Wednesday, December 5, 2012

Ezra Klein and a Little Sympathy for Simpson-Bowles

     Liberals have knocked Simpson-Bowles a good deal recently. Krugman has done it, Chuck Schumer and Harry Reid has, I myself have done it. I've had a very dim view of it, certainly this was helped by Paul Ryan using it as a campaign issue to beat the President about the head with.

     Yet, Ezra Klein has a very good piece about S-B and what is really in the bill. As I read through his list of "11 Shocking True Facts About Simpson-Bowles" it was striking how little anyone really knows about it. Klein is certainly right that whether you love or loath S-B, you probably don't know what really :

      "The Simpson-Bowles plan — which Erskine Bowles does actually support — occupies strange territory in Washington: Almost every politician professes to admire it, almost none of them are willing to vote for it, and almost none of its supporters know what’s in it. So here, with an assist from the Center on Budget and Policy Priorities, are a few facts to keep in mind about the Simpson-Bowles plan. And while you’re reading this list, remember: Simpson-Bowles is a centrist proposal."

       This is very true. I had no idea about much of it. I came to see it as mostly just an austerity document for deficit scolds and David Brooks to embrace to feel like he's a very serious person.

        "An important fact to keep in mind in the coming days: “The Bowles plan” that Speaker John Boehner endorsed is not the same as “the Simpson-Bowles plan.” Indeed, it’s not even the plan supported by its apparent namesake, Erskine Bowles, who insists that he was simply sketching out the evident middle ground between the members of the supercommittee."

         The so-called "Bowles" plan is totally different than S-B as is the much more conservative version of S-B that failed in the House. Simpson-Bowles actually has lots of tax cuts-more than even President Obama has asked for: It's starting baseline is the expiration of the Bush tax cuts. So for liberals who feel that's the top priority at this point, S-B does that. In fact, it raises more in taxes on the rich than Obama does, calling for a total of $2.6 trillion in tax hikes:

         "$2.6 trillion over 10 years, to be exact. That’s more than President Obama ever proposed. It’s way more than the Republicans have ever proposed. It’s $1.8 trillion more than in the “Bowles plan” that Boehner is proposing. Think about that: To follow the Simpson-Bowles recommendation on taxes, you’d have to take the $800 billion Boehner is proposing and then raise taxes by more than the $1.6 trillion Obama is asking for."

         Bowles has made the point himself that the Bowles plan was not really a plan, it was an attempt at compromise based on where the parties were during the debt ceiling fiasco. He's pointed out that the "Center" such that it is, has changed. Indeed, as has been argued, the true Center now is in reality the Democrat's plan as this is where the American people are.

        S-B also ends preferential treatment for the rich on dividends and capital gains income.

        "The key difference between Simpson-Bowles-style tax reform and the tax reform plans we heard about through the election is that S-B eliminates the preferential rate on capital gains and dividend income. That amounts to a huge tax increase on the rich, and it’s how S-B manages to lower rates while raising revenue and retaining progressivity."

        (Actually that's one confusion I still have. That comment about "how  S-B manages to lower rates while raising revenue and retaining progressivity." I thought it raises rates by letting the Bush tax cuts for the rich expire? Does this mean that in the future the rates will go down but keep revenue up by taxing capital gains as regular income? I still need a little clarity there.)

         The ratio of tax increases to spending cuts is roughly 1 to 1:

          "According to CBPP’s calculations, Simpson-Bowles includes $2.9 trillion in spending cuts and $2.6 trillion in tax increases. That’s 1.1:1. If you add the $800 billion in projected interest savings to the spending side, then it’s 1.4:1."

          Also very important is that the spending cuts have mostly already been met based on the S-B framework:

          "Congress has already passed 70 percent of the discretionary cuts. Under the Budget Control Act, discretionary spending will be $1.5 trillion lower from 2013 to 2022 than was projected in the Congressional Budget Office’s 2010 baseliner. That means that 70 percent of S-B’s cuts to discretionary spending are done."

           So it's not at all improper for the President to demand much more in tax increases than new proposed spending cuts. He's already done most of the spending cuts.To the extent that S-B is treated as a holy manuscript, Obama's proposals are totally in line.

          When liberals knock S-B, they mostly have in mind the revised S-B House bill that went down in a landslide defeat-. This plan, however, was much more conservative than the original S-B.

           "Simpson-Bowles went down in the House, 382-38. In March, Reps. Jim Cooper and Steve LaTourette brought a modified version of Simpson-Bowles to the floor. This incarnation of the proposal was actually quite a bit to the right of the original, including smaller tax increases and defense cuts. It failed, and failed big."

            S-B also calls for more military cuts than the the $750 billion that are scene as so terrible in the sequester bill.

            So S-B really isn't the problem. It would be a welcome development for the GOP to negotiate along those lines.




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