Simpson-Bowles holds a hallowed place in the hearts of Washington’s deficit hawks, who want to use the plan as a starting point for any fiscal cliff deal. But alternatives to the Simpson-Bowles model are now beginning to emerge.
On Tuesday, Sen. Chuck Schumer (D-NY) flatly rejected the Simpson-Bowles approach to tax reform as insufficiently progressive, arguing that deficit reduction should take precedence over tax=rate cuts for the wealthiest Americans. On Wednesday, David Walker, CEO of Comeback America Initiative, proposed another alternative that would challenge the political orthodoxy of both parties.
To most Democrats’ chagrin, Walker’s group wants to block-grant Medicaid, repeal and scale back parts of the Affordable Care Act, and raise taxes on Americans who are above the poverty live but pay no federal income taxes, as it outlined in a 2011 fiscal reform plan.
“There are a lot of people well above the poverty rate who aren’t paying income tax,” says Walker, the former Comptroller General who previously ran Pete Peterson’s foundation. He acknowledges that the tax change won’t be a big money saver. “That’s not going to generate a lot of money, but we’ve got to have more people have a stake in government finance,” he explains, adding that the framework would hold middle-class taxpayers harmless.
Likewise, Walker says, Republicans wouldn’t be happy with the group’s proposal to scale back defense spending to President Obama’s recommended levels, or with the higher effective tax rates on the wealthy. And many in both parties might be taken aback by Walker’s proposal to impose a consumption tax akin to a VAT and phase out the employer deduction for health care, which would radically shift the country away from a employer-based health care model. (Walker says it would be replaced by a system that would offer “basic coverage for all citizens,” though he didn’t go into the details.)
Walker’s group, which is supported by Peterson, shopped these ideas to colleges and business groups in 16 states. He says that these reforms—taken as a whole—were exceedingly popular among those who attended the tour’s public events. But concerns surfaced at Wednesday’s press conference: One woman questioned whether block-granting Medicaid would harm poor and disadvantaged Americans.
Alice Rivlin, who was also part of the Bowles-Simpson commission, agreed it was “a very legitimate concern” about the Medicaid block-grant. But Rivlin, who appeared at the event in support of Walker’s group, dissuaded the audience from getting too hung up on the specifics.
“I’ve noticed some of you taking notes on specific proposals he was offering I think that’s not the point,” Rivlin said. “He put out in the public domain a set of proposals we ought to be talking about. I wouldn’t agree with absolutely all of them. But that’s the essence of getting to a solution.”
What unites all of these efforts is the deficit hawks’ central belief that the long-term deficit is a cataclysmic problem that requires a historic bipartisan deal with drastic changes to the most central functions of government. It’s a campaign that’s proven successful in terms of building a consensus in Washington that a grand bargain is the only possible solution.
Rivlin acknowledging that there was a risk in over-dramatizing the proposals for reform. “The other thing we need to not do is not scare people. If you listen to people picketing outside, they think that somehow Simpson-Bowles or this group wants to cut Social Security now,” she said, referring to a small protest that had gathered outside the event.
But standing next to a giant debt clock on the podium, Walker—whom the Post once deemed “the prophet of deficit doom”—made it clear how high he believes the stakes to be: He compared the government’s looming deficit crisis to the meltdown on Wall Street, with even bigger potential consequences if it’s left unaddressed. “The significance of this is much greater, and there’s nobody who’s going to bail out America,” he concluded.