Looking back on the year, a number of politicians were extremely successful in getting the political establishment and the public to pay attention to the looming fiscal train wreck. There’s a reason Michael J. Lewis’s “Boomerang” has been such a hit; Unlike the skeptics in his book who warned of looming fiscal crack-ups in Iceland, Ireland, Greece and California, he has an audience alreadyconvinced that something is terribly wrong.
However, no one in the United States has been able to convince everyone else on an acceptable political compromise. It is now certainly the case that real fiscal reform, if we are ever to get it, will, in all likelihood, happen only after the 2012 election.
In that regard, I suggest that Republicans are much further along in getting in touch with reality and being able to make needed compromises than are Democrats. In hindsight, the supercommittee was more important than many realize.
In essence, Republicans showed they understand increased revenue must be part of the mix (and will be willing to consider revenue increases under the umbrella of tax reform) and are willing to embrace less stark entitlement reform to entice Democrats to make a deal. Democrats are still talking about soaking the rich to solve the fiscal mess. In other words, one side still believes in the Easter Bunny.
Now that Republicans (or some of them) have accepted the need for revenues, it would seem — at the risk of being simplistic about this — that a modified Simpson-Bowles deal, in the end, will be the Republicans’s final card to play. Their main objections to it a year ago were that it didn’t touch ObamaCare, it took too much out of defense spending, it left revenue and spending too high (21 percent of GDP) and it raised revenue. There now is far less resistance to the last item if there is the prospect of significantly lower marginal rates. And we’ve seen California cities and European countries go essentially bankrupt because they didn’t think the music would ever stop and they’d have to pay off what they borrowed. Maybe Simpson-Bowles is worth a re-look.
The six components of the debt commission proposal were:
1) Discretionary Spending Cuts: Enact tough discretionary spending caps to force budget discipline in Congress. Include enforcement mechanisms to give the limits real teeth. Make significant cuts in both security and non-security spending by cutting low-priority programs and streamlining government operations. Offer over $50 billion in immediate cuts to lead by example, and provide $200 billion in illustrative 2015 savings.
2) Comprehensive Tax Reform: Sharply reduce rates, broaden the base, simplify the tax code, and reduce the deficit by reducing the many “tax expenditures” — another name for spending through the tax code. Reform corporate taxes to make America more competitive, and cap revenue to avoid excessive taxation.
3) Health Care Cost Containment: Replace the phantom savings from scheduled Medicare reimbursement cuts that will never materialize and from a new long-term care program that is unsustainable with real, common-sense reforms to physician payments, cost-sharing, malpractice law, prescription drug costs, government-subsidized medical education, and other sources. Institute additional long-term measures to bring down spending growth.
4) Mandatory Savings: Cut agriculture subsidies and modernize military and civil service retirement systems, while reforming student loan programs and putting the Pension Benefit Guarantee Corporation on a sustainable path.
5) Social Security Reforms to Ensure Long-Term Solvency and Reduce Poverty: Ensure sustainable solvency for the next 75 years while reducing poverty among seniors. Reform Social Security for its own sake, and not for deficit reduction.
6) Process Changes: Reform the budget process to ensure the debt remains on a stable path, spending stays under control, inflation is measured accurately, and taxpayer dollars go where they belong.
In there, if not in all the details of Simpson-Bowles, is the eventual “grand bargain” everyone has been searching for. With Republicans having crossed the Rubicon on revenue, the rest may not be so difficult for them to stomach.
It would be a waste for Republicans to try to make a Simpson-Bowles-type deal with the current president. But if there is a Republican president-elect a year from now, he or she might think about meeting with the commission’s co-chairs and getting their buy-in on a variation of their handiwork. It’s an imperfect idea whose time has come.