THE BLOG
11/23/2010 02:15 pm ET Updated May 25, 2011

What's So Wrong With Simpson-Bowles?

The Simpson-Bowles Deficit Plan is unraveled (the good and the bad) by Harvard senior Sam Barr, publisher of the Annual Report of the USA:

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As a liberal and a deficit hawk (the two aren't mutually exclusive), I think there's actually a lot to like in the Simpson-Bowles plan, which makes it disappointing that the proposals have been so coolly received. But there's plenty to be skeptical about, too. We need a frank discussion to separate the wheat from the chaff, but we aren't getting that from Washington.

Let's begin with the good. The plan would eliminate a popular tax deduction, the mortgage-interest deduction, which costs a ton of money and primarily benefits the wealthy. This is a political sacred cow, and Simpson-Bowles commendably puts it on the table. It also recommends increasing the gas tax and cutting farm subsidies, two important but inevitably unpopular changes that the country benefits from hearing a Republican and Democrat advocate.

Similar sentiments apply to the plan's discussion of defense spending, which it insists should be reduced by over $100 billion in 2015. This is a good start, and already we are seeing the Republican Party split at the seams between serious deficit hawks and flunkeys for the military-industrial complex.

Simpson-Bowles also has an admirable take on long-term health care spending, which is the key to the whole deficit-reduction puzzle. In attacking other pieces of the plan, liberals have overlooked the fact that Simpson-Bowles endorses the cost-control measures of the Democrats' signature legislative achievement, the Affordable Care Act. For example, it proposes to strengthen the Independent Payment Advisory Board by subjecting all health care providers to IPAB's recommendations. (The ACA gave hospitals a reprieve until 2018.) Simpson-Bowles should get credit for rejecting Republicans' claims that health care reform was a budget-buster, and for suggesting that, if we don't meet our cost-control targets, we should implement a public option to help us do that.

Now for the bad news. First, on taxes. Not only would Simpson-Bowles end the mortgage-interest tax deduction, but all tax credits and deductions, including the Earned Income Tax Credit, which benefits the working poor. And the plan puts over 90% of the money saved from eliminating these credits and deductions into lowering tax rates, not reducing the deficit. Why a deficit-reduction plan wouldn't actually try to reduce the deficit, rather than give away tax cuts, is beyond me. The only explanation is that, otherwise, Republicans wouldn't go along with it. Of course, Republicans won't go along with it anyway.

And what about those programs Simpson-Bowles proposes to cut? Many liberals have made a fuss about Social Security, which the plan would nudge towards welfare by increasing benefits for the lowest earners while increasing taxes and reducing benefits for the highest. But I'd like to focus on the domestic discretionary budget, which is where Simpson-Bowles finds a huge chunk of its savings.

It's very easy to slash the domestic discretionary budget. It's been done for decades by both parties, and there really isn't anything left to squeeze out of it. Simpson-Bowles proposes cutting the federal workforce by 10% and freezing employees' salaries for three years. This accepts on faith the conservative assumption that the government is doing something now that it shouldn't be doing. But what, exactly? Prosecuting criminals? Funding medical research? Building levees, tunnels, and bridges? (All of the above?)

The fact that Simpson-Bowles spends equal energy on domestic discretionary spending and Social Security as on health care, the biggest driver of long-term debt, is very disconcerting. My worry is that it will be easy for Republicans to latch on to the domestic spending cuts while conveniently overlooking everything else. And then it will be hard for Democrats to say no.

Why? Because it always is. Everything's a battle in today's Washington, and Obama, Reid, and Pelosi aren't going to go to bat for discretionary spending.

Hence my concern about the Simpson-Bowles plan. In a vacuum, it's not such a bad proposal. The question is whether Democrats will be able to stand up to Republicans when they grab hold only of those aspects of the plan that fit with their interests and ideology. About that I have serious doubts.

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