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Five Reasons to Have Second Thoughts about Simpson-Bowles

The Simpson-Bowles budget plan is often represented by media pundits and Washington insiders as a model for a bipartisan “grand bargain” to fix the deficit. It’s not surprising that Beltway wise men would want to steer the country in the tax-and-spend direction of Simpson-Bowles, but others are not so sure mainly because it leaves the spending spigot on. Here are five reasons why one might have second thoughts:

1. Simpson-Bowles is a $5 trillion net tax hike in its first full decade. Historically, tax revenues have averaged between 18 and 19 percent of the economy (GDP). Simpson-Bowles has an explicit revenue target of 21 percent of GDP. Over a decade, the net tax increase from the historical baseline is $5 trillion. It gets worse: due to the underperforming economy, we’re not at the historical baseline, as revenues are less than 16 percent of GDP, which means the $5 trillion figure understates the tax hike.

2. Simpson-Bowles wants to make a record high tax take the “new normal.” As stated above, Simpson-Bowles wants to target a permanent tax revenue stream to the IRS of 21 percent of GDP. That would not only be a record (since World War II, only one year—2000—has even seen tax revenues over 20 percent of GDP), it would be the “new normal.” What Simpson-Bowles wants to achieve is a federal tax burden hitherto unheard-of in American history, and keep it there forever.

3. Simpson-Bowles locks in historically-high levels of government spending. To paraphrase Milton Friedman, the government will spend every penny it collects in taxes (plus however much else it can get away with). Record high taxes mean record high levels of spending. Simpson-Bowles seeks to collect 21 percent of GDP in taxes. Using “Friedman’s law,” that means federal government spending will at least equal 21 percent of GDP every single year after the passage of Simpson-Bowles. To put that in context, federal spending has been below that level two out of every three years since World War II. It is a highly elevated level of spending, and would be a massive defeat for those trying to contain the size of government.

4. Simpson-Bowles does not repeal Obamacare. The plan is very specific about this—it left anything having to do with Obamacare alone in the (since dashed) hopes that President Obama would adopt the plan as his own. That means that a world with Simpson-Bowles leaves intact the 20 new or higher taxes in Obamacare, the $1 trillion in higher taxes, the individual mandate, and the rationing board in Medicare.

5. Simpson-Bowles fails to adequately deal with the key drivers of debt: Medicare and Medicaid. Simpson-Bowles fails to bring down the cost growth of federal healthcare programs. This is a well-founded concern, especially given the plan’s unwillingness to deal with Obamacare. Simpson-Bowles nibbles around the edges of Medicare and Medicaid reform, leaving those systems basically unreformed with only promises of blue-ribbon commissions far into the future.

Read: http://www.fiscalcommission.gov/sites/fiscalcommission.gov/files/documents/CoChair_Draft.pdf

Read: http://www.thepoliticalguide.com/Issues/Simpson-Bowles/

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