Simpson-Bowles Prod Congress Again to Anti-Deficit Fervor

Erskine Bowles and Alan Simpson, the deficit-reduction duo, are trying to rekindle congressional interest in a $2.5 trillion package of spending cuts and tax increases with new details showing how it could work.

The updated plan, released today in Washington, includes $740 billion in increased revenue over the next decade that Republicans have deemed unacceptable and a higher eligibility age for Medicare that President Barack Obama has rejected.

The bipartisan pair are seeking to outline the elusive middle ground between the parties’ positions on deficit reduction, and continue to refine an alternative federal budget that few lawmakers have endorsed. Bowles said in an interview that they are trying to demonstrate what’s possible and absorb criticism so they can catalyze a deal.

“If Al and I take the slings and arrows, we’re fine with that,” Bowles said. “Anytime you can get people discussing new and different and hopefully better ways to get a deal done, then you’ve got a better chance of accomplishing it.”

Like the president, Bowles and Simpson call for replacing automatic federal spending cuts with other reductions and raising taxes to reduce the deficit. It is projected to be $845 billion in fiscal 2013, or 5.3 percent of the gross domestic product.

Their plan would reduce debt as a share of GDP below 70 percent by 2023, compared with 73 percent by that year in Obama’s budget released this month and 55 percent in House Republicans’ budget.

Over the past few days, a study by Carmen Reinhart and Ken Rogoff that warned of the dangers of government debt has been criticized for errors.

‘Enormous Risk’

“What it doesn’t change is the common sense and my own personal experience in both the public and private sector that when any organization has too much debt, that that is an enormous risk factor,” Bowles said today.

Bowles, a former chief of staff to President Bill Clinton, said he and Simpson, a former Republican senator from Wyoming, tried to include protections for beneficiaries of entitlement programs. While the Medicare eligibility age of 65 would be gradually raised to 67, people would be able to buy into Medicare with income-based premiums when they reach 65.

Their plan would back-load the deficit reduction to avoid harming the economic recovery, with 95 percent of deficit-cutting taking place in 2016 or later.

In its reliance on both spending cuts and tax increases, the Bowles-Simpson plan resembles the budget outlined by the president, who has said he has met Republicans more than halfway.

‘Dancing Partner’

“He still has to find a dancing partner in Congress,” said Representative Xavier Becerra, a California Democrat who served on the presidential deficit-cutting commission led by Simpson and Bowles in 2010 and voted against its report.

The spending cuts proposed by Simpson and Bowles are larger than those in Obama’s budget and smaller than the ones proposed by House Republicans, who aim to balance the budget by 2023 through cuts alone. The updated plan, which expands on a framework from February, was designed to take last year’s unsuccessful negotiations between Obama and House Speaker John Boehner as a starting point.

Discretionary Spending

The plan calls for $385 billion in cuts in so-called discretionary spending, more than half of which would come from defense programs.

“Anybody who believes we’re hollowing out the defense budget is hollow in your head,” Simpson said today at a Bloomberg Government event in Washington, saying there is plenty of room to cut contracting and other items. “This is disgusting when people say you can’t touch the defense budget.”

Bowles and Simpson would cut $585 billion from health-care spending, including expanded means-testing of Medicare benefits. They would also cut $265 billion from other programs, such as agricultural subsidies and higher education.

Their plan adopts the chained consumer price index, a typically slower measure of inflation for benefits and tax brackets that Obama included in his budget.

Part of the plan is a rewrite of the U.S. tax code that would lower tax rates, remove breaks and impose lighter levies on multinational companies’ overseas income. It would establish an enforcement mechanism if Congress fails to act on taxes, implementing across-the-board limits on tax breaks.

Deficit Panel

Simpson and Bowles have been campaigning for bipartisan deficit reduction since 2010. That’s when they were co-chairmen of Obama’s deficit reduction panel and produced a final report that received 11 of 18 votes, three short of the number needed to force congressional consideration.

Representative Tom Price, a Georgia Republican, said he opposes some parts of what Bowles and Simpson recommend while appreciating their broader message.

“Any positive contribution to moving us forward in the direction of fiscal sanity is a good contribution,” Price, vice chairman of the House Budget Committee, said in an interview yesterday.

Democrats secured tax increases in January, Price said, and any budget agreement would need to include significant restraints on future spending.

The latest Bowles-Simpson plan calls for less revenue than the 2010 plan did. They are advocating a solution that doesn’t resemble the bipartisan plan they started with, said Michael Linden, director of tax and budget policy at the Center for American Progress. The Washington group philosophically aligns with Democrats.

‘Shifting Landscape’

“We have this shifting landscape where there’s no way for the president ever to be in the center, because Simpson and Bowles are explicitly defining the center as halfway between where the president is and where the Republicans are,” he said.

Bowles praised Obama’s chained CPI offer, cuts in domestic spending, support for a corporate tax rate cut and proposals to limit health care spending.

“All of those things will make the other side much more likely to do a deal,” Bowles said.

‘Magic Moment’

That hasn’t happened yet, not even in what Bowles hoped would be a “magic moment” in December 2012 when income tax cuts were expiring and the $1.2 trillion in automatic cuts, known as sequestration, were about to start. The next potential point for action is the need for an increase in the debt limit, which will occur in the next several months.

Bowles said Congress has “one last good chance” to get a deal done between now and Aug. 1.

Instead of a so-called grand bargain, U.S. lawmakers have imposed about $2.7 trillion in deficit reduction through a series of deadline-driven agreements. That total doesn’t include the sequestration cuts.

“That’s not nothing,” Bowles said. “That’s a good step in the right direction. It doesn’t get us to the promised land.”

In 2011, Congress cut spending as part of an agreement to raise the federal debt limit. This year, lawmakers allowed tax rates for top earners to increase.

If enacted, the Simpson-Bowles plan would bring total deficit reduction to $5.2 trillion, with about 72 percent of that coming from spending cuts.

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