Bowles-Simpson doesn't address unsustainable health care spending

Reuters

Erskine Bowles (L) and Alan Simpson (R), co-chairmen of the National Commission on Fiscal Responsibility and Reform, take their seats to testify before the U.S. Joint Select Committee on Deficit Reduction during a hearing on Capitol Hill in Washington, November 1, 2011.

Article Highlights

  • $2.4 trillion in deficit reduction is large, but it may not be enough.

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  • The CBO projects that by the end of the decade publicly held federal debt will increase by $7.6 trillion to 77% of GDP.

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  • Despite a tax hike and some spending constraint, America’s fundamental fiscal outlook remains unstable.

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Editor’s note: This article originally appeared in US News and World Report’s Debate Club in response to the question: Is the new Bowles-Simpson plan a good deficit reduction proposal?

Erskine Bowles and former Sen. Alan Simpson are back, advocating once again for lawmakers to reduce discretionary and mandatory spending, increase tax revenues, and shift focus to a simple but powerful metric: our federal debt burden relative to the size of our economy.

The new proposal credits Congress with as much as $2.7 trillion in deficit reduction, owing to caps on discretionary spending and recent increased taxes on high-income earners. This math leads Simpson and Bowles to call for $2.4 trillion in additional deficit reductions in the coming decade: $600 billion from new revenues and the rest from spending reforms and limits and interest expense savings.

The proposal, while admirable, has two shortcomings.

First, while I commend them for their tireless efforts to right our fiscal ship by pursuing a "leave no stone unturned" approach that seeks to squeeze efficiencies from across all of government and reform both sides of the ledger, their "balanced" approach overlooks one key fact: Federal health care spending is the only government spending that is truly on an ever-increasing and completely unsustainable path. And while they list various ways to curb health care spending, they seem not to realize that it is not a lack of ideas but a lack of willpower holding back lawmakers.

Second, $2.4 trillion in deficit reduction is large, but it may not be enough. In 2012, publicly held federal debt was 72.5 percent of the economy, or $11.3 trillion. The Congressional Budget Office projects that by the end of the decade this will increase by $7.6 trillion, to 77 percent of GDP, under the most optimistic assumptions about Congress's actions-no new spending projects, major cuts to doctor and other provider reimbursements taking effect as scheduled, and none of the so-called expiring tax provisions being extended. A more plausible "alternative scenario" projects the debt burden rising to 87 percent of GDP. If this is the case, even a $2.4 trillion deficit reduction package would see the debt burden rising as a share of GDP over the decade.

Nevertheless, Simpson and Bowles deserve recognition for their continued efforts. Unfortunately, recent history has seen their previous efforts thwarted. President Obama, who established the National Commission on Fiscal Responsibility and Reform that Simpson and Bowles led, largely ignored the commission's report when it was released. Three years and three days later, despite a tax hike and some spending constraint, our fundamental fiscal outlook remains unsustainable. 

Alex Brill is a research fellow at AEI.

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About the Author

 

Alex
Brill
  • Alex Brill is a research fellow at the American Enterprise Institute (AEI), where he studies the impact of tax policy on the US economy as well as the fiscal, economic, and political consequences of tax, budget, health care, retirement security, and trade policies. He also works on health care reform, pharmaceutical spending and drug innovation, and unemployment insurance reform. Brill is the author of a pro-growth proposal to reduce the corporate tax rate to 25 percent, and “The Real Tax Burden: More than Dollars and Cents” (2011), coauthored with Alan D. Viard. He has testified numerous times before Congress on tax policy, labor markets and unemployment insurance, Social Security reform, fiscal stimulus, the manufacturing sector, and biologic drug competition.

    Before joining AEI, Brill served as the policy director and chief economist of the House Ways and Means Committee. Previously, he served on the staff of the White House Council of Economic Advisers. He has also served on the staff of the President's Fiscal Commission (Simpson-Bowles) and the Republican Platform Committee (2008).

    Brill has an M.A. in mathematical finance from Boston University and a B.A. in economics from Tufts University.

  • Phone: 202-862-5931
    Email: alex.brill@aei.org
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    Name: Brittany Pineros
    Phone: 202-862-5926
    Email: brittany.pineros@aei.org

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