Today, former Fiscal Commission co-chairs and Moment of Truth Project co-founders Erskine Bowles and Alan Simpson have released a new framework, calling for $2.4 trillion in deficit reduction over the next ten years as well as additional long-term reforms. The proposal builds upon where the President and Congressional leaders were in the fiscal cliff negotiations but pushes both sides to do more. In their statement from the Moment of Truth Project, they call for an agreement based on a number of principles, including putting debt on a downward path as a share of the economy, enacting smart, pro-growth reforms to the tax code and entitlement programs while protecting the disadvantaged and not hindering the economic recovery.
They clarified that their proposal is not intended to be a replacement of the original Fiscal Commission plan, but rather a guide for where lawmakers should aim given the deficit reduction that has been enacted so far and recent offers from Congress and the President.
The outline from Simpson and Bowles is what they call "Step 3" in a four step process. As CRFB has laid out in a recent analysis, lawmakers have already enacted nearly $2.7 trillion in savings, with the first two steps being discretionary spending cuts and upper-income tax increases. In Step 3, Simpson and Bowles call for another $2.4 trillion, enough to put the debt on a clear downward path relative to the economy to below 70 percent by early next decade. Roughly one-quarter of the savings would come from health reforms and another one-quarter would come from tax reform. Additional deficit reduction would come from other mandatory and discretionary spending cuts, cross-cutting reforms such as moving to the chained CPI, and net interest savings.
Even if Members of Congress and the President were to agree to such a plan, Simpson and Bowles also call for an additional "Step 4" which would require making Social Security sustainably solvent, bringing the Highway Trust Fund into balance, and limiting the long-term growth of federal health care obligations.
In Step 3, they call lawmakers to:
- Reduce Medicare and Medicaid spending 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 population aging, reducing drug costs, and getting better value for our health care dollars
- Enact comprehensive, pro-growth 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
- Strengthen limits on discretionary spending
- Reduce non-health mandatory spending by reforming farm subsidies, modernizing civilian and military health and retirement programs, imposing various user fees, reforming higher education spending, and making other changes
- Adopt the chained CPI for indexing various programs and tax provisions, and achieve savings from program integrity efforts
In our paper updated last week on how much further lawmakers have to go, we found that $2.4 trillion was the minimum amount of deficit reduction necessary to put debt on a clear downward path as a share of the economy. In the coming weeks, we hope that plans will emerge from Congress, drawing from principles laid out in this new proposal along with elements from many other budget proposals, that are up to the challenge of truly controlling our rising debt.
The full release from the Moment of Truth Project can be found here.