Henry Aaron Really Does not Like SImpson-Bowles

From the Fiscal Times:

All responsible budget analysts agree that the United States faces a
daunting deficit problem. It should be addressed soon. But how soon is
not clear. After the recovery is well under way, most would agree, and
certainly before the debt/GDP ratio gets too large. What is not clear
is what “well under way” means and whether it will happen soon enough
to prevent to debt/Gross Domestic Product ratio from getting too
large. The Bowles-Simpson plan would start deficit reduction in fiscal
2012, which starts on October 1, 2011, not even eleven months from
now. Since unemployment is likely then to still be in the vicinity of
9 percent or higher, that is too soon, as premature deficit reduction
could intensify and lengthen the recession. This is not a minor issue,
as nothing more effectively depresses revenues and generates deficits
than a weak economy.

Even more troubling... is the program... 70 percent of the deficit reduction under the Bowles-
Simpson “mark” would come from spending cuts.... The steady-state spending level... would be
20.5 percent of GDP. That is lower than spending averaged from 1980 to
2008 when none of the baby boomers had yet retired and claimed Social
Security and Medicare and when spending on health care per person was
a minor fraction of what it will be in 2020.

Other problems:

The plan calls for a reduction from baseline in federal health care
spending of about one-third by 2040, but doesn’t say how that target
will be achieved.

The plan would block grant Medicaid.... The result
would be powerful incentives to cut benefits.

The plan presents four options for modifying the tax system, but
doesn’t endorse any. All would tax capital gains as ordinary income,
which means doubling the rate on them.

All tax plans would end or curb deductions for charitable
contributions... at the same time that the
principal programs supporting these very [vulnerable] populations – Medicare,
Medicaid and Social Security -- would be slashed....

Social Security benefits would eventually be cut by 25 percent for
people earning $43,000 today and by 40 percent for those earning
$100,000. Note the double whammy—less Social Security and no tax-
sheltered savings plans. The plan actually contains some modest
increases in Social Security benefits, so that it actually increases
the deficit until well after 2020

The plan says it would fix the Medicare fee cuts for doctors
scheduled for next month, but it doesn’t say how – other than to
establish a new payment system to reduce costs and improve quality.

The plan would freeze salaries of federal employees for three years,
cut the federal work force by 10 percent, and dump 250,000 contract
employees. To offset these cut backs, the plan calls for an increase
in productivity of federal workers, but it doesn’t say how....

[T]he shortcomings in their proposals are profound. It is vague in key
elements, sets targets and then calls on some committee or group to do
something unspecified if the targets are not being met.... [T]he draft plan is replete with magic asterisks.... It sets targets for overall spending
and taxation so low that it will be impossible to sustain even basic
promises to provide pension and health benefits....

There is a better way. The first element should be a large new... value-added tax.... Second... long-term budget reduction... hinges on the control of health care spending. Such control is
not possible without vigorous implementation of health care reform.... [T]he Affordable Care Act... is a start. More to the point, it is the
only game in town.

Third... Bowles-Simpson... will have to rely on spending curbs. But relying on
spending cuts to achieve 70 percent of the deficit reduction requires
setting spending targets so low that it calls to mind the quip
attributed to the man enjoying a drink in the bar on the Titanic: “I
asked for ice,” he said, “but this is ridiculous.” Or, as the British
say: “Less would be more.”

As I say, Simpson-Bowles is a significant unforced error by the Obama administration.