A few basic misconceptions about Simpson-Bowles

October 2, 2012

Washington's ongoing obsession with Simpson-Bowles isn't dissipating any time soon: A bipartisan group of senators are reportedly thinking of having their deficit-reduction plan automatically triggered if Congress can't come up with its own grand bargain. But do all the fans of Simpson-Bowles really understand what they're endorsing?


Erskine Bowles, left, accompanied by former Wyoming Sen. Alan Simpson, co-chairmen of President Obama's bipartisan deficit commission, on Nov. 10, 2010. (Alex Brandon - AP)

In a new report, Richard Kogan at the Center of Budget and Policy Priorities explains how some very technical details in Simpson-Bowles could lead to some very basic misconceptions about what the plan would actually do. 

Simpson-Bowles is often advertised as reducing the deficit by $4 trillion, through a 3-to-1 ratio of spending cuts to revenue increases. But this doesn't always give an accurate picture of the plan.

First, Kogan points out that Simpson-Bowles is essentially an eight-year plan, with savings for 2013-2020, with "a tiny amount of savings for 2012." But the other deficit-reduction plans that it's routinely compared to are over 10 years. What's more, Simpson-Bowles used a baseline that assumed that the Bush tax cuts for high-income Americans would be allowed to expire and didn't count their expiration towards savings, but it did include interest savings.

By contrast, other deficit reduction plans that have been offered—by President Obama, the House Republicans, et al—would be enacted over 10 years, not eight. And while Obama's $4 trillion deficit reduction plan also assumes that the high-income Bush tax cuts would expire, his plan counts those tax increases toward savings, unlike Simpson-Bowles. 

If you applied the same assumptions to Simpson-Bowles, you'd get a very different set of numbers: If extended over 10 years, assuming the savings from the Bush tax cuts expire, the plan would reduce the deficit by $6.3 trillion. What's more, the spending cuts-to-revenue ratio would shift to nearly 1-to-1, since the expiration of the Bush tax cuts for high-income earners would provide an additional $1.1 trillion in revenue from 2013 to 2022. 

But if you really wanted to compare Bowles-Simpson to the other deficit reduction plans out there, you'd also take out the recommendations that have already been written into law. After Bowles-Simpson came out with its framework in December 2010, Congress passed $1.5 trillion of spending cuts as part of the debt ceiling deal in August 2011. If you take out the recommended cuts that are already enacted, Simpson-Bowles would achieve an additional $4.6 trillion in deficit reduction, with just $0.54 in spending cuts for every $1 in revenue.

To put this into perspective, during the primary, Mitt Romney rejected a 10:1 ratio of cuts-to-revenue for being too heavily weighted towards revenue increases.

*Correction: An earlier version of this post referred to the "Bush tax cuts," when it should have read "Bush tax cuts for high-income earners."

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Ezra Klein · October 2, 2012