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November 11, 2010 12:26 am
After weeks of quiet discussions, Erskine Bowles and Alan Simpson, co-chairs of the president’s fiscal commission, finally showed their cards on Wednesday.
First, it was in a closed-door session with the 18-member panel that was charged by Barack Obama in February with solving America’s fiscal problems. Then it was with reporters at a hastily assembled press conference just across the street from the US Capitol in Washington.
“We have got some tough choices to make,” Mr Bowles said. “We are on the most predictable path to an economic crisis that I can imagine.” Fear of a bond market shock may ultimately be the most persuasive argument for Mr Bowles, the former chief of staff to Bill Clinton, and Mr Simpson, a former Republican senator from Wyoming, as they try to round up support for their ultra-ambitious plan.
The commission’s remit from Mr Obama was to slash the US budget deficit to 3 per cent of gross domestic product by 2015 from its 2010 level of 8.9 per cent of output. Mr Bowles and Mr Simpson went even further, unveiling $4,000bn in savings for the US government over 10 years that would reduce the projected deficit to 2.2 per cent of GDP by 2015.
Mr Bowles and Mr Simpson were only speaking for themselves but no sector of the budget was protected, from Social Security, to Medicare, to defence, to popular tax breaks.
The challenge will be to get the rest of the commissioners to agree on a final proposal before a December 1 deadline, with Republican and Democratic members likely to spar viciously over the details.
Expectations that a strong consensus will emerge are low in Washington, given a bruising midterm election campaign that caused tense feelings between the parties to deteriorate further.
The commission has no legal power and the only way its proposals will be implemented is if they are passed by both houses of Congress and signed by the president Mr Bowles and Mr Simpson secured a promise from congressional leaders that a vote would take place on the package this year if 14 of 18 members sign off on it but it remains doubtful that such a degree of unity can be achieved.
Indeed, some cries of disapproval were already being heard across Washington from the right and the left. Conservatives at American for Tax Reform lamented that “this commission is merely an excuse to raise net taxes on the American people” as Nancy Pelosi, Democratic speaker of the House, said the plan was “simply unacceptable” and any “viable proposal should strengthen our economy, but in a fair way”.
Indeed, if it has any chance of garnering widespread support on the commission, the plan may have to be significantly altered, and probably scaled back, in negotiations.
There is some room for manoeuvre, since the plan proposed by Mr Bowles and Mr Simpson on Wednesday was slightly more aggressive than the commission’s mandate. But the co-chairs warned that the mathematics of deficit reduction would still have to work in the end.
For instance, if panellists want to reintroduce popular tax breaks – such as deductions for child care, or interest on the mortgage for a second home – they will have to outline how they intend to pay for it, or accept corresponding rises in individual and corporate income tax rates.
David Kendall, a fiscal policy analyst at the Third Way think-tank, was ultimately optimistic about the commission’s prospects, even as he expected some “violent” conversations in the next few weeks.
“You’re going to get some of the stuff that’s going to be acceptable,” Mr Kendall said, adding that the rest would be “down as a marker” for changes to fiscal policy in the future.
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