agree with the plan, I thought it would be interesting to provide a little refresher course with the breakdown of the commission's main points.  

Social Security cuts:

Index the retirement age to longevity — i.e., increase the retirement age to qualify for Social Security — to age 69 by 2075. Index Social Security yearly increases to a lower inflation rate, which will generally mean lower cost of living increases and less money per average recipient. “Increase progressivity of benefit formula” — i.e., reduce benefits by 2050 for middle, and, especially, higher earners, relative to current benefits. Increase the Social Security contribution ceiling: while people only pay Social Security taxes on the first $106,800 of their wages today, that’s only about 86% of the total potentially taxable wages. The co-chairs suggest raising the ceiling to capture 90% of wages.

Medicaid/Medicare cuts

Enact Tort reform limiting liability of Medicaid/Medicare providers to lower the cost of services rendered. Create a cap for Medicaid/Medicare growth that would force Congress and the president to increase premiums or co-pays or raise the Medicare eligibility age (among other options) if the system encounters cost overruns over the course of 5 years Force more low-income individuals into Medicaid-managed care. Increase Medicaid co-pays. Accelerate already-planned cuts to Medicare Advantage and home health care programs

Tax reform:

The co-chairs suggest capping both government expenditures and revenue at 21% of GDP eventually. In their first plan, called “The Zero Plan,” they suggest reducing the tax brackets to three personal brackets and one corporate rate while eliminating all credits and deductions. Without any credits or deductions (including the EITC and mortgage interest deductions), the 3 tax rates would be 8%, 14%, and 23%. In their second plan, they would increase the personal deduction to $15,000, create 3 tax brackets (15%, 25%, and 35%); repeal or significantly curtail a number of popular tax deductions (including the state and local deduction and the mortgage interest deduction); and eliminate other tax expenditures. The third plan would force Congress to undertake comprehensive tax reform by 2012 by raising taxes for each year Congress fails to act. All their proposals limit Congress to collecting taxes on income made within the United States, reducing or eliminating taxes on American expats and revenues companies earn abroad. They also suggest raising the federal gas tax by 15 cents per gallon.

Discretionary spending cuts

Eliminate all earmarks. Eliminate the Office of Safe and Drug-Free Schools. Freeze federal worker wage increases through 2014; eliminate 200,000 federal jobs by 2020; and eliminate 250,000 federal non-defense contractor jobs by 2015. Eliminate subsidized student loans, in which the government makes interest payments while the student is in school. Establish co-pays in the VA medical system and change the co-pays and deductibles for military retirees that remain in that system. Eliminate NASA funding for commercial space flight. Require the Smithsonian museums to start charging entrance fees and raise fees at the national parks. Eliminate funding to the Corporation for Public Broadcasting — which many conservatives suggested in the wake of the firing of former NPR contributor Juan Williams. Reduce farm subsidies by $3 billion per year. Create a Committee to eliminate unnecessary programs to the tune of $11 billion by 2015. Merge the Department of Commerce and the Small Business Administration and cut its budget by 10%. End “low-priority” Army Corps of Engineers programs to the tune of $1 billion by 2015. Cut the State Department’s overseas budget by 10% by 2015; reduce the proposed foreign aid budget by 10% in 2015; and cut voluntary contributions to the United Nations by 10% in 2015. Eliminate the Overseas Private Investment Corporation, which provides subsidized financing and political risk insurance for U.S. companies’ investments abroad. Cut $900 million in fossil fuel research funds. Force airlines to increase their contributions to airline security costs and allow them to increase per-ticket security fees.

Defense spending cuts:

Double the number of defense contractor positions scheduled for elimination from 10% of current staff augmentees to 20%. Reduce procurement by 15% , or $20 billion. Eliminate the V-22 Osprey program. Cancel the Marine Corps’ Expeditionary Fighting Vehicle program. Halve the number of F-35 Joint Strike Fighters in favor of F-16s and F/A-18Es. Cancel the Marine Corps F-35 program. Cancel the Navy’s Future Maritime Prepositioning Force. Cancel the new Joint Light Tactical Vehicle (JLTV), the Ground Combat Vehicle, and the Joint Tactical Radio. Reduce military forces in Europe and Asia by one-third. Send all military children based in the U.S. to local schools.

Spending cut to Tax Increases:

- 85% spending cuts to 15% tax increases were found to be most effective in efforts to balance national budget deficits.

When a conservative Republicans such as Tom Coburn and progressive Democrat such as Dick Durbin can agree, Simpson-Bowles offers a path toward restoring American fiscal sanity, perhaps the time has come to actually make this issue a Presidential Platform initiative.