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Monday, December 10, 2012

Klein: Shocking facts about Simpson-Bowles

Another Viewpoint

An important fact to keep in mind in the coming days: The “Bowles plan” that House 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.” ...

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An important fact to keep in mind in the coming days: The “Bowles plan” that House 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 Simpson-Bowles plan – which Bowles does actually
support – occupies strange
territory in Washington: Almost every politician professes to admire it, almost none of them is 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.

1. Simpson-Bowles ends the George W. Bush tax cuts for income over $250,000. And note that it does that before it reforms the tax code. The expiration of the tax cuts is built into its baseline. That way, its reform of the tax code starts from a revenue level that includes the revenue from those upper-income tax cuts.

2. There are a lot of tax increases in Simpson-Bowles: $2.6 trillion over 10 years, to be exact. That’s more than President Barack 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.

3. There are so many tax increases that the plan’s ratio of spending cuts to tax hikes is nearly 1-to-1. According to the center’s calculations, Simpson-Bowles includes $2.9 trillion in spending cuts and $2.6 trillion in tax increases. That’s 1.1-to-1. If you add the $800 billion in projected interest savings to the spending side, then it’s 1.4-to-1.

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

5. Charities, homes, health care and states. Simpson-Bowles turns the deductions for charitable contribution and mortgage interest into non-refundable tax 12 percent credits. It caps the tax exclusion for employer-provided health care and then phases it out entirely by 2038. It eliminates the exemption for state and local bonds.

6. Simpson-Bowles raises the gas tax by 15 cents. Just saying.

7. 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 Simpson-Bowles’ cuts to discretionary spending are done.

8. Simpson-Bowles cuts national security spending by $1.4 trillion, not including drawing down the wars. That’s far deeper than what’s in the law now, far deeper than anything the White House or the Republicans have proposed, and deeper, I believe, than the sequester cuts that so many think would devastate the military.

9. The Social Security changes. Simpson-Bowles makes three main changes to Social Security. It increases the taxable maximum on income to 90 percent of all income, which raises $238 billion over the next decade. It uses a different measure of inflation to slow cost-of-living adjustments. It raises the retirement age to 68 in 2050 and 69 in 2075.

10. Paul Ryan voted against Simpson-Bowles. And so, for the record, did Dave Camp and Jeb Hensarling, the other two House Republicans on the commission. Of the House Democrats, John Spratt voted for the proposal, and Xavier Becerra and Jan Schakowsky voted against. Among the senators, it was just the reverse: All three Republicans (Tom Coburn, Judd Gregg and Mike Crapo) voted for it, as did two of the three Democrats (Dick Durbin and Kent Conrad). Max Baucus voted against it.

11. 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.

These 11 facts should shed light on a couple of Washington’s enduring mysteries.

First, it should be fairly clear why the White House figured Simpson-Bowles was a nonstarter. The Obama people thought that if they endorsed it, Republicans would oppose it en masse and hang every unpopular tax increase and spending cut around the White House’s neck.

Second, as popular as Simpson-Bowles is among the CEO community and on Wall Street, most of those folks don’t know what’s in it. Wall Street, for instance, doesn’t tend to be hugely supportive of taxing capital gains as normal income.

Third, Republicans may want to associate themselves with Bowles, and they may want to attack Obama for not doing enough to support Simpson-Bowles, but they want nothing to do with Simpson-Bowles itself.

After all, Boehner could have endorsed the Simpson-Bowles plan rather than the “Bowles plan,” and that would have won him huge plaudits in the media, and many more friends in the CEO and Wall Street communities, at least at first.

But he didn’t, and, from his perspective, for good reason.

Ezra Klein writes about economic and domestic policy for The Washington Post.