Simpson, Bowles offer new $2.4 trillion deficit-reduction plan

Alan Simpson and Erskine Bowles, the co-chairmen of President Obama’s deficit-reduction commission, unveiled a new framework on Tuesday that would cut deficits by $2.4 trillion over the next decade.

A quarter of the deficit reduction – $600 billion – would come from healthcare savings, with Bowles and Simpson calling for lower provider payments, higher premiums for higher earners, savings from lower drug costs and “adjustments to account for an aging population.”

{mosads}Bowles and Simpson call for an additional $1.2 trillion in other spending restraints, including mandatory spending cuts, tighter discretionary spending caps and a new formula for calculating inflation that would slow the increase in government benefits.

A reform of the tax code that loweres rates while also eliminating tax breaks would provide the other $600 billion.

The two are releasing their new plan now hoping it will bridge differences between President Obama and congressional Republicans, who are no longer even talking about a deficit-reduction plan.

On March 1, $85 billion in automatic spending cuts is set to hit the government, and Obama on Tuesday will ask Congress to prevent it.

Bowles, a White House chief of staff under former President Clinton, and Simpson, a former GOP senator from Wyoming, admit that their latest framework is short on details. They say they wanted to give policymakers time to give them feedback on their general plan.

The purpose of the relaunch, the two argue, is to “show that a grand bargain is still possible.”

“The problem is real, the solutions are painful, and there is no easy way out,” said Bowles and Simpson, who have pressed leaders to embrace their deficit-reduction plans for a couple of years. “What we are calling for is by no means perfect. We understand that there will be disagreements among policymakers and experts about the exact approaches to achieve deficit reduction, and welcome their commentary.”

The $2.4 trillion framework is more ambitious than one the White House is currently calling for, and likely will not go as far as the upcoming House GOP budget.

Obama, in his State of the Union address last week, said that an additional $1.5 trillion in deficit reduction would “stabilize” the debt. House Republicans, meanwhile, are pushing for a budget that would balance within a decade, which would likely require around $4 trillion of deficit reduction over 10 years.

The revised proposal from Simpson and Bowles contains elements unpopular with both sides in the deficit debate. The cuts to Medicare and Medicaid are more than what the White House says it can swallow, while Republicans have raised objections to new revenues.

Liberals and unions have sharply criticized the less generous inflation measure, called “chained CPI,” saying it would lower the Social Security benefits received by seniors. Richard Trumka, the president of the AFL-CIO, said the new plan told U.S. workers to once again “drop dead.” 

The new proposal also comes as Republicans and Obama remain at an impasse on how to achieve deficit reduction and turn off the $85 billion in sequester cuts slated to take effect next Friday.

Obama has pressed Republicans publicly to accept a replacement package of both spending cuts and tax hikes to replace the across-the-board cuts targeting both Pentagon and non-defense discretionary spending.

Republicans, though, say they accepted new revenues in January’s “fiscal cliff” deal and will only accept targeted spending cuts to replace the sequester.

With little time left to craft a deal, both sides have sought to lay the blame for the looming cuts.

The new proposal from Simpson and Bowles is their latest attempt to force Washington to restore the nation’s fiscal health.

Simpson and Bowles were appointed to lead the National Commission on Fiscal Responsibility and Reform, launched in 2010 by Obama to craft a long-term plan to tackle the country’s ballooning deficit.

At the time, they proposed a grand bargain to slash close to $4 trillion from the deficit through a combination of spending cuts and revenue increases, including tax reform, but it failed to gain support from the White House or Congress.

Since then, Simpson and Bowles have been critical of subsequent failed efforts — first in the summer of 2011 and again in the past several weeks — by the White House and Congress to achieve a deal as ambitious as the plan they initially laid out.

Simpson and Bowles last year also launched a new campaign called “Fix the Debt,” where they sought to rally business leaders and former economic policymakers to add pressure on Congress and the White House.

The House earlier this year soundly defeated a bipartisan amendment that would have encouraged President Obama to balance the budget using the original Simpson-Bowles deficit-reduction plan as a guide.

—This story was posted at 8:15 a.m. and last updated at 11:20 a.m.

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