Bowles, Simpson release new debt plan

The former chairmen of President Obama’s 2010 fiscal commission, Erskine Bowles and Alan Simpson, on Friday will release a new deficit reduction plan in the hopes of reviving a debt grand bargain this year.

The two-step plan has about $800 billion more in spending cuts than President Obama is seeking and $1.1 trillion more than Senate Democrats have proposed, while adopting roughly the same amount of new taxes from tax reform called for in Obama’s 2014 budget.

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The new Bowles-Simpson plan calls for $585 billion in tax revenue from a reform process that starts by eliminating all deductions — then adds back in only those most needed — adopts a territorial tax system and maintains progressive tax rates. This is less than the $975 billion in tax increases in the Senate budget. 

“By picking up on where budget negotiations left off last December, we have crafted a plan that we believe could be enacted into law over the course of this year, and would represent a tremendous step forward in putting our nation on a fiscally sustainable course,” Bowles and Simpson write in the plan. 

In 2010, Bowles and Simpson’s formal Fiscal Commission plan was able to garner support from 11 Democrats and Republicans on the commission, shy of the amount needed to guarantee House and Senate floor votes. 

By their measure, the newest Bowles-Simpson plan will achieve $5.2 trillion in deficit reduction including laws enacted since 2010, compared to $4.3 trillion in reductions in the Senate-passed budget and Obama budget. Both of these calculations assume that $1.2 trillion in automatic sequester cuts are going to be turned off. 

Bowles and Simpson say that their plan will bring the national debt down from 78 percent of the economy to 69 percent of gross domestic product. This compares to 70 percent for Senate Budget, 73 percent for Obama and 55 percent for the House-passed budget authored by Rep. Paul Ryan (R-Wis.).

The Ryan plan balances without raising taxes by cutting $4.6 trillion in spending, while keeping the $1.2 trillion sequester in place. 

To achieve the deficit savings, Bowles and Simpson look for deeper healthcare cuts than Democrats have backed, including raising the eligibility age for Medicare — something Obama has flatly rejected.

As in the original Bowles-Simpson report and the Obama budget, the new plan embraces changing the way inflation is calculated — including to Social Security payments — to raise $280 billion.

It gets $265 billion from other mandatory programs, including $40 billion from farm programs, $585 billion from healthcare including the Medicare age change, $220 billion from defense after first turning off the sequester and $165 billion from non-defense discretionary funding after turning off the sequester.

The Senate budget got $275 billion from healthcare programs and the Obama budget found $400 billion in savings. 

The plan includes an innovative solution to the upcoming fight over raising the debt ceiling. The $16 trillion debt ceiling will have to be raised after May 19.

Bowles and Simpson suggest indexing the debt ceiling so that it only needs to be raised if the size of the debt relative to the economy is not declining — a trajectory that is achieved under their plan. 

The second part of the plan calls for Social Security to be made solvent on a different track.  

Possibly its most radical step is to put a cap on Medicare spending after 2018. While the design of the cap is vague, the plan calls for it to be met by limitations on the employee health exclusion; provider payment cuts and premium increases. Ryan's plan includes a similar cap, although his growth target is slightly higher.

Obama's healthcare law also caps federal spending on Medicare. Its Independent Payment Advisory Board is tasked with cutting provider payments if spending grows faster than a prescribed rate.

In the long-term second step, the plan calls for the troubled highway trust fund to be put on a sound footing. In the past, Bowles and Simpson have called for an increase in the gas tax to do so. 

For the first part of the proposal, Bowles and Simpson call for a series of healthcare cuts derived from both Democratic and Republican ideas.

The plan borrows President Obama's proposal to cut Medicare spending on prescription drugs, but would also raise the eligibility age for Medicare — an idea Obama has taken off the table in his most recent budget negotiations.

While Simpson and Bowles would gradually raise the Medicare eligibility age to 67, they would also let low-income seniors buy into the program earlier. 

Seniors who are poor enough to receive subsidies for private insurance under ObamaCare could buy into Medicare early. They would pay a premium based on their income until they become eligible for the traditional single-payer system.

All told, the plan includes $585 billion in healthcare savings, compared with $400 billion in Obama's budget. It does not call for the dramatic entitlement overhauls Ryan has proposed, but rather proposes a combination of cuts to benefits and payments to providers.

The vast majority of the cuts would come from Medicare. Medicaid is largely insulated, except for a plan to eliminate a tax that some states use to drive up the federal government's share of Medicaid payments.

The new plan would expand Medicare's means testing — charging wealthier seniors a higher premium — an area where Republicans and the White House agree.

—This story was updated at 10:50 a.m. on April 19.