The Simpson-Bowles budget plan is often referenced by Washington insiders as a model for a bipartisan “grand bargain” to fix the deficit. While it’s understandable that Democrats and Beltway wise men would want to steer the country in the tax-and-spend direction of Simpson-Bowles, this template is avoided like the plague by conservatives. Here are five reasons why:
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 President Obama’s 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.
Under the Romney-Ryan plan, everyone will see a 20 percent tax rate cut paid for by broadening the tax base for high-income families.
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.
Under the Romney-Ryan plan, a reformed tax system with lower rates will collect the historical levels of tax revenue (18-19 percent of GDP).
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 conservatism’s central governing metric—the size of government.
Under the Romney-Ryan plan, federal spending will decline to no higher than 20 percent of GDP by the end of the first term, and further decline to the historical tax revenue burden by the end of a decade.
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. As a result, Simpson-Bowles fails the key conservative test of repealing the multi-trillion dollar Obamacare plan. 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, the rationing board in Medicare known as IPAB, and Obamacare’s backdoor HSA repeal.
Romney-Ryan has pledged to repeal Obamacare as one of their first acts in office.
5. Simpson-Bowles fails to adequately deal with the key drivers of debt: Medicare and Medicaid. In addition to his objections to the record burden of taxation under Simpson-Bowles, Paul Ryan opposed Simpson-Bowles was because it failed to bring down the cost growth of federal healthcare programs. That was 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.
Romney-Ryan has common-sense fixes to both drivers of long-term debt:
Medicare: for younger workers, move to a “premium support” system where they will receive a fixed amount of assistance (adjusted for income, health status, and cost of living) to purchase from a variety of plans competing for their business.
Medicaid: like all the rest of the remaining welfare programs, Romney-Ryan will block grant Medicaid to the states. This was the model of welfare reform successfully employed by President Bill Clinton in 1996.
View PDF here