Even these fiscal hawks acknowledge that the economy is too shaky to start their plan until FY 2012. In the whacky world of macroeconomics, America is too poor right now to cut its budget. We revert FY2012 spending back to FY2010 levels, cut 1% a year through FY2015, then allow spending to grow at 2% a year. If inflation runs at historical levels of 3.43%, then by 2040, our annual spending would be about 30% behind spending levels that would keep pace with inflation. That's a valuable change for our grandkids, but it takes long-term discipline to get there.
Where do we start with the cuts? Simpson and Bowles offer suggestions that hack $100 billion from defense and $100 billion from domestic spending. The big-ticket savings:
- Overhead savings proposed by Sec. Gates: $28 billion.
- Reduce Pentagon procurement: $20 billion.
- Freezing noncombat military pay at 2011 levels for three years: $9.8 billion.
- Reduce overseas bases by one third: $8.5 billion (HS policy debaters! Check your Inherency arguments!)
- Eliminate 250,000 contractors: $18.4 billion.
- Eliminate all earmarks: $16 billion (even Rand Paul doesn't have the guts for this idea).
- Freeze all federal pay for three years: $15.1 billion.
- Cut federal workforce 10%: $13.2 billion.
The plan notes that right now, our federal outlays are 23.8% of GDP, while federal revenue is only 14.6% of GDP. The plan calls for aligning outlays and revenue by 2040 at around 21%. Look closely at those numbers: as I read it, for every dollar we reduce spending, we still need to raise revenue two dollars. The plan actually reduces and simplifies rates: one option drops the income tax rates for the top income bracket from two rates of 36% and 39.6% to one rate of 23% and reduces the corporate rate from 35% to 26%. But those decreased rates are contingent on whacking all deductions. Another option lowers rates less and leaves in some deductions, but cuts things like mortgage deductions for second homes and mortgages over $500k (oops: there goes the Lake Madison vote).
Other noteworthy recommendations in the Bowles-Simpson proposal:
- Rein in health care costs by cutting payments to doctors and drug companies, capping malpractice damages, and possibly adding a robust public health insurance option.
- Cut farm subsidies by $3 billion a year (good thing Kristi Noem just got a new job in Washington).
- Keep Social Security solvent by increasing the retirement age by one month every two years, to age 69 by 2075, with a hardship exemption for folks who can't work after age 62.