Bowles Plan Offers Path to Compromise

At the end of Tuesday's Super Committee hearing, Fiscal Commission co-chair and CRFB board member Erskine Bowles offered up top-line numbers representing a compromise between the Democratic and Republican offers to the Super Committee. While Bowles did not offer specific policy choices that would reach those numbers, taking a closer look at the Gang of Six proposal, the Fiscal Commission plan, bipartisan negotiations, and other fiscal plans shows where there would be a consensus on policies to achieve these thresholds.

While Bowles noted in his testimony yesterday that other bipartisan plans have recommended larger savings, he recognizes that this is a real opportunity to get something accomplished and we should not let the perfect be the enemy of the good (transcript here: subscription required):

"[This plan] would give you an additional total of $2.6 trillion, added to the $1.3 trillion you've already done. That's $3.9 trillion in deficit reduction, and I think that would create a lot of excitement with people in the country, and I think it would go a long ways toward building up confidence that we really could stand up to our problems."

Discretionary spending: Bowles suggested a balance that could be struck between the Democratic and Republican offers for total savings of $300 billion. These savings could feasibly come from reducing the caps on both defense and non-defense programs (or alternatively, security and non-security), or could be achieved through an overall cap in later years.

Health Care: On health care, he put forward a balance between both offers at around $600 billion, suggesting that while the level of savings from the Democratic offer could be increased by roughly another $100 from gradually raising the eligibility age for Medicare -- noting that with the implementation of the Affordable Care Act, people 65 and 66 years old with serious health conditions or limited financial means could still be able to get health care insurance through the coverage provisions of the ACA. And you know how we feel about the eligibility age. The Fiscal Commission proposed about $500 billion in savings (now that the CLASS Act isn't moving anywhere), so this proposal could feasibly build on the cost-sharing reforms, reforms of provider payments, prescription drug rebates, other changes in Medicare, malpractice reforms, TRICARE, and Medicaid proposals contained in Bowles-Simpson plan.

Other Mandatory:  On mandatory spending as well, Erskine looked at the savings between the Democratic and Republican offers and suggested a middle ground approach of about $300 billion. Erskine noted that there are plenty of other mandatory savings in the Fiscal Commission proposal and other plans to achieve that level of savings.

Revenues: On revenues, Erskine cited Speaker of the House John Boehner's statements concerning the $800 billion in new revenues that he and President Obama had agree to during the negotiations this summer leading up to the debt ceiling. Erskine made a point when discussing the need for revenues that estimates for revenues should not rely on dynamic scoring, advocating "a trust but verify" approach that did not count dynamic effects up front but allowed lawmakers to then decide whether to lower tax rates or further reduce the deficit if there were additional revenues from dynamic effects of tax reform.

^{Note: Numbers may not add due to significant rounding. Estimates off of a current policy baseline.
~Savings come from across the federal budget, including about $40 billion from revenues, $90 billion from Social Security, and $70 billion from other mandatory programs.
#Includes $87 billion from CLASS Act Repeal.
*From dynamic effects of future tax reform.}

Compared to the set of discretionary projections included in the Fiscal Commission plan last December, which was based on the August 2010 CBO projections, legislative cuts to discretionary spending and associated interest savings have pushed down spending by about $1.3 trillion over ten years. All the short-term Continuing Resolutions put in place last fiscal year (including one last October, three in December, three in March, and a final one in April. Wow, that's a lot of CR's. Eight, in fact. What a broken budget process!) shaved about $350 billion from discretionary projections going forward, including $122 billion from the final spending deal reached in early April. The Budget Control Act in early August put in place about $760 billion in additional discretionary cuts, and adding in roughly $200 billion in interest savings brings the total savings already put in place up to about $1.3 trillion.

In terms of new savings, the numbers from the table above show that the Bowles compromise plan splits the difference in each budget area between the two partisan plans offered within the Super Committee and roughly corresponds to the bipartisan plans that involved sitting lawmakers. While Bowles' plan has less revenue than other bipartisan plans, notably the Fiscal Commission and the Domenici-Rivlin plans, it has notably more than the Republican offer but more health and other mandatory savings than the Democratic offer.

Bowles' plan certainly illustrates a path to a workable compromise, which would be effective in putting the country on a much more sound fiscal course. While the plan does not address each area of the budget, notably Social Security reform which would still have to be taken up, it would represent a huge step forward toward a strong fiscal future.