Earlier this morning, Alan Simpson and Erskine Bowles, former heads of President Obama’s deficit-reduction commission, released a new version of their much-discussed outline for reigning in the federal budget. This new plan calls for about $1 trillion more in total spending cuts than was previously sought by the two gentlemen; in addition, the tax revenue they seek is about half of what was contained in their original plan. It seems that Simpson and Bowles have moved in the Republicans’ direction big time. Their plan emphasizes the pressing need to contain the debt and makes it clear that spending cuts are necessary to do so, something Democrats have seemed to be woefully ignoring in recent months.
This shift in position clearly suggests that they were strong armed by the president the first time around, and forced to push a plan that they viewed was harmful for the economy. Despite making concessions towards higher taxes, they were double crossed by Obama, who dropped their plan the minute it was delivered.
Although their new plan is an improvement over their original proposal, the plan still increases taxes by too high an amount. In a study that I co-authored with Matt Jensen and Andrew Biggs, we found that the average successful fiscal consolidation around the world has been 85 percent spending cuts and 15 percent tax increases. Altogether, if this plan were to become law, it would be about 25 percent tax increases and 75 percent spending cuts. That is closer to the right answer than before, but still not mindful of the lessons of history.
Overall it seems like this exposes a big gap between Simpson and Bowles and the president. President Obama has pretended to be an advocate of their position, but never been serious about doing anything. This is payback time, and Simpson and Bowles have not made any friends in the White House today.