Erskine Bowles: A couple of reasons. The point was to start where the two sides were at the end and try to beef it up so that it would actually get debt down below 70 percent of GDP and keep it on a downward path. I think it is fair to say if you go back and look at what was said after we came out with the original Simpson-Bowles plan, the White House and the president hit us up pretty hard for two things. They said we had too much revenue and too much defense cuts. Remember that? If you wanted to do at that point in time at least $4 trillion in deficit reduction, that didn’t leave you many places to go.
We weren’t going to go after income support programs. In addition, as I look at the president’s final offer -- it looked to me like if you dressed it up, it was around $1.4 trillion in revenue -- if you look at what we’re doing here, and you look at our proposal for revenues in transportation, which you left out, then it’s not too different a number. And being far out front of the president on revenues wasn’t something I wanted to do again. And since I’d already been called back on defense, that only left the other areas.
EK: Why start where the two parties ended in the fiscal deal? The really valuable role, I thought, of the original Simpson-Bowles plan, and of Domenici-Rivlin, was that they created a kind of baseline of how people of good faith from both parties would try to solve our debt problems if they weren’t bound by some of the normal rules of politics. Why go from that to just trying to split the difference between the two parties?
EB: Because we weren’t trying to put out the ideal plan. We were trying to put out something that might be able to get done. If we had all the revenue in there that the president was looking for and the spending cuts Republicans might need in order to get a deal done, then perhaps we could make a material difference in the long-term outlook of the country.
I was so disappointed at the end of last year because we really had a chance to do something meaningful. I called it our magic moment. And we didn’t. And the more I thought about it the more concerned I became. And it just became clearer and clearer to me that to get a balanced, bipartisan deal we’d have to push both sides out of their comfort zones. And that meant more health care that Democrats would have to do and more revenue that Republicans would have to do.
EK: But it doesn’t look to me like the two sides are equal on that. You have about as much revenue as President Obama did in his final offer. But you have more spending cuts than Speaker Boehner did. So why did you make the decision to go up on the spending side but not on the revenue side?
EB: If you look at what we did on a comparison basis to the first plan, we’ll end up doing less on defense and non-defense and we’ll do marginally more on health care. And we had less revenues. And so I think that’s fair. But I think we also tried to stick with the principles we had that we actually stabilized the debt and got in on a downward path and kept it there, that we fundamentally reformed the tax code, that we slowed the rate of health care costs on a per capita basis, that we made Social Security sustainably solvent. And in addition, we wanted to phase in the cuts over a long period of time so we didn’t disrupt a fragile economy. And we wanted to protect low-income folks.
EK: One thing that was present in the original Simpson-Bowles plan but absent here is stimulus. Was there discussion about bringing in more stimulus, perhaps by reinstating the payroll tax cut or adding more to infrastructure investment?
EB: There was no discussion about bringing back the payroll tax cut. That would’ve violated our principle of making Social Security sustainably solvent. Secondly, as it relates to a stimulus, we have always been in favor of a cut-and-invest program, and we remain in favor of that. That means we’ll have somewhat more cuts than the bottom lines suggest, but we’ll reinvest them in other areas.
To give two examples: One thing I wanted to do when I became president of the University of North Carolina system, I wanted us to do our part to improve K-12. I felt we in higher ed were part of the problem, as we produced most of the state’s teachers. So I turned to my staff and said surely there are some federal programs to improve education. And there were more than 80. So do we need two or three good ones? Yes, but we don’t need 82. A second [example] is I believe strongly in federal scientific research. We desperately need to do it in this country so the jobs of the future are here rather than somewhere else. We do about $1.5 billion in federal scientific research at the university. That makes us one of the largest in the country. Is all of it high-value added? No. And that’s true at the other 3,000 colleges and universities that do federal scientific research. We live in a time of more limited resources, and so we have to make those tough choices. Do you buy that?
EK: I do. One thing I liked about the original Simpson-Bowles plan, and about Domenici-Rivlin, was there was a sense that deficit reduction could be an opportunity to do things in a smarter, more sensible way. A disappointment since then has been that the policy results have been raw, dumb deficit reduction with no real reforms or rethinking of priorities.
EB: I agree with that. When somebody asked me about the sequester, I said it’s stupid, stupid, stupid. No business cuts like that when they need to reduce their cost. You go into the budget and you make your cuts surgically in those areas that will have the least adverse effect on productivity. If you look at what’s being cut in the sequester, they’re not the things that are growing at a faster rate than the economy. And that would be something like health care.
EK: One reform you had in the original plan was tax reform. But since then, Republicans have used the idea of tax reform as a way to fight further tax increases, as they say we can’t cut tax expenditures to reduce the deficit because we need those tax expenditures to reform the tax code. So, in that sense, some of those proposals seem to have misfired.
EB: And I countered that today. I said that if you look at the tax expenditures and you add them up over the next 10 years, it’s at least $13 trillion, and more like $15 trillion when you add in inflation. And we’re talking about using $600 billion or maybe a little less for deficit reduction? Give me a break. That leaves plenty of money to spend the money more wisely to lower income tax rates, if that’s what they want to do. To me it’s an easy argument to counter. And if you don’t do it, it places too much burden on other things to cut.
EK: But even if you win that argument, do you think that the tax increases you’re considering are actually enough in the long-run? Given that you and Domenici-Rivlin originally came to much higher revenue numbers, is bringing taxes down so much lower just kicking the can down the road?
EB: I don’t know. I’ve never seen any kind of long-range plan that held a lot of water 20 years out. So I think if we’re smart we’ll go back and revisit this on a regular basis and make the adjustments we need to make. Perhaps we’ll have done too much on health care and too little on revenue. I do know if we start now we can manage this process better.
EK: Speaking of health care, one argument right now is that health-care costs have slowed and we have all these experiments through Obamacare trying to figure out how to keep them low, and so the right move now is to wait a few years and see if health costs remain low and then reevaluate when we both know more about costs but also have more information on what works from Obamacare. But you move in the opposite direction here and increase your health-care savings. Why?
EB: I don’t claim to be an expert. But I do think it is critically important that we are confident that we’re going to control the rate of growth for health care. I don’t know if the current slowdown is structural or cyclical. I always felt when the better numbers came out during President Clinton’s time, I thought people were trying to make the numbers look better at a particular period of time. So I think we should err on the side of being more conservative and slowing the rate of growth. And we can always go back and add them back.