Popular storyline: In an attempt to get a Grand Bargain, President Obama proposed a centrist deficit reduction package. Congressional Republicans rejected that package only because it raised taxes, and were unreasonable for doing so. Like his fiscal commission cochairs Bowles & Simpson, the President proposed a responsible and balanced package of tax increases and long-term spending cuts that would solve our Nation’s fiscal problems. Because they are unwilling to consider tax increases, Republicans are therefore to blame for the failure of a Grand Bargain and for future fiscal collapse.
The problem with this storyline is that eight months ago three prominent Senate Republicans supported the Bowles-Simpson recommendations, which contained a net tax increase. The House Republicans on the commission did not support those recommendations, but Senators Coburn, Crapo, and Gregg did. No one would call any of these three men moderates – all are clearly conservative.
The President has stressed his willingness to include long-term entitlement reforms, including raising Medicare’s eligibility age to 67 and, reportedly, a correction to the CPI. Both are good policy changes, and both are elements of Bowles-Simpson. The President argues that Republicans should, in exchange, be willing to agree to the tax increases he proposes – both a significant increase in total tax revenues, and specific policies like higher marginal rates for “the rich.”
But the effects on beneficiaries of the Medicare eligibility increase, and the budget savings that would result from such a policy change, are significantly mitigated by the existence of ObamaCare subsidies for near retirees. This is nowhere nearly as big of a “give” as it would have been before the new health laws. A CPI change would both reduce entitlement spending and raise tax revenues, so the political pain is bipartisan.
More broadly, these changes would only temporarily slow spending growth. While they are politically significant, they fall far short of the size and type of changes that you need to make to solve our entitlement spending growth problem. At best they kick the can down the road several years.
Let’s look at a few of the other provisions that conservatives would support in the Bowles-Simpson package that are not in the President’s proposed Grand Bargain. Parenthetical references are to the Bowles-Simpson recommendations.
Health reforms in Bowles-Simpson that are not in the President’s proposal:
- Reform or Repeal the CLASS Act; (recommendation 3.2)
- Medical malpractice reform; (recommendation 3.3.12)
- Pilot a “premium support through the FEHB program” for Medicare; (similar to Ryan’s reform)
- Establish a long-term global budget for total health care spending. (rec. 3.3.13)
Social Security reforms in Bowles-Simpson that are not in the President’s proposal:
- Make the retirement benefit formula more progressive; (recommendation 5.1)
- Gradually increase early and full retirement ages [for both Social Security & Medicare] based on increases in life expectancy; (recommendation 5.4)
- Cover newly hired State and local workers after 2020. (recommendation 5.8)
Tax provisions in Bowles-Simpson that are not in the President’s proposal:
- Cut rates across the board, and reduce the top rate to between 23 and 29 percent; (rec. 2.1.1)
- Example: Three brackets: 12% | 22% | 28%; (figure 7)
- Establish single corporate tax rate between 23 percent and 29 percent; (rec. 2.2.1)
- Move to a competitive territorial tax system. (rec. 2.2.3)
This is far from an exhaustive list. Other items from Bowles-Simpson are a part of the ongoing negotiations between the White House and Congress. Bowles-Simpson also included other provisions that most Republicans wouldn’t like, such as a 15¢ increase in the gas tax.
In 1997, to get a deal with Speaker Gingrich and Leader Lott, President Clinton had to cut spending enough to balance the budget and cut taxes. In 2010, Commission Chairman Bowles had to make fundamental changes to entitlement spending growth and to the structure of these programs to get some Republican support for a package that raised taxes.
Chairman Bowles found that, to get three Senate Republicans to support a net tax increase, he needed to repeal an expensive new health program, tick off the trial lawyers with malpractice reform, establish a pilot program for Ryan-Rivlin style Medicare reform, and place a cap on total health spending. He needed to increase the eligibility age not just for Medicare, but also for Social Security, and he needed to slow Social Security spending growth through changes to the benefit formula. He needed to tick off government worker unions by prospectively repealing their special exemption from Social Security. And he needed to agree to tax reform that would raise total revenues while dramatically lowering top individual and corporate rates.
President Obama has been unwilling to make any of these changes, and yet suggests Republicans are being unreasonable for not agreeing to net tax increases. The President refuses to discuss changes to the trillion dollar new health entitlement he and Congress created last year. He refuses to discuss changes to Social Security beyond a CPI correction. He insists that top tax rates go up. He attacked Paul Ryan for his long-term Medicare reform and refuses to consider it.
At least as important, Bowles & Simpson offered a long-term fiscal solution in exchange for this net tax increase, under which spending would never have exceeded 22% of GDP and deficits would have quickly dropped below 2% of GDP and eventually reached balance. That’s too much spending (and too high taxes) for my taste, but it’s qualitatively different from and far superior to the President’s proposal, which is to trade permanent tax increases for only a temporary slowdown in government spending growth and budget deficits.
Congressional Republicans are being castigated for opposing the President’s proposal. Many of those Republicans will reject any tax increase in any package, but some will consider the offer as a whole, and will weigh the spending control and reform they’re being offered in exchange for higher taxes.
And unlike the Bowles-Simpson package, the deal they’re being offered by the President is such a bad one that it’s not really a tough call.
(photo credit: The White House)