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Posted at 9:12 AM ET, 02/16/2011

Was Simpson-Bowles really so great?

By Ezra Klein

Thumbnail image for simpbo.JPG

Bob Greenstein, president of the Center on Budget and Policy Priorities, is a calm, even-tempered guy. Imagine a budget appendix that gained the power of speech, and perhaps of bemusement, and you're pretty close. Monday was the first time I've ever heard him sound agitated. The culprit? Simpson-Bowles -- and, in particular, the way it's colored people's perceptions of the president's budget.

"I'm very frustrated by the debate in the media over this," he told me. "The whole discussion starts from the following assumption: The president had a fiscal commission, they stepped up to the plate, identified the big changes, and he walked away. The assumption was wrong. Simpson-Bowles was one big magic asterisk."

A "magic asterisk" is a term budget wonks use for a line in a budget that controls costs without identifying a plausible mechanism. In the most extreme case, imagine a budget that projected zero deficits between 2015 and 2025, and got there by simply saying, "The government will not run a deficit between 2015 and 2025." That's a magic asterisk. It says it will save money, but it doesn't say how.

And Greenstein is right: Simpson-Bowles was full of magic asterisks. It controlled discretionary spending by simply telling the government to "hold spending in 2012 equal to or lower than spending in 2011, and return spending to pre-crisis 2008 levels in real terms in 2013. Limit future spending growth to half the projected inflation rate through 2020." Sounds great in theory. Pretty tough in practice.

Tax reform? "The Commission recommends requiring the House Committee on Ways and Means and the Senate Committee on Finance, in cooperation with the Department of the Treasury, to report out comprehensive tax reform legislation through a fast track process by 2012."

Health-care costs? "Establish a global budget for total federal health care costs and limit the growth to GDP plus 1 percent." And if that doesn't work? "Require Congress and the President to consider further actions that make more substantial structural reforms."

I think magic asterisks have their place. At the time, I called it "the Simpson-Bowles plan for capping stuff," and wrote, "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." Sometimes, setting targets makes more sense than pretending we can set specific policies for the next 10 years -- and that's particularly true if the targets are paired with expedited policies for achieving them.

But Greenstein is right: There's an overly rosy recollection of Simpson-Bowles taking over the discussion. The Fiscal Commission didn't make the hard calls. They called for the hard calls to be made. And even at that level of vagueness, they weren't able to get key commission members, like Paul Ryan, chairman of the House Budget Committee and a necessary participant in any budget deal, to sign onto the plan.

That doesn't mean Obama shouldn't have gone further, of course. His vague call for tax reform and Simpson-Bowles's vague call for tax reform aren't that different, but his call for slight reductions in the Defense Department's rate of growth substantially undershoots Simpson-Bowles's call for a trillion or so in cuts to security-related discretionary spending. But a lot of the people saying he should go further are defining further by mentioning Simpson-Bowles -- even though Obama would be roundly criticized for budget gimmickry if he simply dropped those magic asterisks into his budget. In fact, I criticized them for using one of these to pay for their infrastructure spending.

And it only gets harder as the issues get bigger. Take health-care reform. Getting more specific than we've gotten over the past year is difficult. "We included most of the major recommendations we'd been getting from MedPac in the Affordable Care Act," says Greenstein. "We need to figure out the next round of things to do, and we have many demonstrations, pilots, and projects to try to figure that out. But Simpson and Bowles didn’t know what to do next, either. They just printed that policymakers should figure out how to do something."

In defense of Simpson-Bowles, the report did include a couple of ideas, though they were few, and the recommended items wouldn't have delivered on the promised savings. But it's a bit circular for lawmakers to just gesture at Simpson-Bowles, given that Simpson-Bowles was largely just gesturing at lawmakers. If people want to go further, they should say what further means. And it should include more than a magic asterisk.

Photo credit: Mark Wilson/Getty Images.

By Ezra Klein  | February 16, 2011; 9:12 AM ET
Categories:  Budget  
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Comments

What's boggling my mind about all this is that everyone seems to have forgotten that, as Ezra mentions, even as vague as Simpson-Bowles was, it failed to get enough votes from the committee to really be called a success. It was a proposal that most liberals weren't happy with, and as far as I can tell conservatives weren't any happier. If I remember correctly, the best that Ezra could muster in support of it was that it was a start of the discussion, or something like that.

Posted by: MosBen | February 16, 2011 9:39 AM | Report abuse

@MosBen,

if i'm correct it got 11 out of 18 which is a majority but not the required 14 of 18 needed to give it more of an impact. Liberals for the last 2 years have been clamoring for "majority rules" (and rightly so). Why shouldn't that be the case here? Sure the Fiscal commission doesn't give a complete roadmap of how to get there but it gives the broad strokes necessary to be a strong guide. And now the President has chosen to ignore that in his budget due to his lack of leadership on the deficit. Now Republicans (if they do act as they say they will) can own the mantle of fiscal responsibility if they come up with a solid plan that attacks ALL of the huge cost drives including Defense spending. if it doesn't include defense it'll be hollow to say the least but if it does and Dems cry foul then they'll be no better than Sarah Palin and her death panels.

Posted by: visionbrkr | February 16, 2011 10:19 AM | Report abuse

I think you're underestimating the power of the magic asterisk.

Here in Britain, many of our public services are provided through local government, which is funded in part through grants from central government. These grants have been cut: how local authorities implement them is up to them.

Not only does that get the government off the hook for the hard choices, it means they can then turn round and criticise any specific local cut in services ("they should have found efficiencies instead of cutting help for the disabled"). Double win.

While Simpson and Bowles probably didn't have this in mind, I bet Paul Ryan does. Next time there's a massive pollution disaster, he'll be the first to complain that the EPA misallocated its funds and therefore should be further defunded.

Posted by: vagueofgodalming | February 16, 2011 10:28 AM | Report abuse

Ezra:

I LOVE the fact that you're writing the majority of your own stuff again, instead of farming it out.

Correct me if I'm wrong (and too lazy to go back through the archive) but I thought you loved Simpson-Bowles when it came out (or at least lusted after it). Now several months later, you're done with it.

I guess when it comes to dating, you're what
women call "not relationship material"?

Posted by: johnmarshall5446 | February 16, 2011 10:38 AM | Report abuse

The deficit commission was set out to solve a non-existent problem that we THINK we have and that's one of the reasons why it failed: the budget deficit simply CANNOT be reduced the way they imagine it. The budget deficit is by definition the accounting offset of
1) Private sectors surplus
2) Our trade deficit
You cannot reduce the deficit without driving private sector into debt and/or reducing our trade deficit.
But the problem is that our assumption that deficits are "bad" is at fault since it is based on flawed understanding of our monetary system.
What correct understanding of our monetary system allows is to realize that instead of funding government expenses ex ante we can always fund them ex post. This is like the difference between driving your car based on what you think the road will look like vs. adjusting your driving to the road condition as their occur.
Suppose you think that in the near future the road will go downhill - you'll try to adjust by breaking now so that you don't go too fast. Then you actually discover that instead of downhill the road goes uphill! Uh-oh! Now you are already driving super-slow and need to step on the gas to to somehow scale the hill. And to add insult to injury, you still think that there is somewhere in the future a steep downhill, so, you don't allow yourself to step on the gas too much because of that and are stalling on your way up!
This is exactly what we're doing with our fear of deficits (combined with bad thinking that makes estimation of road condition even more unreliable.) The government, unlike a household or a firm, does not need to pre-fund its spending. It does need to post-fund it in the sense that too much spending could cause inflation. But dealing with inflation if and when it happens involves exatly the same set of tool the government tries to use now to curb that future inflation! This is the insanity. You would never drive a car this way. Why do we think it is a good idea to drive our economy this way?

Posted by: pdrub | February 16, 2011 10:39 AM | Report abuse

johnmarshall5446: Was there a time when most of Ezra's blog was farmed out to others? When he's on vacation or travelling for work he sometimes gets people to cover, and Dylan Mathews posted semi-regularly when he was a summer intern at the Post, but this has never been a group blog.

As for Ezra's reaction to Simpson-Bowles, I recall him getting flack in the comments for writing a lot of posts about it; the argument being that the recommendation had not gotten enough votes, was vague, and had no force of law or impact on legislation, so why spend so much time discussing it. I think Ezra may have praised it for being bold, or for putting so many things on the table which were traditionally left out of reach, but I don't recall any kind of out and out endorsement.

Posted by: MosBen | February 16, 2011 11:07 AM | Report abuse

Ezra,

I think this characterization is largely unfair.

The plan included a large number of specifics, including $400 billion of health care spending reduction and another $200+ billion in other mandatory savings, almost all of which were scored by CBO.

In addition, it included a complete Social Security plan, a gas tax, and additional revenue from moving to the "chained CPI" for indexing the tax code.

You are pointing to three magic asterisks, two of which I think are unfair:

1) Discretionary caps. Since discretionary spending is allocated every year, caps are the ONLY way to ensure discretionary spending cuts. But B-S also included some immediate specifics to get the ball rolling. More importantly, it included over $200 billion in possible discretionary cuts to show how the appropriators could meet the caps.

2) Tax reform. The commission recognized that it wasn't going to be able to completely rewrite the tax code -- transition rules and all -- in the time allotted. And that the expertise on the minute details lies with the Finance and Ways & Means Committee. So what it did was set up a framework for how to achieve such tax reform, and offer a comprehensive illustrative plan which shows what the commissioners believe the tax code should more-or-less look like once it returns to steady state around 2020. To make sure this isn't just an illustration, it also proposed a failsafe -- an across-the-board tax haircut -- to both force action and ensure the revenue comes in.

3) Long-term health care cap. It's true that this is somewhat of a punt. The Commission identified significant medium-term health savings, but couldn't agree on a long-term plan -- especially without seeing how things panned out (with PPACA, with some of the experiments proposed by the commission, etc). What the commission did agree on was that total health obligations (on the tax and spending side) should be limited to GDP+1, not just Medicare spending as PPACA already dictates through IPAB. They also agreed that there will need to be a real discussion and evaluation of some pretty large changes to get health spending under control -- but the commission wasn't ready to propose those changes yet.

As an aside, the commission's recommendations would stabilize the debt through 2040 even if the post-2020 health budget were eliminated. They just wouldn't balance the budget as shown in the projections.

Posted by: marc12 | February 16, 2011 11:10 AM | Report abuse

visionbrkr, Simpson-Bowles could have been structured as requiring a majority vote by the committee in order to trigger a vote in Congress, but it wasn't, so they're failure to reach the 14 votes needed is fairly characterized as a failure, especially given that, as Ezra points out, they were pretty vague in a number of areas.

And while in general I'm in favor of majority rules when it comes to enacting legislation proposed by elected representatives, a non-binding executive branch committee is pretty substantively different. For starters, this wasn't a situation where the votes of the people were thwarted by procedural rules. Not all of the members were elected and they weren't discussing legislation, at least not anything that would have been like normal legislation (it was more a call for Congress to put together legislation along the lines outlined by the Commission, even if their proposal had been more specific.

Even so, there was a good reason for the Commission to require more than a simple majority: the purpose of the Commission was to propose a series of tough choices that could be accepted by a broad bipartisan group of members of Congress without one party of the other being demagogued for proposing or voting for specific tough cuts. Nobody wants to be tagged in an election for cutting defense spending, but pretty much everyone agrees that we do need to make some cuts there. The Commission was to provide that cover, but they didn't.

That's not to say that there's nothing good in Simpson-Bowles. Of course there are good things. Deep cuts in defense spending and tax expenditures is a great idea, and yeah, we've got to come up with ways to keep Medicare/Medicaid costs down. As we've said, the report was a better starting place for the conversation than an end on a lot of these issues, but to say it was a failure in its specific goal is not to say that it doesn't have any good aspects.

Posted by: MosBen | February 16, 2011 11:19 AM | Report abuse

mosben:

As I sometimes am, I was a bit tongue in cheek about Ezra's writing output.

Regarding Simpson-Bowles, ever notice how frequently these commisions are made up of out-of-office politicians? That's why the reports come and go with no discernible impact, because if their suggestions were feasible in implementation, they would have been acted on while in office.

Posted by: johnmarshall5446 | February 16, 2011 11:31 AM | Report abuse

@MosBen,

that's all fine and good but the President (the leader of the country) punted. Why did he bother to set up the Fiscal Commission in the first place if he's going to punt on the most serious issues facing us? Like I said i hope Republicans keep to their word and attack the entitlements and Defense spending (I doubt it on defense but one can always hope) and when they do I hope we don't hear a peep out of Dems about Catfood Commissions becuase that's no more productive than Sarah Palin's death panel talk.

Posted by: visionbrkr | February 16, 2011 12:18 PM | Report abuse

Paul Ryan criticized Obama's budget, saying Simpson-Bowles gave him a framework for reductions. However, he didn't explain why he himself voted against S-B.

Posted by: rforce1 | February 16, 2011 12:47 PM | Report abuse

johnmarshall5446, my bad, dawg. And yeah, I think the value of commissions like these is greatly diminished in an age of hyper polarized partizanship, like we're in now. The point of the commission is to make tough suggestions behind closed doors so everyone can come out, shake their heads together about what a tough set of proposals it is and then vote for it without anyone getting blamed. There's no incentive to do that anymore.

visionbrkr, yeah, the President punted on tackling the long term debt in his initial budget proposal for FY 2012, just as has happened every year for the last few decades. These are not new issues, but they're tough political issues. The President gave a starting place that basically leaves the really tough issues for the parties to work out. I don't have a problem with the President saying, "Now let's go talk about what kind of cuts we need to make to tax expenditures, entitlements, and defense behind closed doors so we don't make this about beating each other up in public or politicizing some issue." As any number of people have pointed out, when the President comes out in support of something, it becomes politically charged and it's hard for the other party to agree without it looking like a political win for the President.

It's better for President Obama to stay out of most of this, as opposed to suggesting reasonable cuts in tax expenditures or Medicare and having Republicans run away from the debate onto Fox News, talking about how he wants to kill seniors and family farming.

Posted by: MosBen | February 16, 2011 1:12 PM | Report abuse

Simpson-Bowles reccomendation to eliminate tax loopholes and lower the corporate tax rate weren't asterisks. Why didn't Obama put this in the budget.

Simpson-Bowles reccs. on Social Security weren't magic asterisks either. Where are those proposals in Obama's budget>?

Posted by: Mazzi455 | February 16, 2011 2:12 PM | Report abuse

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