Bowles-Simpson 2.0

Erskine Bowles and Alan Simpson announced their intention to develop a version 2.0 of their grand bargain plan to reduce the deficit by $2.4 Trillion beyond the $2.7 Trillion in reductions enacted since the initial Fiscal Commission plan was released in December 2010. Their goal is to stabilize the debt-to-GDP at 70% or lower per the Committee for a Responsible Federal Budget. Several thoughts on all this.

• The biggest stumbling block to a long term budget deal is a Republican party that has not made the shift from what they are opposed to in health reform, to what they are for. A party that proposes a Balanced Budget Amendment to cap federal spending at 18% of GDP without having a coherent health policy position is unserious and deserves derision. There appears to be some slow acknowledgement of this in some Conservative corners. However, what Republicans most lack are elected politicians who will have to legislate health reform who get this; they control the key committees of Commerce and Ways and Means, where the heavy lifting for the House will have to be done. They have done so for 25 months now and done nothing but vote to repeal the ACA.
• My book Balancing the Budget is a Progressive Priority frames the long run budget issue as basically a health care issue and provides an example of a health reform deal that I claim the two parties would arrive at as a next step to the ACA if they negotiated their interests.
• More clarity on health reform leads to the second biggest obstacle to a long run sustainable budget, which is that historical taxation levels have no hope of financing any plausible level of federal spending as the baby boomers shift from paying taxes to receiving Medicare, Social Security and Medicaid. The initial Fiscal Commission goal of federal spending of 21% of GDP is about as low as imaginable to me. That will take more on health reform. I am glad for the recent slowdowns in health care cost inflation, but am not ready to say this will be a long term trend; if they are longer term trends it will be easier. And the slowdown has already helped the deficit situation in the near term regardless of what comes next.
• I don’t think of myself as a debt scold, in large part because I care about the policy more than the tone (Chait says scolds are the opposite). However, I suspect no one self identifies as a scold. I share many of the Bowles-Simpson targets about debt-to-GDP ratio, but view this goal through the lens of health reform next steps as the key.
• A key thing to watch is what Bowles-Simpson 2.0 says about the Affordable Care Act; the initial report assumed its implementation. When people say the President made a mistake not embracing the original report (I say so in my book), that is not because I think Republicans would have passed it if he had done so; they would not have voted for the tax increases in contained. Embracing it and pointing out that it assumed the ACA could have made a difference in the country’s moving ahead with acceptance of Obamacare more quickly. I think that we need next steps on health reform. Any Bowles-Simpson 2.0 that doesn’t note that the ACA is the only horse we have to ride and lets move on to figuring out how to improve it will be missing the best chance for us to address the biggest long term federal budget issue (health care costs).
• I think the biggest liberal/progressive error being made now is not addressing long run Social Security reform while the Democrats control the Senate and the White House. Doing so sooner rather than later would provide maximum ability to include an  increase in the OASDI payroll cap tax, and progressive reforms that could improve the status of lower income beneficiaries. Republicans try and use generalized worry on deficit/debt to argue for their policy preferences (lower spending on some things), and liberals/progressives should do the same on a Social Security fix; something has to be done on Social Security disability sooner rather than later in any event.
• The most important policy goal of President Obama’s second term is to implement that ACA. The biggest political goal of Progressives/Liberals should be to put the fingerprints of Republicans on the ACA in a way that makes the key questions what next? with both parties sharing responsibility for the hard work, instead of lets delay, repeal, replace. Especially given the fact that universal health insurance coverage is the policy holy grail for liberals/progressives and many red states are refusing the Medicaid expansion, we should look for ways to both implement and modify Obamacare to get these states to come along. Republicans should increasingly want a deal as they realize they have shown virtually no ability to move beyond what they are against in health reform. And Erskine Bowles and Alan Simpson know that health care costs are are biggest long term challenge to developing a sustainable federal budget. So, the key question for Bowles-Simpson 2.0 is: what about the Affordable Care Act?
• Finally, while I find the grand bargain talk very interesting and intellectually pleasing, I think that the death of normal order was made inevitable by the release of the first fiscal commission report. Both houses of Congress will have to pass something, and the President will have to sign it.

cross posted at freeforall