Feb. 20 (Bloomberg) -- Erskine Bowles and Alan Simpson, the indefatigable odd couple of U.S. fiscal policy, are at it again, offering their third deficit-cutting plan in four years. You’ve got to admire their effort, if not their success rate.
Clearly, Simpson and Bowles have learned some hard lessons on the state of American politics: Their latest iteration, a $2.4 trillion package of 10-year spending cuts and tax increases, is less ambitious and more politically feasible than the $4 trillion grand bargain of 2010, the last big Simpson-Bowles blueprint.
“The idea of a grand bargain is at best on life support,” Bowles, a White House chief of staff under President Bill Clinton, now concedes.
Sadly, even this new $2.4 trillion package seems beyond what a divided Congress can achieve. Yet it does offer lawmakers and President Barack Obama a way out of the corner into which they’ve painted themselves with the automatic spending cuts set to take effect March 1. This coming sequester of $85 billion will lop off funds indiscriminately -- “the meat-cleaver approach” is how Obama put it this week. Such abrupt cuts would drag down the economy, pushing more people onto still swollen unemployment rolls.
Neither the White House nor congressional Republicans are willing to break the impasse. Republicans won’t agree to tax increases, and Democrats won’t cut Medicare, Medicaid and Social Security benefits.
With nine days before the sequester deadline, the new Simpson-Bowles proposal substitutes some smart (though painful) cuts for the mindless ones and therein contains the makings of a deal that could break the logjam. It contains more health-care savings than the Democrats would like, and more revenue increases than Republicans can stomach.
In particular, the plan calls for $600 billion in health-care spending reductions and another $600 billion in new tax revenue over 10 years. It’s no coincidence that the entitlement cuts and tax increases offset each other; they must for each side to claim it forced the other to absorb a body blow.
On health care, the new-model Simpson-Bowles would improve the financial incentives that Medicare offers doctors and hospitals to cut costs, increase cost-sharing by raising Medicare premiums for high earners, and reduce payments to drug companies. The proposal lacks detail, but budget analysts in and out of government have been kicking around similar ideas for months.
A report issued in November by the Center for American Progress, for example, outlines $385 billion in entitlement savings over 10 years. Competitive bidding for medical devices, lab tests and imaging services would cut $38 billion. Reforming the way Medicare covers the cost of graduate medical education would trim $28 billion. And increasing premiums for high-income Medicare recipients would cut $25 billion more.
As for new revenue, numerous Republicans agree that cuts in tax expenditures, including deductions for home-mortgage interest, should be on the table. That’s where the big money is. Other options, as we have endorsed, include ending some forms of corporate welfare, including closing the carried-interest loophole, for savings of about $14 billion. Eliminating special tax breaks for the oil and gas industry could bring in $35 billion.
Simpson and Bowles find additional savings by revising an inflation gauge called the chained consumer price index, which would slow the growth in Social Security cost-of-living payments. They would also reduce federal pensions. We’ve endorsed these ideas, but agree they are politically explosive and less likely to win congressional support.
In fits and starts, Congress has made progress on the deficit since 2011. To lift the debt ceiling, lawmakers enacted spending cuts worth about $1.5 trillion over the next decade. And to avoid the fiscal cliff, they adopted tax measures to bring in $600 billion. Further savings of $1.2 trillion would be enough to cancel the full 10-year sequester, beyond just this year’s $85 billion.
Coincidentally (or not), the latest Simpson-Bowles plan would cut entitlements and raise new revenue by $1.2 trillion. How convenient.
To contact the Bloomberg View editorial board: email@example.com.