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National Commission on Fiscal Responsibility and Reform
By the Children’s Home Society of Florida Foundation
In a surprise press conference on November 10, 2010, Co-Chairs Erskine Bowles and Alan Simpson of the National Commission on Fiscal Responsibility and Reform decided to release a preliminary report. Bowles is a Democrat who served as the Chief of Staff for President Bill Clinton. Simpson is a Republican who previously was a Senator from the state of Wyoming. They indicated that in their view a joint presentation that explained the current positions of the Fiscal Commission would be preferable to leaks by staff members of various provisions. In order to discuss the full range of tax and budget provisions, they released the initial report.
There are 10 guiding principles for the first phase of the report:
1. Patriotic Duty – The “American people are counting on us to put politics aside, pull together not pull apart, and agree on a plan to live within our means and make America strong for the long haul.”
2. Washington Leads the Way – The national government must lead the nation in shared sacrifice and “tighten its belt.”
3. Truth in Promises – The federal government must be truthful and explain the tough budget choices. Washington must be sure to avoid promises that cannot be kept.
4. Gradual Implementation – The economy is still recovering. Budget cuts would not start until 2012 to allow the economic recovery to continue.
5. Protecting Those In Need – There must be an “affordable and sustainable safety net.”
6. Promoting Growth – Government spending will need to continue to support education, infrastructure and research and development.
7. Spending Reductions – All areas of government including defense, domestic spending, entitlements and tax expenditures are up for consideration. Total government spending will be changed initially to 22% of Gross Domestic Product (GDP) and later to 21% of GDP.
8. Government Productivity – The government must also become more efficient and set a target goal of 3% annual increase in productivity for all employees.
9. Simplify the Tax Code – The tax code should be reformed to broaden the base and bring down the deficit. There will be a cap of 21% of GDP for tax receipts.
10. Sound US Finances – Protect Social Security finances, support healthcare and stabilize the federal debt.
Now, based on those ten guiding principles, the Fiscal Commission then established four specific goals:
1. Deficit Reduction – A total of $4 trillion of deficit reduction by the year 2020. Two-thirds or more of that reduction is accomplished through reduced spending, while the balance is through increased taxes.
2. Deficit Level – Reduce the deficit to 2.2% of GDP by the year 2015.
3. Federal Debt – Stabilize the federal debt by 2014. Reduce debt to 60% of GDP by 2024 and 40% of GDP by 2037.
4. Social Security Solvency – Make changes to avoid a potential 22% cut in benefits in 2037.
Co-Chair Erskine Bowles acknowledged that the plan is very comprehensive and will produce strong debate. He noted, “What we have done is laid out a strong predicate for how the nation faces up to a very critical problem.” And, Senator Cranston noted that there will be opposition to most parts of the plan. In his view, the bipartisan Co-Chairs had “harpooned every whale in the ocean.”
Assessment
The final draft of the Fiscal Commission report is due December 1st. Fiscal Commission members will debate the many provisions of the draft report. The hope of the Co-Chairs is that 14 of the 18 members will be willing to vote in favor of the final report. If that happens, the report will then be considered for further action by the House and Senate.
Editors Note: Your editor and this organization take no specific position on these proposals. This information is offered as a service to readers because it has potential impact on all Americans. Because the support transferred to philanthropy depends upon a solid economy in the nation, it is in the interest of all charitable organizations that a bipartisan agreement be achieved. Hopefully, a bipartisan agreement will stabilize the federal fiscal position and restore economic growth that will lead to greater support of philanthropy.
Conclusion
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Washington Comments on Fiscal Commission
Following the release of the draft positions by Fiscal Commission Co-Chairs Bowles and Simpson, outlined above, the White House and members of Congress responded to press questions. President Obama indicated that he would wait for the final report on December 1, 2010 before commenting. He noted that the Fiscal Commission report is likely to produce significant debate. He stated, “I am going to study those carefully, consult widely and see what we can do on the spending side. That is going to be a series of tough conversations.”
The Fiscal Commission was the result of a bipartisan proposal by Sen. Kent Conrad (D-ND) and Sen. Judd Gregg (R-NH). Sen. Conrad is Chair of the Senate Budget Committee and Sen. Gregg is the Ranking Republican on that committee.
Both responded to the Fiscal Commission draft with thoughtful and careful comments. Sen. Conrad stated, “I commend them for putting together a serious proposal. It reveals just how difficult it is to put the nation on a sound fiscal course. Some of it I agree with; some I strongly disagree with. We will have a chance to offer alternatives as we advance the process later today and next week.”
Sen. Gregg responded, “It is critical to our nation’s future that we take action that puts the country and our children’s future back on sound financial ground. This will not be the final proposal, but it is a significant step down the path of establishing fiscal responsibility.”
Three Republican members of the Fiscal Commission are Dave Camp (R-MI), Paul Ryan (R-WI) and Jeb Hensarling (R-TX). They commented, “This is a provocative proposal, and while we have concerns with some of their specifics, we commend the Co-Chairs for advancing the debate. We will continue to work toward solutions that help spur economic growth and restrain the explosive growth of government spending.”
Source: Children’s Home Society of Florida Foundation
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Fiscal Commission Proposal before Senate Budget Committee
The President’s Commission on Fiscal Responsibility and Reform was jointly chaired by former Senator Alan Simpson and former White House Chief of Staff Erskine Bowles. The bipartisan Commission developed a plan to reduce the deficit. Co-Chairs Simpson and Bowles appeared on March 8th before the Senate Budget Committee and outlined their plan.
Simpson and Bowles started by emphasizing the need to take action. In their view, “If we do not take decisive action, our nation faces the most predictable economic crisis in its history.” The proposed plan involves a number of spending reductions and tax increases. Simpson and Bowles suggest that if changes are not made, by 2020 the entire federal budget will be used “to finance only interest payments, Medicare, Medicaid and Social Security.” There would be no funds available for defense, homeland security or other government functions.
There are six proposed guidelines for moving toward deficit reduction. These include the following:
1. Encourage Economic Recovery – Reduce spending gradually. By 2013, spending would be reduced to approximately 2008 levels.
2. Protect Truly Disadvantaged – The plan would continue federal unemployment benefits, food stamps, Social Security payments for disabled and other relief programs.
3. National Security – There would still be a strong national defense. However, as Chairman of the Joint Chiefs of Staff Admiral Mullen has stated, the greatest national security threat to America is the accumulating debt.
4. Investments – There need to be continued national investments in infrastructure, research and education.
5. Tax Code – Both the personal and corporate tax codes should be reformed. The reformed tax codes would have lower tax rates and a broader tax base with limited deductions.
6. Shared Sacrifice – All of the areas of federal spending would be subject to review and potential reductions.
The plan includes six deficit reduction strategies. These include the following:
1. Discretionary Spending Caps – The goal would be to reduce spending on discretionary items by $200 billion in 2015.
2. Tax Reform – In exchange for greatly reduced deductions, personal rates would be lowered to 8%, 14% and 23%. Similarly, corporate tax rates would be lowered to a range of 23% to 29% by limiting deductions.
3. Healthcare – There would be changes in co-payments and deductibles for Medicare. Medicaid qualifications would be adjusted. There would be medical malpractice reforms.
4. Mandatory Spending – Many changes would occur in both military and civilian retirement plans, in farm subsidies and in the indexing methods for government programs.
5. Social Security – There would be an effort to make Social Security solvent for 75 years by increasing the wage base and adjusting the retirement age for younger workers.
6. Budget Process – There would be several fiscal reforms that may include automatic adjustments in budgets if the government does not reach deficit targets.
Editor’s Note: A bipartisan group of Senators (three Democratic and three Republican Senators) are working on a comprehensive bill that implements the Fiscal Commission recommendations. They are hopeful that this bill could be introduced in the Senate and voted on later this year. Given the very broad scope of the Fiscal Commission proposals, quick passage of such a bill is not likely. However, it is probable that this bill will be the basis for future debate on deficit reduction.
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