The return of Simpson-Bowles?

More than two years ago, when Barack Obama needed to demonstrate some openness to bipartisanship, he created a national commission on budget and deficit reform, which came to be known as Simpson-Bowles after its two co-chairs, Republican Alan Simpson and Democrat Erskine Bowles.  When the Simpson-Bowles commission recommended a series of budgetary and tax reforms that conflicted with Obama’s plans, he ignored their recommendations altogether and proposed two successive budgets that didn’t attract one single supporter on either side of the aisle in three floor votes in Congress (one in the House and two in the Senate).  The presidential campaign took the spotlight off of the Simpson-Bowles proposals, highlighting instead Paul Ryan’s competing plan, and Obama’s utter lack of any plan other than to hike taxes on the rich.

Politico reports that the two co-chairs haven’t left the job, even though the President abandoned the project.  They’re making the lecture rounds, raising money, and plan to storm Congress with a coalition of reformers and businessmen to get their agenda back in the public eye:

The Campaign to Fix the Debt, founded by Erskine Bowles and former Sen. Alan Simpson, on Thursday will announce a dramatic increase in its drive to mobilize corporate and grass-roots support for Congress to make tough choices on the rising federal debt, including paid advertising and a growing movement in the states.

The group has raised more than $35 million since July, from corporations, CEOs, foundations and individuals. …

A Fix the Debt official said the campaign will be launching more state chapters in the the next few weeks. Chapters exist now in Colorado, Florida, Georgia, Maine, New Hampshire, Ohio, Pennsylvania, South Carolina, Tennessee, Washington and Wisconsin.

“We [began] our paid advertising campaign on Wednesday, and this will include print, digital and outdoor,” the official said. “The basic message is: ‘Our national debt is getting in the way of America investing in and excelling at so many of the things that make us great. Unless we come together as a nation to fix it, the situation is only going to get worse. That’s why the bipartisan Campaign to Fix The Debt is committed to finding a solution to this urgent problem. Learn more at’”

Bowles writes in the Washington Post today that the US needs a deficit deal now, not down the road:

The American people spoke on Tuesday, and they voted for a continuation of divided government. With President Obama at the helm for four more years and a strengthened Democratic majority in the Senate, and with the Republicans decidedly in control of the House of Representatives, both sides may now feel emboldened to pursue their party’s preferences. Rarely has it ever been this clear, however, that elected leaders from across the political spectrum need to come together to address our nation’s rising federal debt.

Unlike previous times, when there may have been many months or even years for officials to continue fighting long-standing policy battles, important decisions need to be made in the next two months to address the “fiscal cliff.” In a way we have never seen before, both sides will have to move beyond contentious electoral politics and come together in the spirit of good governance to replace the abrupt and mindless spending cuts and tax increases set to take effect Jan. 1 with a gradual and intelligent deficit reduction plan.

National Journal reports that some in Congress, primarily Democrats, have discounted the notion of a “cliff” altogether.  They argue that the timeline is less important than the policy, and that anything broken by the delay can be fixed later with retroactive language:

Call it bravado, or even recklessness. Some Democratic lawmakers stare at the fiscal cliff and wager that jumping off it might not be so bad. Sen. Patty Murray, D-Wash., has urged her party to play tough on the cliff—a combination of year-end tax hikes and automatic spending cuts—to force Republicans to accept higher tax rates on the wealthy. She said last summer that a plunge would be preferable to a deal “that throws middle-class families under the bus.” A few GOP deficit hawks say they, too, would take the leap if that were the only way to tame the deficit.

Suddenly, somehow, this represents an increasingly influential line of thought among analysts and writers. The argument is that Congress could at least partially cancel out the hikes and cuts retroactively in 2013, so there’s no need for a deficit-reduction deal during the lame-duck session. The cliff is a “bad metaphor,” and missing the deadline by a “week, a month, or even a couple of months” would not cause an economic calamity, Jonathan Chait wrote in New York magazine. Mark Zandi, chief economist at Moody’s Analytics, agrees: “You’re going to take a step off the cliff, but that doesn’t mean you’re going to hit bottom,” he says, adding that the economy would be no worse off a year from now.

That’s an awfully risky proposition. Today, the fragile economy is still not firing on all cylinders. In the third quarter this year, it posted a modest 2 percent growth rate. Legislators may like the idea of putting off negotiations until 2013, thinking they’ll have more leverage after the inauguration if their presidential candidate wins. But this political gamble has economic costs: Even a short jump off the cliff, say economists, could send the country back into a recession.

If all of the Bush-era tax cuts expire and the full array of “sequestration” cuts take effect, they would lash a roughly $600 billion drag to the economy during 2013 if those policies were left in place all year, according to the Congressional Budget Office. True, nobody expects the cuts to remain in place all year, and the shaken financial markets might finally jolt Congress into striking a deal. But the psychological damage if lawmakers head home for the holidays without averting the cliff could have lasting effects.

Bowles also rejects the idea that Congress can postpone dealing with the fiscal cliff:

Going over the fiscal cliff would mean allowing a massive and immediate cut to nearly every major government agency and activity, including those vital to our national security or economic growth. It would mean a large and immediate tax increase on nearly all Americans, not just the highest earners. It would mean a double-dip recession at a time when the economy is still very weak and many Americans are struggling to find work.

But simply punting on the fiscal cliff and continuing to add to the debt would be an even bigger mistake. It would show markets we cannot put our financial house in order. Instead of using this moment as leverage to score political points, our elected leaders should seize the opportunity to finally address the long-term imbalance between government spending and revenue, and to prevent a future debt-induced economic crisis.

I agree with Bowles on this point.  Markets have a significant psychological element, and the loss of confidence could prompt the devaluation of American securities.  We might end up with another credit downgrade on top of the one suffered last year, which would eventually make borrowing more expensive, worsening our deficits rather than improving them.

So, we need action immediately.  The question will be what kind of action.  John Boehner once again offered to accept a compromise that resulted in higher revenues rather than rates, presumably through comprehensive reform of personal and corporate taxes.  That’s an area that has always been fruitful for bipartisan compromise, with the election probably the only real barrier that stood in its way as both parties hoped to push the other out of the bargain altogether.

Otherwise, thanks to the lack of responsibility from the Democratic Senate over the last three-plus years, the only budget reform plans on the table are Simpson-Bowles and the Ryan plan.  I prefer the Ryan plan, but at least the Simpson-Bowles plan offers some measure of improvement over the status quo, even if some of the components are unpalatable.  Voters endorsed the status quo in political leadership, though, which means both sides will have to give on some items in order to solve the problem.  Perhaps Democrats in the Senate could give us a budget as a starting point, but they’d better do it quickly, or let’s start off with Ryan or Simpson-Bowles.

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