Simpson-Bowles

Mr. Giesler

Economics

United States Tax Code RevisitedSimpson-Bowles

Feb. 18, 2010, President Obama created the bipartisan National

Commission on Fiscal Responsibility and Reform to address our

nation's fiscal challenges.

The Commission is charged with identifying policies to improve

the fiscal situation in the medium term and to achieve fiscal

sustainability over the long run.

Specifically, the Commission shall propose recommendations

designed to balance the budget, excluding interest payments on the

debt, by 2015

United States Tax Code RevisitedSimpson-Bowles

In addition, the Commission shall propose recommendations that

meaningfully improve the long-run fiscal outlook, including changes

to address the growth of entitlement spending and the gap between

the projected revenues and expenditures of the Federal

Government.

The Commission will meet as a whole once a month while

Congress is in session.

The Commission will vote on a final report containing a set of

recommendations to achieve its mission no later than December 1,

2010.

The final report will require the approval of at least 14 of the

Commission's 18 members.

TTYN: In light of what you now know about Simpson – Bowles: what do you think? Good idea? Do you believe it to an effective method to address the country’s economic woes?

The Proposal

Nov. 10, 2010

It’s big. It’s complicated. The highlights Six-part plan to put our nation back on a path to fiscal health, promote economic growth, and protect the most vulnerable among us. Taken as a whole, the plan will: Achieve nearly $4 trillion in deficit reduction through 2020, more than any effort in the nation’s history

The Proposal

Reduce the deficit to 2.3% of GDP by 2015 (2.4% excluding Social

Security reform), exceeding President’s goal of primary balance

(about 3% of GDP).2

Sharply reduce tax rates, abolish the AMT, and cut backdoor

spending in the tax code.

Cap revenue at 21% of GDP and get spending below 22% and

eventually to 21%.

Ensure lasting Social Security solvency, prevent the projected

22% cuts to come in 2037, reduce elderly poverty, and distribute

the burden fairly.

Stabilize debt by 2014 and reduce debt to 60% of GDP by 2023

and 40% by 2035.

The plan has six major components:

1) Discretionary Spending Cuts: including significant cuts

in both security and non-security spending by cutting low-

priority programs and streamlining government

operations.

2) Comprehensive Tax Reform: Sharply reduce rates,

broaden the base, simplify the tax code, and reduce the

deficit by reducing the many “tax expenditures

3) Health Care Cost Containment: Replace the phantom

savings from scheduled Medicare reimbursement cuts that

will never materialize.

4) Mandatory Savings: Cut agriculture subsidies and

modernize military and civil service retirement systems,

while reforming student loan programs and putting the

Pension Benefit Guarantee Corporation on a sustainable

path.

5) Social Security Reforms to Ensure Long-Term Solvency

and Reduce Poverty: Ensure sustainable solvency for the

next 75 years while reducing poverty among seniors.

Reform Social Security for its own sake, and not for deficit

reduction.

6) Process Changes: Reform the budget process to ensure

the debt remains on a stable path, spending stays under

control, inflation is measured accurately, and taxpayer

dollars go where they belong.

TTYN: Again, in light of what you now know about Simpson – Bowles: what do you think? Good idea? Do you believe it to an effective method to address the country’s economic woes?

Partisan Politics At Its Best

Analyzing the plan, It called for:

Deep cuts in domestic and military spending starting in 2012.

Overhaul the tax code

Eliminating or reducing the $1 trillion a year in popular tax

breaks for individuals and corporations and using the revenues

mostly to slash income tax rates but also to reduce deficits.

Make Social Security solvent for 75 years,

Raise payroll taxes for the affluent and reduce future benefits,

including by slowly raising the retirement age for full benefits to 69

from 67 by 2075.

Partisan Politics At Its Best

Both Republicans and Democrats bash the proposal….WHY?

Tax increases for upper-income Americans and the scale of

proposed reductions in future health care and Social Security

programs

Republicans opposed to it, suggested that it failed to cut

spending deeply enough and did not include a repeal of the

Democratic health care law.

TTYN: What’s Next? How should the President and Congress

respond to the failure of Simpson-Bowles?