James Pethokoukis

Politics and policy from inside Washington

Obama deficit commission: the Bowles-Simpson edition

November 10, 2010

Erskine Bowles and Alan Simpson have put out their recommendations. Here are my quick thoughts:

1. Limiting spending to 21 percent of GDP basically kills Obamacare. I am pretty sure it needs higher levels of funding, so we are talking a complete restructuring. Certainly the GOPers on the commission believe this to be the case.

2. But does the 21 percent include interest costs? That is a big item that could completely change the picture here as presented.

3. Have no doubt, boosting revenue as a share of GDP to 21 percent would put the U.S. tax burden at its highest level in history. It was 20.6 percent in 2000 thanks to capital gains from a booming stock market.

4. Speaking of cap gains, they would be taxed as ordinary income under all the Bowles-Simpson reform plans. Since the rate is currently at 15 percent, that means around a doubling depending on the plan.

5. Then again, corporate taxes would be slashed, which is good for competitiveness and worker incomes.

6. How does Bowles-Simpson compare to the Ryan Roadmap? In 2037, debt to GDP is 40 percent for Bowles-Simpson vs. 96 percent for Ryan.

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