Some Reactions to the Co-Chairs' Proposal

With the unexpected release of the draft proposal from the co-chairs of the President’s fiscal commission, the naysayers have come out of the woodwork. But as we have seen all too often, the critics are willing to blast the report without offering alternatives for fixing our fiscal house.

We’ve got to face the fact that our soaring debt needs to plunge and it won’t do it on its own. We need productive alternatives, not merely potshots taken at a new proposal.

The Simpson-Bowles draft proposal is not perfect and it’s doubtful that many people actually favor the entire plan as is, but the document should not merely be placed in the pile of rejected budget plans. Instead, it should form the basis for discussion and compromise.

As President Obama said yesterday concerning the report, "[b]efore anybody starts shooting down proposals, I think we need to listen, we need to gather up all the facts." Let’s take a look at some of the criticism aimed at the proposal:

• The plan raises the Social Security retirement age to 69
  • True, but it would reach this benchmark in 2075-- 65 years from now. This would affect only the youngest Americans whose life expectancy is projected to be much longer. In addition,, the plan keeps the current plan that raises the retirement age to 67 by 2027 and then is indexed to longevity, which is currently projected to put the retirement age at 69 in 2075.

Here’s one of the most important aspects of the plan-- it brings Social Security back to cash balance for the 75-year window and through the 75th year. Critics should remember that in 2037 Social Security beneficiaries are currently facing a 22 percent across-the-board cut, since at that time the trust funds would be depleted. This plan offers gradual changes to benefit and revenue levels in order to avoid such a precipitous drop in benefits. Any critic should present his or her own plan that strengthens the program past the 75-year timeframe.

• This proposal will raise taxes by $1 trillion
  • A significant portion of the "tax increases" are reductions or eliminations in spending programs known as tax expenditures. As we detailed in our recent Let's Get Specific paper, these tax deductions, such as the mortgage interest deduction, are not reviewed during the annual budget cycle. Further, they distort economic activity, are regressive as higher-income individuals are more likely to itemize their taxes, make the tax system more inefficient, and make tax filing more cumbersome than necessary.
  • Reducing all of these tax expenditures would allow tax rates to actually decrease, while also dedicating some of the savings to deficit reduction. Furthermore, the proposal is about two-thirds spending decreases and one third tax increases.
• This proposal goes too far/does not go far enough
  • Most of the criticism of the plan has been predictable. CRFB has heard conservative policymakers and thinkers complain that the cuts do not go far enough. But some more progressive analysts complain that the cuts are too much. Each may have some merit. However, those criticisms will simply result in more gridlock unless the critics offer their alternatives and a healthy debate ensues.

The fiscal commission's co-chair draft report is meant to be a compromise. It is no one’s final plan. Co-chair Erskine Bowles said it himself: "[W]e are not asking anybody for a vote on this plan. This is a starting point."

But nothing will be accomplished if critics aren’t willing to engage in a serious debate. So far, that hasn’t happened.