Introduction
The U.S. is moving ahead on a dangerous budget path. With the current spending and debt already treacherously high, the future debts are expected to rise even higher. It is certainly a serious matter when public debt is expected to reach 90 % of GDP (Boccia). The implications would be severe as the larger debts would increase interest rates, horde private investment and raise price inflation. U.S. policymakers should take lessons from Greece and Japan to avoid a fiscal crisis and economic stagnation that occurs due to public debt overhang. Growing federal debt in U.S. could lead to a sudden fiscal crisis, and this can make investors lose confidence in the government’s budget plans. Debt is anticipated to grow even faster after 2023, ushering the nation into a series of harmful economic consequences.
It is essential to reduce federal spending immediately as the government is already losing its ability to manage its bills and debt. Alternatively, there are harmful consequences awaiting as too much debt can collapse a family, business, or a nation. A comprehensive approach is required to fix the government’s growing debt problem as well as maintain America’s prosperity for the next generation.
Alan Simpson, former Republican senator, and Erksine Bowles, Clinton White House chief of staff, were appointed by President Obama to lead the National Commission on Fiscal Responsibility. The duo, co-founders of Fix the Debt, offered their fiscal plan to reduce the deficit by $2.5 trillion over a decade. Bowles-Simpson plan is a way out for lawmakers who want deficit reduction, but without the harmful economic consequences (Is the New Bowles-Simpson Plan).
Bowles Simpson plan
Erskine Bowles and Alan Simpson submitted a latest report or a plan to tackles some of the key elements of the budget. The objective of the proposal is to illustrate a comprehensive approach that leverages areas where there are some common grounds. Their plan deals with the key elements of the budget such as cutting entitlement, lower discretionary spending, and other obligatory spending. It also suggests small changes to the budgetary process so as to address the significant fiscal issues that faces the nation.
Bowles Simpson plan like any other plan has its pros and cons like any other plan. The best part about the plan is that it takes some firm decisions and lays out some strict choices to cut spending.
The Bowles-Simpson plan will keep the public debt on a downward path and can bring debt down to 69% of GDP, from an estimated high of 78% in 2014. Indexing the debt ceiling to inflation would prevent over raising the legal borrowing limit. A fundamental tax reform will reduce tax breaks, lowers rates and maintain progressivity, thus raising $585 billion in revenue (Sahadi). There is a call to switch to a territorial tax system for corporate taxes. Defense spending should be cut back, and there is a call to capping spending on overseas operations. The plan requires discretionary budget cuts in domestic spending that would cap spending growth. Their plan includes a number of health care delivery reforms as well that is expected to touch some nerves and curb spending by $585 billion over a decade. The plan also calls make the Social Security system solvent over the next 75 years. Although some liberal economists disagree, following the "chained CPI" is a surer way to measure inflation and would also raise revenue.
Response to Bowles Simpson plan
I welcome the Bowles-Simpson plan because it is better than doing nothing, and the nation has literally been doing nothing is probably what has landed the country in the circumstances it is in today. Their plan is basically to slow the growth of spending and increase tax revenues. Moreover, it is not a line-by-line plan, but a broad framework. Even by just looking at the plan broadly, it is obvious to tell that it is far better and wiser than the earlier plans proposed on the subject of the national budget. Their plan is too mainstream for the economic pundits to ignore.
Bowles-Simpson plan is certainly a very determined deficit reduction package. If the plan is implemented, the ratio of debt to GDP will shrink by a substantial amount. The current deficits projected in the early years by Bowles-Simpson are already higher, because of the sluggish economy. Bowles-Simpson is a balanced plan although it ruffled the feathers of congressmen on both sides of the aisle. Republicans have objected to any new revenues raised while the Democrats have criticized the adjustments made to the entitlement programs. The plan tries to stabilize revenue increases and spending cuts. A conscious effort here has been made by the two to balance out the competing political forces and take a middle-of-the-road. The Bowles-Simpson plan contains a $2 in spending cutbacks for every $1 in revenue increase.
This country needs to act and soon. There is a need of a plan w that will truly deal with the destructive debt problems the U.S. is facing today. It is time to replace those mindless, across-the-board cuts with targeted spending cuts and comprehensive tax reforms. Besides, Bowles-Simpson plan makes for a good start.
References Boccia, Romina. "Backgrounder #2768 on Budget and Spending February 12, 2013 How the United States’ High Debt Will Weaken the Economy and Hurt Amer." (2013). Print.
"Is the New Bowles-Simpson Plan a Good Deficit Reduction Proposal?" Usnews. America's Debt, 1 Jan. 2014. Web. <http://www.usnews.com/debate-club/is-the-new-bowles-simpson- plan-a-good-deficit-reduction-proposal>.
Sahadi, Jeanne. "Bowles and Simpson Detail $2.5 Trillion Deficit Reduction Plan." Money.cnn. America's Debt, 1 Apr. 2013. Web. <http://money.cnn.com/2013/04/18/news/economy/bowles-simpson-deficits/>.
