Simpson-Bowles commission report commentary

Reform Party of California Commentary

The reality of America's fiscal situation

Context

In the next few weeks, the federal government faces major deadlines for passing spending bills. The Treasury Department estimates that sometime in October, the federal government will hit the federal debt limit.[1] In addition, spending bills to authorize federal budgets for fiscal year 2013 need to be passed by the end of September. These spending issues are among the most contentious and disputed issues the two parties have to deal with. Unfortunately, recent rhetoric indicates that inter-party vitriol and gridlock will continue.[2]

In the first post in this series of commentaries on the economy, spending and debt, the Reform Party of California (RPCA) discussed a republican budget plan would address America's long-term fiscal situation. The plan is based on conservative ideology[3] with an unknown degree of influence by special interests, which include the republican party. Critics argue that the republican plan shifts too much of the sacrifice and pain onto the lower and middle classes and favors wealthy individuals and interests. Republicans reject those criticisms as nonsense. Independent analyses suggest that spending cuts will adversely impact millions of people in the lower and middle classes.[3] Impacts on wealthy individuals and businesses are unclear.

In 2010 president Obama created the National Commission on Fiscal Responsibility and Reform. It was a bipartisan group charged with the task of preparing a non-partisan plan to address America's long-term fiscal situation. The Simpson-Bowles commission, named after its two co-chairs Alan Simpson and Erskine Bowles, released its final report in December of 2010.[4] The Simpson-Bowles (SB) report includes the following conclusions and statements:

"The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead. . . . America's long-term fiscal gap is unsustainable, and if left unchecked, we will see our children and grandchildren living in a poorer, weaker nation. . . . . If the U.S. does not put its house in order, the reckoning will be sure and the devastation will be severe. . . . . In the weeks and months to come, countless advocacy groups and special interests will try mightily through expensive, dramatic, and heart wrenching media assaults to exempt themselves from shared purpose and common sacrifice. The national interest, not special interests, must prevail." (SB report at pages 7-8)

The SB report says that, among other things, the SB plan would "sharply reduce tax rates, abolish the AMT, and cut backdoor spending in the tax code. . . . . ensure lasting social security solvency, prevent the projected 22% cuts to come in 2037, reduce elderly poverty, and distribute the burden fairly. . . . . stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035." (SB report at page 15)

Finally, the SB report says that it will "reform corporate taxes to make America more competitive, and cap revenue to avoid excessive taxation." (SB report at page 16)

After the SB report was made public, president Obama thanked the commissioners for their hard work and then simply ignored the report's recommendations. The president apparently felt the commission's proposals were unacceptable, but his reasons for walking away from it are not entirely clear.[5] In the wake of the president's unwillingness to do anything, congress melted down into, or simply remained in, the useless gridlock and blame shifting mode that dominates that broken institution today.

Who you gonna trust?

In RPCA opinion, the president's failure to back the report in any meaningful way was a serious, major mistake. It was a wasted opportunity to seriously address our fiscal situation beginning in 2010. Now it is three years later and nothing has changed, except that we are three years closer to a tipping point in sustainability. Three years is a long time for the government to do essentially nothing. In this case, the president failed to lead and his failure could precipitate some unpleasant or even catastrophic consequences. Time will tell. It is solid evidence that Washington is incapable of leading. That presumably arises mostly from the unpleasant news that will accompany any real attempts to fix things.

In terms of politically-inspired options there are two main plans out there - republican and democratic. The SB plan appears to be more or less non-political. The republican plan has been discussed.[3] It is viewed here with deep suspicion. The republican plan is firmly grounded in conservative ideology, not non-ideological pragmatism. Arguably it contains more than a small tinge of political self-interest. Both of those factors appear to be significantly out of synch with optimum service to the public interest. Optimum service to the public interest is the RPCA's only political focus.[6]

SB's statement that "everything must be on the table" appears to be simple common sense, given the depth and breadth of the problem. SB's explicit urge to focus on the national interest over special interests is not something one hears much about from either of the two parties. They get much or most of their money from special interests. Naturally they won't bite that hand because it feeds them. The "national interest" that SB refers to is another term for the the public interest, which is the the RPCA's main concern. Finally, a major focus of the SB plan is "backdoor spending in the tax code", which is something that conservative ideology apparently cannot and will not consider as part of the solution to the problem.[7] Collectively, the content and tone of the SB commission report make it far more credible than the republican plan.

Reality doesn't care about ideology

In terms of credibility, the SB plan provides a better starting place and general guidance about what needs to be done to begin to address unsustainable America's fiscal situation. Some of the portions of the SB commission report quoted above are generally in accord with other analyses from other sources.[8] The non-partisan nature of the SB plan seems genuine. In RPCA opinion, problem solving from an ideological point of view is less effective in serving the public interest than problem solving from a pragmatic non-ideological point of view. At the very least, the ideological viewpoint has to serve the ideology. That would be fine if reality and problems cared about some ideology or another or if reality accorded with one particular ideology. Unfortunately for ideologues and the rest of us who suffer with the inefficiency that arises from policies grounded in ideologically distorted world views, reality could not care less about any one's ideology. As far as the RPCA is concerned, open-minded, pragmatic problem solving, not ideology, solves problems.

The matter of trust (again)

The RPCA acknowledges a mostly unspoken concern that conservatives have about trying to fix our fiscal situation. Specifically, there is a great deal of sentiment among most conservatives and probably many independents as well that you simply cannot give Washington more money and expect it to solve any fiscal problem in the long run. The reason for that belief is simple. When you give liberals more money, they will spend it faster than it comes in.[9] Therefore, any fix you put in place will be dissipated in a few years and the situation will continue to deteriorate. That concern is valid. The RPCA shares the belief that government, both in California and in Washington, is a black hole for money. You can throw more money into the gaping maw of government and it will never be enough. In that scenario, things will not change or get better, fiscally speaking.

The dilemma

That being said, there is a dilemma here. Some experts believe that revenue increases and spending cuts are necessary to fix our situation over the long run. If that is true, and the RPCA believes it is, it means there are two basic mainstream choices here. One is to take the republican approach and rely only on spending cuts and accept the massive pain that will inflict. The advantage of doing that is that spending will be kept under control. The other is to take an approach similar to SB's and build in rock-solid revenue and spending caps. That should minimize pain somewhat while giving some assurance that congress won't come along a year or two later and wreck the plan. Such hard caps could require, for example, changes to come only after a 75% majority vote by House and Senate members. Getting that kind of concurrence these days is impossible for almost anything of substance, so hardened caps like that would likely be safe for a long time.

The question is whether the public would trust even that kind of a plan. Regrettably, mustering sufficient public trust for even that kind of a scenario to come about is hard to envision. The public has heard so many untruths from so many politicians and seen so much special interest power over the years that maybe nothing will convince most of the public that it is possible to fix this while being fair, intelligent and compassionate in service to the public interest. Maybe it is that attitude that allows the left and right extremes to call the shots in the debate. The center, arguably represented by the SB report, may have simply pulled too far back to have much impact. Regardless of the causes, the situation reflects a profound failure of the two-party system to effectively serve the public interest.


Footnotes:
1. Link: http://www.bloomberg.com/news/2013-08-26/lew-tells-congress-treasury-will-hit-debt-limit-in-mid-october.html.
2. Link: http://reformparty.org/reform-party-of-california-commentary-colloquies-in-venom/.

3. Link: http://reformparty.org/reform-party-of-california-elusive-economic-reality.
4. Link: www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/TheMomentofTruth12_1_2010.pdf; a summary of the report is here: http://en.wikipedia.org/wiki/National_Commission_on_Fiscal_Responsibility_and_Reform.
5. Link: http://online.wsj.com/article/SB10001424127887323482504578225620234902106.html. One possible reason for president Obama to turn his back on the SB commission and its report is his opinion that the U.S. does not have a spending problem. According to that viewpoint, we only have a revenue problem and that could be fixed by tax increases alone. There is some truth in that. If it is true that the U.S. treasury does not collect roughly $430 billion/year due to tax evasion (http://reformparty.org/the-tax-gap/), then if the evasion could be reduced by, say, 85%, revenue would increase by $365 billion/year. Although that alone won't solve the whole problem, it isn't something that can be ignored. There is real money there. Another oddity here is that Obama asked for a bipartisan report and that is what he got. If he had expected a report that said we can fix thing by just increasing taxes, he should have asked liberal democrats and socialists to write the report. One can sometimes wonder if this guy isn't just a bit naïve.
6. Link: http://reformparty.org/reform-party-of-california-essays-6-what-is-the-public-interest-and-how-is-it-best-served/.
7. Link: http://reformparty.org/the-tax-gap/. In RPCA opinion, "backdoor" spending in the tax code is a major problem that contributes to our dismal fiscal situation. It probably costs the U.S. treasury well over $400 billion/year in illegal tax evasion plus additional hundreds of billions/year in unintended but legal tax avoidance tactics that congress never contemplated or is even aware of. The mess and blinding complexity is completely due to how the two-party system operates. Whether that is seen as as good governance, evidence of incompetence and special interest corruption or something else will of course vary from person to person. The RPCA sees it as evidence of incompetence and corruption.
8. Link: http://online.wsj.com/article/SB10001424127887323353204578127374039087636.html; http://kaiserfamilyfoundation.files.wordpress.com/2013/01/8185-02.pdf; See page 2 of the analysis; http://www.offthechartsblog.org/dont-forget-ryans-budget-of-last-year/.
9. Blaming it all on liberals doesn't convey the whole reality here. Conservatives in government have repeatedly shown that they are happy to go into debt without regard for future obligations. That was made brought home again when republicans in congress failed to pay for, e.g., either the Afghanistan or Iraq wars, with anything other than debt. The argument above simply presents the republican point of view, which downplays or ignores these little inconvenient truths. With the likely exception of the Tea Party folks, deficit spending is an old bipartisan habit. For most Americans, that makes trust in long-term budget plans very hard or impossible to have.