With the national debt looming as such a massive issue in the presidential campaign, the two whose names have become synonymous with a complex plan to reduce the budget deficit and national debt, Erskine Bowles (Democrat who served in the Clinton Administration) and Senator Alan Simpson (Republican of Wyoming), have been making a national tour to drum up support for their plan in order to avoid the dreaded Sequestration and looming Fiscal Cliff. Their plan would reduce the national debt by $4 trillion over 10 years, with a combination of revenue increases (taxes) and spending reductions (reforms to Social Security, Medicare, Medicaid) [much like Obama’s Grand Bargain that was rejected by Republicans]. They appeared at Hofstra University on Long Island, New York, on Monday, October 15, 2012, the day before the second Presidential Debate, at Hofstra.
In comments and in answers to questions, the namesakes- in the flesh – outlined what is now known as the Simpson-Bowles plan. The plan has almost become its own word, like “Kleenex” or “Xerox”.
Peppering their talk with phrases like “madness” and “it’s crazy”, they argued that America faces “the most predictable and the most avoidable economic crisis in history.”
Both men – one a Democrat the other a Republican – are so fearful and emphatic about the issue, they have been crisscrossing the country trying to recruit adherents to the gospel, have a website, fixthedebt.org, and are challenging Obama and Romney to address the fundamental issues.
The Romney/Ryan campaign, particularly rails against the “immorality” of leaving a $16 trillion national debt to future generations and threatening that under Obama, the debt will inevitably rise to $20 trillion – yet Romney has yet to explain how he would reduce the national debt when his policies embrace the Romney/Ryan budget, with $5 trillion in tax cuts and he has proposed $2 trillion more in military spending. Congressman Paul Ryan, the Republican Vice Presidential candidate, criticized Obama for not pushing Simpson-Bowles, yet Ryan voted against its adoption and in favor of the Sequestration compromise. The result has been of Congress failing to adopt Simpson-Bowles or anything like it is why we have the Sword of Damocles of Sequestration and the Fiscal Cliff, which they argue would be a disaster for the nation.
Simpson-Bowles chastise both Democratic and Republican parties – and say that the ideological extremes – taxing more but not cutting entitlements, or spending less and cutting taxes and entitlements, will not work.
“We can’t grow our way out…. We want a balanced, phased in approach calling for $4 trillion in reduction, with $1 trillion coming from revenue increases and $3 trillion in spending cuts.”
But in their quest to be nonpartisan and lay blame evenhandedly, they did not mention Obama’s $4 trillion “Grand Bargain,’ in which he did attempt to forge a compromise that riled his own base because he would have altered Medicare, Social Security and Medicaid and would have avoided Sequestration and the Fiscal Cliff.
So what are Simpson-Bowles actually proposing? Here is how they describe the problem and their plan…
We weren’t doing it for our nine grandchildren, or even our children, we were doing it for us…We came here today to tell you if we can’t get people in Administration, Congress, both sides of the aisle to put aside partisan politics, we face the most predictable economic crisis in history – also the most avoidable economic crisis in history. There is no question the fiscal path America is on is not sustainable … Here’s an analogy: these deficits of over $1 trillion a year are like a cancer that will destroy our country from within.
Every nickel [raised in taxes] was spent on mandatory spending (Medicare, Medicaid and Social Security) and interest on debt. That means every dollar spent last year – on two wars, national security, homeland security, education, infrastructure, high value added research – every single dollar was borrowed and half was borrowed from foreign countries. That’s crazy.
If any politician tells you don’t worry, or ‘I can tell you why spending,’ and they say waste, fraud, abuse, or foreign aid, or Nancy Pelosi’s airplane, or earmarks, you could put all those things in a thimble compared to the real problems we face, and these are the problems that we have to talk about…
Here are the 5 principle reasons why we face the enormous challenges we do today :
The biggest challenge America faces, far and away is Health Care. We spend twice as much as any developed nation in the world on health care. That might be all right, if our outcomes were twice as good as other nations, but they are not – we rank between 25-50th in such important outcome measures as infant mortality, life expectancy, preventable death. Any of you in this room who don’t think 32 million without health insurance don’t get health care, you are wrong. They get health care, but at the emergency room at 5-8 times the cost of doctor’s office. That cost doesn’t disappear, it gets cost shifted to you, in the form of higher taxes, higher premiums.
In 1981, 10% of budget was spent on health care, today we are spending 25% of budget on health care , by 2020, it will be one-third, and it won’t be long before all this nation can afford is take care of old coots like me and Al.
Health care is the biggest problem we face.
What are these guys going to do about it? We need to get an answer tomorrow night.
Second, Defense. We spend more on national defense than the next 17 largest countries combined. That includes both Russia and China. I think today America is bearing a disproportionate responsibility for global world peace and I don’t believe America can afford to be the world’s policeman. Admiral Mullen, chairman of the Joint Chiefs [under] Bush and Obama, got it right: When asked the biggest national security problem, the biggest danger, he didn’t say ‘Terrorists,’ he said it’s the deficit, because it will consume every dollar of resources we have.
America today has a treaty with Taiwan that we would protect Taiwan if it is invaded by the Chinese. One problem, we would have to borrow money from china to do it. It’s crazy.
Three, Tax Code. We have the most inefficient, ineffective, globally anticompetitive tax code that man could dream of…
The one today doesn’t make sense. How could nominal rates be so high and net so little money – We only net $1.3 trillion in total income taxes. The reason is we have $1.1 trillion in backdoor spending in the tax code – deductions and credits that many of us – me included – like. We recommended we broaden the base, simplify the code and wipe out all the backdoor spending in the tax code. Sounds a little like Mitt Romney. The difference is we recommend not a 100%, but 92% of this money be used to reduce income tax rates, and 8%, or $100 billion ($1 trillion over 10 years) – be used to reduce the deficit. So if we do that, what can we do to income tax rates with other 92%? We can take rates to 8% up to $70K, 14% for up to $210K, and have maximum marginal rate of 23%. We can take the corporate rate to 26%, thereby becoming globally competitive… [And then,] the trillion dollars spent overseas can be spent here to create jobs.
Democrats say if we do that, companies will just use the cash to buy back stock – great, at least it would circulate in this country, rather than get stuck over there. We think this would create dynamic growth and thousands of jobs.
Four: Social Security. Over the next decade, Social Security is $900 billion cash negative, and if we don’t do something about it, it will go broke in 2031, and when you waddle up to the window, you’ll get 25% less than schedule. Roosevelt was really smart: when he created Social Security, average life expectancy was 63, and he got Social Security [to start] at 65. That was a smart guy. Today, average life expectancy is 78, and you get it at 62. We have a math problem. We recommend that to make Social Security sustainably solvent, so it will be there [that the age be raised to 67].
Fifth: Interest on the Debt. We spend $230 billion on interest now, even at these low rates, if interest rates were at the medium level of 1990s, we would be spending over $650 billion a year on interest, but even at this $230 billion level, this is more than we spend on Department of Commerce, Education, Energy, Interior, Justice, Homeland Security and State combined. If we do nothing, just kick the can down the road, by the year 2020 we will be spending over $1 trillion a year on interest alone.
That’s a trillion we can’t spend to educate our kids, to build our infrastructure, to create the next new thing by doing research in great universities, and really bad for you kids because that is $1 trillion that will be spent principally in Asia, to educate their kids, do research in their universities, so the next new thing is there not here but there, and jobs are there not here.
Don’t let politicians tell you we can grow our way out. Growth can’t solve this. We can have double digit growth for decades and not solve.
Don’t let anybody else tell you don’t worry, we can solve this just with taxes, Raising taxes doesn’t do a dern thing to change health care growing at a faster rate than GDP [Gross Domestic Product]….
And those who would like to solve this by cuts alone, can’t without disrupting the fragile economic recovery or hurting the truly disadvantaged or making such deep cuts in education, infrastructure, and research that America won’t be competitive. That’s why we recommended cutting $1 trillion through the tax code, $3 trillion in spending…
We didn’t make up $4 trillion – it’s not the maximum amount, not the ideal amount, it is the minimum amount we need to reduce the deficit, stabilize the debt and get on a downward path… What made Al and me proudest is the depth of support – five of 6 senators voted for it, from Dick Durbin, a liberal, to Tom Coburn, a very conservative Republican from Oklahoma, and they did it because they believed it was the right thing to do. They were willing to make the tough political choices to put our nation’s fiscal house in order.
I hope by end of night, you will join us in this effort.
Senator Alan Simpson:
[Simpson addressed the quagmire of Defense Spending, recalling that when the Defense Department testified and was asked how many contractors they had, they could not come up with a figure more precise than “between 1 and 10 million” and said that spending on defense contractors is essentially “unauditable.”]
There are other aspects to military spending which is bound up in the budget deficit and have little to do with “force structure” or military readiness.
Military have their own health system, Tricare, for which they pay $520/year premium with no copays. “That costs $53 billion a year. Nothing wrong with that, but people ought to know.
There are 61 Department of Defense schools in America, created wars ago, all a bus ride away from public school, have superintendent, teachers, students. The cost is $51,000/student. Wake up. This doesn’t have anything to do with force structure. Who’s impacting force structure- if talking about building some kind of equipment to assist in defense, every one of them has a part made in every state, there’s a reason for that, if try to cut, say, wait, it’s Cheyenne, it’s jobs. – all 50 states have some of that action.
We don’t do myth, we do math, we don’t do B-S or mush, people are sick.
Social Security is in crisis because this is essentially one generation paying for the next, and the number of workers necessary to finance a senior is increasing. Simpson-Bowles have a different idea to give different amounts based on their income level, tax payroll up to $190,000, change the cost of living allowance and raise retirement age to 67 in 10 years and 68 by 2050.
Bowles: If we just let those events occur, the economic effects next year will be enough to throw us back into recession, it will slow the rate of growth 3-5%, and since only growing 1.3%, by definition puts us into recession, will cause unemployment to go to 9%, and cause 2 million more people to lose jobs. That’s crazy, especially when we don’t have to let that happen. We have to face up to these problems, put a long term plan into effect that raises some revenue, reduces spending, enables us to put fiscal house in order.
Al and I going around country over last year, but we wanted to come here because of the debate tomorrow, to convince people the problem is real, we have to face now, because if we go over fiscal cliff and don’t reach a deal immediately thereafter, the markets themselves will crush us. They will lose confidence in this country’s ability to govern and our ability to come up with a real solution. They won’t wait for the long-term problems to resolve, it will crush us because they will think can’t measure up.
Simpson: Every day, we borrow $16 billion, so to get to $1 trillion, for every $1, we borrow 41 cents. We think we have a new stimulus would get back of whole, not many vote, big stimulus is the deficit, $1.trillion. That’s madness.
Bowles: [This plan is] phased in so it wouldn’t disrupt the fragile economy. The plan they have in the United Kingdom, calls for $1 of revenue, $3 of spending cuts and also calls for cost-benefit analysis, raises retirement age like we do, slows the rate of growth of health care plan, has led to real problems in UK because too much, too quick, they were trying to get to balance over 5 years. We said, can’t go that quickly because would disrupt the fragile economic recovery. By 2020, you get the Deficit to GDP ratio to 1%; you don’t get to balance for 15 years.
Simpson: Austerity problems of other nations – if you look at our trajectory of debt-interest, it’s exactly the same as Portugal, Italy, Greece, but we’re a lot bigger. We’re the healthiest horse in the glue factory.
Bowles: Markets are now focused on Europe, Asia, and don’t believe we [in the US] are stupid enough to breach this fiscal cliff, They believe as Churchill said: Americans almost always get it right, but not until tried everything else. So they think that during the lame duck we’ll make the right decisions, the tough decisions to put fiscal house in order.
Gridlock, partisanship in Congress?
Bowles: My biggest concern, is the way [Congressional] districts are divided up… If you are Republican and willing to do something on revenue, Grover Norquist will come out of the sky, run somebody against you in the primary and they will beat you, so you have people extreme on the left and right, and no one in the sensible center where you can get something done, where compromise is a dirty word.
Simpson: If you can’t learn to compromise an issue without compromising yourself, you sure don’t want to be in Congress or be married. If you don’t want to compromise, don’t be in business, have a partner, have a spouse. It’s madness.
Some say compromise means are a quitter….
As far as being a matter of Constitutional principle, they [the Founding Fathers] sat in room for months and every word is a compromise, and every word of the Declaration of Independence is a compromise. You cansee the original in the Library of Congress, where Thomas Jefferson wrote in margins, ‘oh what ever.’ Everything on earth is compromise, and to think we’ve come to situation where the word is a negative, is madness.
Do you think Americans understand what it would mean if US went bankrupt?
Bowles: It shouldn’t happen, the probability is it won’t happen, but could it happen? Yeah. If you think about the fiscal cliff, why wouldn’t we solve the problem before went over the cliff? …That’s not bankruptcy, but what would happen if the markets lost confidence in us, in our ability to govern? We would see that the stock market which already has priced a deal in, would immediately drop, like last summer when thought we would miss debt payment – crazy – dropped 1000 points. If people really thought we would go bankrupt, nations of world, reserve currency, would see interest rates go up, not just on treasuries, on car loan, house, student debt. The first thing we would see is the cost of money go up, the availability of credit disappear.
Simpson: In that situation, when the tipping point comes, when the markets decide we have a dysfunctional government and won’t loan more because we are addicted, or will loan more but want more, that means higher interest rates, inflation, and guess who gets hurt the worst? The little guy, the middle class that everybody talks about day and night. What irony, stupefying irony. The guy who can’t go to college or open a store, they get hammered; the rich guys will always take care of themselves.
Bowles: We face the most predictable economic crisis, and also the most avoidable economic crisis. Everybody in Washington understands the economics, the arithmetic. Will they have the guts to make the tough political decision. Will you allow them? And then will they be reelected?
What is your prescription to address health care and the availability of doctors?
Bowles: We tried to come up with a real solution for health care – we spend twice as much as other countries. We came to the conclusion that everyone should have health care insurance [(applause] – it is economically, morally right. But if everyone will have health insurance and we the taxpayers would pay, then we shouldn’t pay for a Cadillac plan for everybody, everybody should have a Chevrolet and nobody should have first dollar coverage.
But if everyone has health care coverage, we need more primary care means that universities (Hofstra has a new medical school) have to turn out more primary care doctors… And everybody with health care insurance needs access to drugs, we should be able to negotiate through Medicare for lower prices [applause]. Why should we pay 40% more for same drugs through Medicare, than through Veterans Administration?
But we said that anybody who doesn’t think hospitals, doctors don’t practice defensive medicine… We need tort reform [smaller applause ]. It is quality of health care, not quantity – accountability. The whole end of life scenario, derogatorily known as death panels.
Simpson: There should be means testing – people should pay for Medicare in a way that ties into income.
We had catastrophic care bill in 1988 that would have solved the problem– 85% would have paid $5 to $7 a month more, the next 10% would pay $20-$30 more, and the top 5% would pay $1500-2000 a year, and I got the nastiest letters from gated communities and they repealed it. They even tipped over [Congressman] Rostenkowski’s car.
There it is, and that would have solved the problems. Hospice care, pharmacy, every bell and whistle, and it was cremated by the same [special interest] groups [AARP, AMA].
What progress have you seen, how optimistic are you that a budget/debt compromise will be reached?
Bowles: We are pretty optimistic – within a range. We have taken that 64-page plan .. simplified “going broke” – We got 24 Republicans, 23 Democrats [in the Senate] and 123 members of the House, equal Republicans-Democrats – and formed the CEO fiscal leadership council with 80-100 members of Fortune 250 who have come out and said they are for it. It makes sense, taken as whole, what this nation has to do. We launched a social media campaign, fixthedebt.org – where we havea petition- 150,000 have signed but we want 1.3 million to sign, the the most of any petition. We will use that to put pressure on Congress and we hope when Congress comes back for the lame duck that though they won’t be able to do a complete deal (they can’t fix the tax code in 15 days or make all the cuts) but we hope they will take the plan and use it for a framework for a deal that will have at least $4 trillion in deficit reduction, real substance, real clarity.
And hopefully by next year we will have a deal.
How to cut defense spending?
Bowles: I am a great believer we need strong national defense, just like Al, but Al agrees with me that we can have strong national defense and be fiscally responsible. We spend $740 billion/year on national defense – Those other 17 countries, including Russia and China, spend $540 billion. We did made some cuts – we listed the cuts in the [Simpson-Bowles] plan – all of them popular with the Defense Department. But did we cut out the B-22 Osprey…got rid of ground combat vehicle, yes, we did freeze pay for civilians at Defense, yes, we did cut the research budget to the rate of inflation, yes, we did cut out some contractors, and yes we did make some of the tough cuts. If you look at what we recommended, most are relatively reasonable, but we can’t spare that big a part of the budget and think we can actually solve the long-term fiscal problem. One of the biggest arguments I have with Romney is not in his tax policy – not sure I can do the arithmetic, but even if he can and assume it is revenue neutral, he increases defense spending by $2 trillion while he cuts tax revenue by $4 trillion, that means he would have to cut $6 trillion from other places – that would have to be education, infrastructure, high value research too deeply to make America competitive.
I don’t think we are debating whether we want the country to be secure and safe.
Karen Rubin, Long Island Populist Examiner
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