New Bowles-Simpson Deficit Plan Emphasizes Spending Cuts
by Patrick Lester, 2/21/2013
Erskine Bowles and Alan Simpson, co-chairs of a presidentially appointed bipartisan commission that failed to reach agreement on a deficit reduction plan in 2010, released a new plan on Feb. 19 to reduce the federal deficit by an additional $2.4 trillion over the next ten years. Most of the proposed new deficit reduction is achieved through spending cuts.
Released only days before automatic, across-the-board cuts (called sequestration) are set to go into effect, the new plan falls between the White House’s proposal to reduce the deficit by $1.5 trillion and the House Republicans’ ambitions to cut the federal deficit by $4 trillion, both over the course of the next decade.
According to Politico, the plan’s $2.4 trillion in proposed deficit reduction includes about $1.8 trillion in spending cuts and $600 billion in new revenues. The spending cuts include $1.2 trillion in additional cuts to discretionary spending, a category of spending that covers most federal programs other than entitlements, and certain non-health entitlement programs. For example, the proposed cuts include adopting a new inflation measure, called the “chained CPI,” that would reduce Social Security benefits. This would mean that retirees could expect to receive three percent less from the Social Security system in their lifetimes, and as much as six percent less in Social Security in their later years of retirement, according to USA Today.
The plan also includes approximately $600 billion in cuts from Medicare and Medicaid, about $200 billion more than the president’s last budget proposal in December. According to the proposal outline, the health care savings would be achieved by improving provider and beneficiary incentives throughout the health care system, reducing provider payments, reforming cost-sharing, increasing premiums for higher earners, adjusting benefits to account for the aging population, and reducing drug costs, among other measures. Collectively, these measures would shift the cost burden of Medicare and Medicaid to the private sector and to individuals, with only modest gains in the efficiency of health care services.
On the revenue side, the plan proposes enacting revenue-positive tax reform “that eliminates or scales back most tax expenditures, with a portion of savings from tax expenditures dedicated to deficit reduction and the additional savings used to reduce rates and simplify the tax code.” According to The Washington Post, these reforms would generate about $600 billion in net new revenues over ten years.
Finally, the proposal recommends several long-term policy changes, including:
- Reforming Social Security to make the program “sustainably solvent,”
- Enacting a highway bill that would “bring transportation spending and revenues in line,” and
- Enacting “additional reforms of federal health care programs if necessary to limit the growth of the per beneficiary federal health commitment to close to GDP growth.”