The Bowles – Simpson Deficit Reduction Proposal

President Obama established the Bowles – Simpson Deficit Reduction committee to develop a non partisan proposal to help resolve the growing and unsustainable federal deficit. On November 10, 2010 the committee’s chairs released draft recommendations which were not approved by the entire committee. The recommendations are a mix of spending cuts, revenue enhancements, and program changes.

How you define the recommendations can impact how they are perceived and what eventually becomes law. For instance, is a change in social security retirement age merely a program change to reflect higher life expectancy or is it a program cut? Are revisions to the tax structure to eliminate deductions merely improvements in the tax code to reduce loopholes or are they increased taxes?

According to the Co-Chairs Bowles and Simpson the plan: “Achieves nearly $4 trillion in deficit reduction through 2020: ( based on ) 50+ specific ways to cut outdated programs and strengthen competitiveness by making Washington cut and invest, not borrow and spend.”

Initial political criticism has given way to need for studied analysis of the proposals with the exception of the blogosphere where criticism seems to be mostly partisan. However most agree that the plan is too short on details in controlling health care costs, which many consider the most difficult of all the budget challenges.

Here are some highlights of the Bowles-Simpson plan:

1. A reduction in discretionary spending that cuts $200 billion per year
   • an across the board freeze on  discretionary spending for two years
   • Reduce military spending by $100 billion per year
   • Reduce farm subsidies by $3 billion
2. Tax Reform
   • Eliminate most deductions, example home mortgage interest & employer health care
   • Lower tax rates and less brackets
   • Eliminate special rate for capital gains and dividends
   • Restore inheritance tax at 45%
   • Reduced corporate tax rate
   • Increase gasoline tax
3. Control Health care costs
   • Retain recent reform, including expansion in coverage
   • Strengthen cost cutting mechanisms (this should be fun, remember the death squads?)
   • Protect doctors from sharp cuts in Medicare payments
   • Malpractice reform ( commonly called tort reform)
4. Social security revisions
   • Increase the cap from $16,000 to $190,00 by 2020
   • Reduce benefits for wealthiest 50% of retirees
   • Increase age for full benefits from 65 to 67 by the year 2075
   • Hardship exemption for unable to work beyond 62

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