A glimmer of hope on the deficit

Our view: Bowles/Simpson framework could still be the key to tackling the national debt

October 26, 2012

If the Bowles-Simpson commission deficit reduction plan is dead, somebody evidently forgot to tell Erskine Bowles and Alan Simpson. Their proposal to reduce the deficit by $4 trillion over the next decade fell one vote short of the majority needed to force congressional action, and President Barack Obama, though saying nice things about the effort, didn't pick up the plan and sell it to the American people. But now, nearly two years later and on the eve of a presidential election, the framework Messrs. Bowles and Simpson developed is showing new signs of life.

In what was initially an off-the-record interview with the publisher and editor of the Des Moines Register last week, Mr. Obama said he would pursue a "grand bargain" with congressional Democrats and Republicans in the first six months of his term, if he is re-elected, to achieve deficit reduction on the scale envisioned by the Bowles-Simpson plan. He said he would offer terms of $2.50 in spending cuts for every $1 in new revenue for the federal government. "I genuinely believe that one of the best things we can do for the economy is to settle this issue of government spending, entitlements, and revenues so that we can provide the kind of certainty that I think businesses and individuals are looking for," Mr. Obama said.

One day after release of the interview transcript, a group of 80 chief executives from some of America's largest companies signed a letter urging the president and Congress to avoid the so-called fiscal cliff the nation faces in January as a result of the expiration of the Bush tax cuts and the automatic, across-the-board spending cuts known as "sequestration," and instead to agree to a balanced, long-term plan to cut spending, simplify the tax code and reduce the deficit. Crucially, the executives said that increased revenue for the federal government would have to be part of the equation — a conclusion they drew not as a matter of philosophy but arithmetic. They call for "comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit."

The executives were recruited and organized by a group called Fix the Debt, which is headed by none other than Messrs. Bowles and Simpson.

The executives are not necessarily a pro-Obama group; both The New York Times and The Wall Street Journal report that many of them support his Republican opponent, Mitt Romney. But their prescription for solving the debt crisis overlaps more with Mr. Obama's. Mr. Romney has talked about the idea of lowering tax rates and broadening the base by limiting deductions and closing loopholes, but he has pitched the idea as revenue-neutral.

In fact, during the Republican primaries, the moderator of a debate at Iowa State University asked the candidates for a show of hands on whether they would reject a deficit-reduction deal that included $10 in cuts for every $1 in new revenue. All eight candidates, including Mr. Romney, raised their hands. It's also worth noting that Mr. Romney's running mate, Rep. Paul Ryan, served on the Bowles-Simpson commission and voted against its plan. Had he voted in favor, Congress would have been required to hold an up-or-down vote on the matter.

Mr. Obama's statement to the Register included no real details. He didn't mention what spending he would cut, how much he would seek to reduce corporate tax rates or what loopholes and deductions he would seek to eliminate in order to make the exercise produce new revenue. Mr. Romney hasn't provided any real details either, and he has a deeper hole to climb out of because of his promise of a 20 percent across-the-board cut in individual income tax rates and increased defense spending. The one concrete idea he has offered, to limit the overall value of deductions that any taxpayer can take, fails to achieve a central goal of tax reform, which is to make the tax code simpler.

Whoever wins next month's election won't have much time to fill in the blanks. A lame duck Congress will have to take action to put off sequestration and the sunset of the Bush tax cuts, and the only way that will be possible is if the new president is able to provide a convincing framework for a responsible, long-term deficit plan. Any credible solution is going to require painful choices, but the alternative is much worse.

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