The Great Debate

Erskine Bowles and former Senator Alan Simpson deserve some kind of medal for creating the widely held perception that their plan for reducing the deficit and debt is anything other than a bad proposal.

It has been nearly two years since the commission they chaired, which I served on, finished its work. The duo’s proposal has attained almost mythical status in Washington as the epitome of what a “grand bargain” should look like.

But everyone look again. They will discover that it is far less than meets the eye.

Have Simpson-Bowles’ champions read it? Given any real scrutiny, this plan falls far short of being a serious, workable or reasonable proposal – from either an economic or political analysis.

In one of its few specific points, for example, Simpson-Bowles mandates a top individual tax rate of 29 percent “or less.” Much like the vague Romney proposals, the Simpson-Bowles plan would make up the shortfall by eliminating tax loopholes, suggesting options such as having employees pay taxes on their health benefits. Not only is this likely to increase costs to middle-income families, it could threaten coverage altogether. The proposal for corporate tax reform would eliminate taxes on profits earned overseas, rewarding companies that move jobs offshore.

Now that federal government shutdown has been averted, it's a good time to examine what's at stake for most of America in the crucial next round of budget talks.

Not doing anything to reduce the size of government debt will be catastrophic. Not much quibble there. But acting hastily and cutting the wrong things can be even more costly to social and economic welfare.

Neither the Republican nor the Democrat's budget plans for 2012 will meet the major challenge of sustaining social programs while cutting the most egregious waste.

Congress needn't be cruel to be kind in cutting the U.S. budget deficit while saving popular programs like Social Security and Medicare.

That's not to say that taxes don't need to rise, deductions pared and giveaways to corporations eliminated. That all needs to be considered, although the recent deficit commission report doesn't do the dirty work in an equitable manner. It places far too much emphasis on paring Social Security benefits, a system that works and won't be in deficit mode for several decades.

There's plenty of pain to go around in the deficit commission's proposal. The most compelling trade-off is based on the idea that lowering personal income-tax rates will achieve some long-term economic stimulus. That thinking hasn't worked in the past and won't work now.

The rising costs of Medicare and Medicaid threaten to destroy the nation's fiscal future, but President Obama is pushing for healthcare reform that would increase costs. Instead, he should refocus his presidency on paying down debt.

America's obligations over the next 75 years now surpass $62 trillion, up 8 percent since last year. And a new report released today by the Peterson Foundation suggests that total will go even higher if the House's health care legislation is passed.

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With today's pliant bond market, it's easy to pretend we can have things that can't be paid for. But that's the kind of attitude that led California into the fiscal abyss. We have to get serious about bringing our expenses in line with our income. Now.

At first glance this week's budget projections paint President Obama as a spendthrift. The White House itself offered a grim glimpse of a future in which U.S. debt more than doubles to $17.5 trillion in a decade -- an increase of nearly $10 trillion.

Merely servicing the U.S. debt will cost more than America currently spends on either defense or social security.

But the yawning deficit can't be blamed on Obama -- or for that matter, on Bush or on the financial crisis. Instead the government's finances are locked on autopilot, with entitlement programs driving the country towards a fiscal crisis.