Simpson-Bowles: The hangover

February 13, 2012: 10:51 AM ET

More than a year after Washington rejected the high-profile panel's debt-reduction plans insiders are rethinking the way the whole debacle went down.

By Tory Newmyer, writer

simpson_bowles_obamaFORTUNE -- If President Obama had to do it over again, should he have green-lit Simpson-Bowles?

More than a year after a panel led by Wyoming Republican Alan Simpson and North Carolina Democrat Erskine Bowles produced a deficit-reduction plan that the White House basically ignored, some Obama supporters are suggesting the President should have embraced the proposal as a blueprint for fixing America's debt challenge.

"People got lost in what he was up to, both progressives and conservatives," Andy Stern, the former SEIU president and a long-time Obama ally, says of the President's deficit meanderings over the last year. "It was very unclear what their strategy was from post-November elections through the deficit debacle… I don't think they were thinking enough."

An Obama appointee to the Simpson-Bowles commission, Stern voted against its report -- a decision he says he regrets, because while he had reservations about the 67-page proposal, he would have liked to have seen Congress take it up.

Co-chair Erskine Bowles has noted his surprise at Obama's stiff-arm, telling a Wall Street Journal forum in November that the report "exceeded every single one of the goals that he had given us" before the commission started its work.

It's not clear precisely what those goals were. In interviews, several other commissioners said they were unaware of any targets the co-chairs may have hashed out with the White House in return for a pledge that the President would endorse a plan that met them. But after the Democrats' midterm shellacking, political considerations appear to have carried the day at the White House.

By then, Bowles said he believes Obama decided to abandon the report based on advice from his political advisers and over the objections of his economic team. In his remarks to the forum, comments that got surprisingly little notice, the former top aide to President Bill Clinton jabbed Obama for the call: "Like every White House, there's a small cabal of people that surround the president that he trusts and works with, and I believe it was those Chicago guys, the political team that convinced him that it would be smarter for him to wait and let [incoming House Budget Chairman] Paul Ryan go first, and then he would look like the sensible guy in the game."

The short-term politics for the White House were clear enough. Republicans padded their midterm route with unusually strong support from seniors, many of whom feared cuts to Medicare as a result of the President's signature health care overhaul. That constituency needed to be soothed, not further riled by new talk of entitlement tweaks -- to say nothing of other segments of the Democratic base spooked the report's calls for programmatic cuts. And the White House took it as a sign of bad faith that the three House Republicans on the commission, including Ryan and soon-to-be Ways and Means Chairman Dave Camp (R-Mich.), opposed the report as they looked to sew up support from the incoming class of Tea Party-backed Republican freshmen.

But these days something odd is happening in Washington. After a year of bruising partisan deadlock over the deficit, Simpson-Bowles is suddenly cool again. Though debt reduction is hardly Topic A, overshadowed by presidential election news and talk of the recovery, our deficit problem hasn't gone away. The $1.2 trillion in automatic cuts triggered by the failure of the super committee, scheduled to take effect in 2013, barely graze the avalanche of borrowed money we're facing: likely $20.1 trillion by 2022, or 81% of GDP, even if those cuts go through, according to an analysis by the Committee for a Responsible Federal Budget. And the threat that poses to our long-term fiscal health remains, too.

Indeed, the President's own approach to cost-cutting follows much of the Simpson-Bowles plan. It calls for phasing in $4 trillion in savings over 12 years by cutting three dollars in spending and interest payments for every dollar of revenue raised from the tax code. It advocates deep cuts in mandatory spending programs excluding Medicare, Medicaid, and Social Security, to the tune of $360 billion, along with $770 billion in cuts to non-security discretionary spending and another $400 billion in security spending.

Defenders of Obama's approach over the last year point to the release of that framework as pivotal. When the President laid out his plan, this crowd argues, he still found no willing partners among the Republicans on the Hill. They point as proof to the dead-end negotiations that followed with both Speaker John Boehner (R-Ohio) and House Majority Leader Eric Cantor (R-Va.), in which Obama inched closer to the GOP's hardline anti-tax demands with nothing to show for it. "A glance at the politics shows it would not have made sense for the White House to jump aboard," says Rep. Jan Schakowsky (D-Ill.), a Simpson-Bowles commissioner who opposed the report, arguing it disproportionately targeted the middle class. "The Tea Party contingent in the Republican conference was never going to go along, so any kind of compromise fell apart on their end."

It's a hard position to counter, especially because it involves arguing what might have been. Some Democrats now do it anyway. "It would have changed the dynamic of the whole year, and I think the White House must regret it at this point," one senior House Democratic aide says. "Imagine if Obama had said, 'You're right. We need to deal with this. Here's a plan with [conservative Republican Sen.] Tom Coburn on it. I'm for this and ready to go.' It would have cut the Republicans' legs out." A top Republican Senate aide echoes the view: "It would have fundamentally altered the entire year and put us in a very difficult position."

The road forward for the deficit hawks is muddy. Americans are increasingly concerned about federal spending, but the issue is still eclipsed by the economy and jobs. And as the employment picture brightens, the President is positioning himself to run on the positive momentum, along with a populist pitch for extending the payroll tax cut and unemployment benefits while raising taxes on millionaires. As Schakowsky puts it, "It's the inequality, stupid." That doesn't leave much room for cutting a long-range deficit reduction deal. Witness the President's State of the Union address, which made five references to the issue this year, fewer than half the mentions it got last year.

Against that backdrop, those advocating for a breakthrough are realistic. "There's
going to be no significant movement on anything before the election," says Robert Greenstein, president of the Center on Budget and Policy Priorities.

But the Simpson-Bowles report has proven improbably resilient. Earlier this month it got approving nods on the Sunday talk-show circuit from Larry Summers and Mike Bloomberg. In Congress, bipartisan groups of lawmakers in both chambers are at work translating it into legislative language. And sources confirm that Bowles had a lunchtime meeting with the President at the White House on Feb. 3, though what that huddle produced isn't yet clear.

Deficit hawks aren't holding their breath for a major breakthrough in Obama's budget, which he'll unveil today. Instead, they are working to rebuild political momentum for a deal. Maya MacGuineas, president of the Committee for a Responsible Federal Budget, says her group is putting together a "road show" featuring supportive Members of Congress and Simpson-Bowles commissioners. It will kick off Feb. 26 in Boston with an event headlined by Sen. Mark Warner (D-Va.) and Honeywell CEO David Cote, a veteran of the fiscal commission. And her group is formalizing business community support to help make the economic case for action.

"It's not a kitchen table issue, but you're starting to hear a call for it, which I find amazing," MacGuineas says. "We're building the infrastructure, so it's in place whenever there's momentum for a deal. Do we hope it's this spring? Desperately. But we have to lay the foundation."

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