February 20, 2013

Bowles, Simpson offer new debt-reduction plan

It would cut the deficit by $2.4 trillion in 10 years through spending, tax and entitlement reforms.

Los Angeles Times

WASHINGTON — Erskine Bowles and Alan Simpson, who have been pushing for a major deficit reduction plan since co-chairing a bipartisan commission on fiscal reform, released a new proposal Tuesday to cut the nation's debt by $2.4 trillion over the next decade.

Called "A Bipartisan Path Forward to Securing America's Future," the plan attempts to avoid the large automatic spending cuts set to hit March 1 while also dealing with long-term debt drivers such as Medicare.

"The problem is real, the solutions are painful, and there is no easy way out," the two said in a summary of their plan. "What we are calling for is by no means perfect, but it could serve as a mark for real bipartisan negotiations on a plan to reduce the deficit and grow the economy. It is time for our country to put this ultra-partisanship aside and pull together, not apart," they said.

Bowles, a Democrat and former White House chief of staff under President Bill Clinton, and Simpson, a former Republican senator from Wyoming, headed the National Commission on Fiscal Responsibility and Reform.

Bowles and Simpson proposed a wide-ranging deficit reduction plan, but the commission did not agree to adopt it in 2011.

The two now chair the Moment of Truth project, a bipartisan group pushing a comprehensive solution to the debt problem.

Policymakers instead have taken a piecemeal approach, which Bowles and Simpson said their new plan tries to expand.

The first two steps of their four-step approach have already taken place. First were spending cuts enacted as part of the 2011 deal to increase the debt limit.

Then there was increased revenue from an deal enacted Jan. 2 to allow a temporary payroll tax cut to expire and to increase tax rates on annual household income of more than $450,000.

Bowles and Simpson said the next step is to enact entitlement and tax reform to produce about $2.4 trillion in deficit reduction and replace the $1.2 trillion in automatic spending cuts.

The plan calls for reducing Medicare and Medicaid spending by about $600 billion by, among other things, raising premiums on high earners.

Bowles and Simpson also want to overhaul the tax code by eliminating or scaling back most deductions, using about $600 billion of that to reduce the deficit and some to lower tax rates.

The plan would reduce spending by another $1.2 trillion over the next decade through mandatory spending cuts and other changes, such as altering the way Social Security cost-of-living increases are calculated.

The fourth step is to take action to make Social Security and highway funding solvent and Medicare sustainable.

"We're going to have to push the White House on entitlement cuts. We're going to have to push the Republicans on revenue," Bowles told CNBC. He called the looming federal budget cuts "stupid, stupid, stupid" because the cuts are indiscriminate.

Bowles and Simpson predicted the public backlash from those cuts would lead to pressure on Washington to replace them with a comprehensive deficit-reduction plan that does not endanger the economic recovery.

"Although additional deficit reduction need not be enacted all at once in a single package, it should be enacted promptly," they said. "The longer we wait the fewer options we will have and the less time we will be able to give individuals and businesses to prepare and adjust."

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