The Simpson-Bowles plan for capping stuff
If you really get into the guts of the Simpson-Bowles deficit plan, what you'll find are a lot of caps. Most of the early savings come from a cap on discretionary spending that "rolls discretionary spending back to FY2010 levels for FY2012, requires [a] 1% cut in discretionary budget authority every year from FY2013 though 2015" and then indexes discretionary spending growth to inflation from 2015 to 2020. They've got some "recommendations on how to apply the caps," which mostly apply to congressional procedure, and they offer ideas for where the discretionary cuts might come from, but those are just "illustrative." The plan is the cap, and however you hit the cap, it nets you $1.46 trillion by 2020.
In the long term, the savings come from a cap on health-care spending. The commission recommends that we "contain growth in total federal health spending to GDP+1% after 2020 by establishing a process to regularly evaluate cost growth, and take additional steps as needed if projected savings do not materialize." This basically means strengthening the Independent Payment Advisory Board that passed as part of the health-reform law, which readers will know I'm sympathetic to. Republicans and conservative elites who are reacting to the plan positively might want to consider what this means for the GOP's effort to repeal not just the whole health bill, but to start by repealing IPAB. Take that off the table and the long-term balanced budget we see in this plan completely disintegrates.
There's also a cap on taxes. That's a bit odd, as there's no real reason a commission dedicated to reducing the budget deficit should be limiting the revenues we can bring in to reduce that deficit, but it's there nonetheless. The cap is 21 percent of GDP, which is a bit above the 19 percent of GDP that's been the historical average, and the 18.5 percent of GDP that was the case in 2007. Again, they don't say how exactly we should hit that level, but they offer some options, and note that if we get there, it'll net us $751 billion by 2020.
And that's most of the plan. It's also the best way to think about the plan. Even if Congress did seriously consider this proposal, the details would never make it through the legislative process intact. The commission doesn't pretend otherwise, offering "illustrative" specifics rather than throwing its weight behind detailed plans. What they've largely outlined are the spending and revenue targets they think we'll need over the next few decades, and the areas we need to consider if we're to hit them. In their telling, that means more revenues and fewer tax expenditures (like the mortgage-interest deduction), less discretionary spending in both the defense and non-defense sectors, some reforms to Social Security and, over the long-term, substantially slower growth in the health-care sector.
I've got my disagreements with this: I'd probably raise revenues above 21 percent of GDP, and I'd partly do it through a carbon tax. That would kill a couple of birds with one stone, and its omission from the "options" section of this plan is glaring. I'd also do less to Social Security than they do, and I'd be more explicit about the fact that it'll be difficult to get federal health-care spending growth down to GDP+1% by simply reforming Medicare and Medicaid. We're going to need to go even further in reforming the broader system as well. One option they mention is that IPAB's jurisdiction should be expanded to the private insurance plans operating in the health-care exchanges. They should emphasize this -- and related intrusions into the broader health-care market -- more.
But though the caps approach has come under some fire, I think it's basically the right way to discuss this -- and even to put it into action. It's very hard to say exactly what policies we'll need to follow in the coming years. Some things will save less money than we hope, and others will save more. Some programs will become more necessary than we realize them to be now, and others will fade in importance as the circumstances that birthed them recede further from view. We don't need to make all those decisions now, and we shouldn't lock all those changes into place now.
The genius of IPAB was always that it both set a growth target (eventually, GDP+1.5%) and created mechanisms to make it easier to achieve in a flexible, ongoing manner (an independent board of experts and stakeholders who would decide on the reforms and protections from the filibuster and congressional inaction to help pass them into law). That's why the Simpson-Bowles commission relies on it so heavily. And in the long term, deficit reduction will rely more on the success of structural innovations that help us get around congressional inertia, partisan gridlock and interest-group politics than on detailed lists of what we should and shouldn't cut. Things like PayGo, the budget reconciliation process, IPAB and some compromise on the Bush tax cuts that ties any extension to serious tax reform matter much more than any particular cut or reform.
| November 12, 2010; 12:50 PM ET
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