The True History of Simpson-Bowles

By WSJ, Editorial

Paul Ryan didn’t kill the deficit commission, which dodged the biggest issues.

One of the many ways Paul Ryan scandalized the media-political class in his Tampa convention speech was to criticize President Obama for walking away from the report of his own 2010 deficit commission co-chaired by Democrat Erskine Bowles and Republican Alan Simpson.

How dare the upstart Republican blister Mr. Obama when Mr. Ryan himself refused to endorse the final product! Mr. Ryan even had the impudence to say that Mr. Obama “did exactly nothing” as a result of Simpson-Bowles or Mr. Ryan’s own budget proposals or any others, “nothing except to dodge and demagogue the issue.”

Media elites are now using this to absolve Mr. Obama and suggest that Simpson-Bowles would have succeeded if not for the all-powerful House Budget Chairman. This rewrites history, so allow us to remind readers what really happened to the Obama deficit commission.

Mr. Obama created the panel in February 2010, without a trace of irony, after he had raised federal spending to post-World War II highs. His political goal was to blunt attacks on his overspending, while also trying to lure Republicans into becoming tax collectors for his agenda in the name of a balanced budget. Mr. Simpson is the kind of Republican who had fallen for this in the past.

So it was a pleasant surprise when Messrs. Simpson and Bowles instead endorsed a more efficient and competitive tax code. Their draft swapped fewer brackets and lower rates for fewer loopholes and “tax expenditures.” The appeal for Democrats is that tax revenue would grow with a faster-growing economy, and Republicans would have to accept a net tax increase reaching 21% of GDP. That’s far higher than the historic average between 18% and 19% and above the modern high of 20.9% in 1944.

The political myth is that Mr. Ryan was the spoiler because he’s an anti-tax purist. His real objection at the time was that the Simpson-Bowles Democrats refused to offer an equal trade on spending. Their non-negotiable demand was that ObamaCare was off the table and there could be no structural reforms in Medicare and Medicaid.

How is that a real compromise? Everyone agrees that Medicare and Medicaid are growing too fast for revenues to keep up. Mr. Obama himself told the 2010 House GOP retreat that “The major driver of our long-term liabilities, everybody here knows, is Medicare and Medicaid and our health-care spending. Nothing comes close.” The fiscal reality is that if health care is off the table, then the only possible not-so-grand bargain is permanent tax increases that chase an explosion of federal spending.

The commission nonetheless divided into topical working groups, with Mr. Ryan joining Alice Rivlin of the Brookings Institution to propose a modified version of the premium-support Medicare reform he would later include in the House budget.

For political reasons, Messrs. Simpson and Bowles decided not to add this proposal to their final document. In December 2010, they were trying to get support from at least 14 of 18 members that Mr. Obama’s executive order required for a formal consensus. Ultimately three Republicans including Mr. Ryan voted no, and four Democrats voted no, with 11 members in favor.

So in fact Democrats quashed the necessary supermajority even after they first vetoed any serious reform of Medicare. And Mr. Ryan is the “rigid” one? The beads-for-Manhattan logic seems to be that Mr. Ryan should still have gone along with this entitlement status quo and also tacitly endorse the Affordable Care Act to show he’s a statesman. So he should have done Democrats a favor, become politically irrelevant and not solved the real fiscal problem in return for some nice mentions from NPR commentators. Thanks for the career counsel.

By the way, the same pattern played out on the 2011 “super committee” that followed the debt-limit deal. Texas conservative Jeb Hensarling was willing to trade Medicare premium support for as much as half-trillion dollars in higher taxes. Democrats rebuffed this offer too.

In any case, even if the deficit commission had reached a consensus, all that would have happened is a fast-track vote in Congress. The bipartisan duo of Jim Cooper and Steve LaTourette later codified Simpson-Bowles, and it bombed on the House floor this April, 382 to 38.

The real reason the deficit is still so high is that Mr. Obama lacks Mr. Ryan’s good-faith flexibility. It’s hard to remember now, but Washington was optimistic about Simpson-Bowles early in 2011 as a blueprint for compromise. A White House aide even called Mr. Ryan to invite him to a Presidential speech at George Washington University in 2011, telling him he’d like what Mr. Obama had to say.

With Mr. Ryan in the front row, Mr. Obama instead trashed Mr. Ryan’s House budget, claiming it would pit “children with autism or Down’s syndrome” against “every millionaire and billionaire in our society,” and that was one of the more restrained passages. Mr. Ryan’s Tampa reference to Mr. Obama’s dodging and demagoguery is accurate.

Simpson-Bowles did offer some useful ideas, especially on tax reform, helping to make that politically possible in 2013 if Mitt Romney wins in November. But the deficit report hardly deserves its stone-tablet, Ten Commandments image since it also abdicated on the hardest spending issues. The real budget choices won’t be made by some blue-ribbon commission, but will depend on what voters do this election

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