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A brief introduction to the debt commission




It would be impractical to deny that in this moment, we are faced with the harsh reality of an ever increasing national debt in the United States. Just a quick glance at the latest figure, $13.7 trillion, reminds us that resolution, and more importantly resolution with sensible solutions, will be an incredible challenge. Unless actions are taken soon, this rising debt burden threatens our economy, our ability to grow, our competitiveness, our standard of living, and the confidence of foreigners in financing our debt.  However, for those who have been bestowed with the job of “fixing it,” the foundation for a resolution may have just been laid.

Last week, Erskine Bowles and Alan Simpson, co-chairs of the bi-partisan presidential debt commission, released a proposal to address the national debt and deficit. The Democrat former chief of staff to President Clinton and Republican former Senator from Wyoming presented a five-part plan that would confront, and potentially solve, this ominous impending fiscal crisis. The report was a development from the 18-member bipartisan National Commission on Fiscal Responsibility and Reform appointed by President Obama to address these types of issues.

The proposed Bowles-Simpson plan makes five basic recommendations:

·        Set spending caps for $200 billion in savings

·        Tax reform that reduces rates, simplifies the code, and broadens the base

·        Reforms for controlling health care costs

·        Savings from farm subsidies, military and civil service retirement

·        Changes in Social Security 

The proposal recommends that the spending cuts begin in 2012, along with tax reform and other ways to reduce the deficit by $4 trillion over the next decade.   Three-quarters of these savings would come from spending cuts and one-quarter from increases in tax revenue. 

Spending cuts would come from a variety of areas. For example, in terms of defense spending, proposals include freezing noncombat pay at 2011 levels for three years, saving $9.2 billion, reducing overseas bases by one-third, saving $8.5 billion, and achieving the $28 billion cuts already proposed by Defense Secretary Robert Gates.   Other non-defense savings would include eliminating 250,000 government contractors for $18.4 billion in savings, and freezing federal pay for three years, saving $15.1 billion.  Federal spending would be capped initially at 22% of the economy and eventually lower to 21%.

The report suggests $200 billion in total defense and domestic spending cuts. With regard to tax reform, the Bowles-Simpson report recommends lowering tax rates, eliminating tax breaks, simplifying the tax code, and effectively broadening the tax base.  Taxes would be capped at 21% of gross domestic product.  By lowering the marginal tax rates for both households and corporations, this suggests a likely improvement in job creation, entrepreneurship, investment, and savings which would have very salutary effects on economic growth. 

Health care cost control would be achieved by capping the growth in federal health spending to the rate of economic growth, plus 1%.  The report proposes such via savings from payment reforms of Medicaid and Medicare, cost-sharing, malpractice reform, and measures to control the long-term growth of health care costs.  It was also included that if targets are not reached, more intrusive measures will be taken by the President and Congress to alter the health care delivery system.

The Bowles-Simpson proposed reform of Social Security entails a more progressive payroll tax and an index for the age at which full benefits can be received based on changes in life expectancy. They aim to make Social Security solvent over 75 years by such measures as smaller benefits for the wealthy, a less generous cost of living adjustment on benefits, a gradual increase in the retirement age for full benefits (from 67 to 68 in 40 years and to 69 in 65 years), and an increase in the amount of worker income that is subject to the payroll tax.

As conveyed, there are difficult issues in this report that will, as a result, undoubtedly face some resistance from special interests. Already, strident protests from both the left and right have been voiced, and they are likely to persist for weeks and months to come.   It is even speculated that the early release of this report with little advance notice by Bowles and Simpson may have been done purposefully, in hopes of generating wider public support, and correspondingly, more support from commission members to report to President Obama in December.

In terms of the outcome, only time will tell. However, the critical nature of our growing debt problem and its detrimental implications for the economy, our standard of living, and the future of our country demand that this report be addressed seriously.  The severity of what is inevitable without action suggests that compromise and sacrifice must be made, regardless of what discomfort is likely to occur.   At the very least, the work of this debt commission should help move us toward a better understanding of the groundwork for a future solution.