Most of the budget for the fiscal year 2010 went to $701 billion in Social Security benefits, $815 billion on the military, and $446 billion on Medicare. The interest on the debt is $196 billion. It leaves little for investments in the country’s future. These include education, NASA, and infrastructure.
Summary
The plan recommended the following six steps: The Committee suggested waiting for two years before cutting spending or raising taxes. It wanted to make sure the economy had fully recovered from the Great Recession.
Details
The Simpson-Bowles Report made clear, specific, and realistic recommendations to achieve deficit reduction. Most of its ideas are well-regarded policies that economists have advocated for years. Congress hasn’t adopted them because they are politically difficult.
The Plan Would Have Worked
The Simpson-Bowles plan would have reduced the deficit and debt with a carefully considered list of detailed recommendations. The plan also protects those who are most vulnerable, the very poor and elderly. They are most likely to spend any income they receive. It emphasizes automatic benefit increases for the unemployed. The Congressional Budget Office found it’s one of the best ways to stimulate demand and increase jobs. Simpson-Bowles recommended that all agencies reduce spending using the same formula. It forces agency heads, who are best qualified, to find savings in their departments. The plan also ended spending on outdated programs, like the Abandoned Mine Land fund. All in all, it is a workable plan from an economic perspective.
History
The National Commission on Fiscal Responsibility and Reform submitted the final report on December 1, 2010. The co-chairmen were former Wyoming Republican Senator Alan Simpson and Democrat Erskine Bowles, President Bill Clinton’s chief of staff. President Barack Obama formed the Commission in February 2010. Obama asked for a balanced budget by 2015. This did not count interest payments, though. He also required a solution to the long-term Social Security and Medicare deficit. The goal of a bipartisan commission was to solve the U.S. debt crisis in a way acceptable to both parties. In November 2010, Simpson and Bowles pre-released their proposal to much controversy. It proposed a mix of spending cuts, which were supported by Republicans, and tax increases, which were favored by Democrats.
Moment of Truth
On December 1, 2010, the Commission released “The Moment of Truth,” its final report. But it failed even to gain the support of enough of its Commission members to pass. It needed 14 Commission members to approve it and only received 11 votes. The divisiveness within the Commission itself meant that Congress wouldn’t touch it. Many Republicans had signed a “no new taxes” oath, which left them no room to compromise. In 2011, Congress passed the Budget Control Act. It said that Congress must come up with a deficit-reduction plan. Otherwise, it would face sequestration. That would trigger $1.2 trillion in automatic spending cuts. That still didn’t force it to agree on a plan, so sequestration went into effect. In 2012, Congress still had no other bipartisan plan to reduce the deficit. It faced mandated spending cuts and tax increases. They threatened to throw the economy off a fiscal cliff in 2013. Congress began to reconsider the Simpson-Bowles plan. But no one was willing to risk their re-election year to support the painful steps required.
The Bottom Line
The Simpson-Bowles deficit reduction plan was a bipartisan strategy that lists six steps to reduce the U.S. debt. It would have lowered the budget deficit to 2.3% of GDP and reduced the debt by $3.9 trillion by 2020. The debt-to-GDP ratio would have dropped to a healthy 60% by 2023 and 40% by 2035. But Congress never adopted it because it was never sent to them by the Commission.
