Invoking the Simpson-Bowles Deficit Reduction Plan to Avoid “Fiscal-Cliff” is Still a Bad Idea

The New York Times reports that Senate leaders are working out a plan to deal with the impending “fiscal cliff” facing the country in January.  They are “coalescing around an ambitious three-step process to avert a series of automatic tax increases and deep spending cuts.”

This first stage of the plan would entail a combination of tax-code overhaul, changes to social programs like Medicare and Social Security, and cuts to federal programs.  Should this fail, it would be followed by a close derivative of the Simpson-Bowels deficit reduction plan.  Again, programs like Social Security would be affected, federal programs would see cuts, and eliminate enough deductions and credits to result in as much as $2 trillion in additional revenue.  Finally, they would vote to end sequestration.

The goal of dealing with the “fiscal cliff” – the combination of Taxmaggedon and the defense sequester – is an important one, and one which has been the subject of much discussion.  Middle-income families could see their taxes increase by about an average of $3,800 in 2013 should Taxmageddon take hold

One Senate official familiar with the various plans said that the key will be to find one that is “fairly agreeable.”  The difficulty lies in the fact that lawmakers have very different ideas of what comprises an agreeable plan, hence the long and drawn out process developing a deficit reduction plan has been.

This being the case, resorting to a plan based on the Simpson-Bowles plan is ill-advised.  Not only did the Simpson-Bowles plan receive just 38 votes in the House; it “would eliminate most credits, deductions, and exemptions and lower marginal tax rates—but not nearly enough.”  Heritage has explained:

“As feared, the co-chairs’ proposal is to levy staggering tax hikes on America’s families and businesses when the problem is spending and spending alone. The simple fact, as the proposal lays out plainly, is that taxes are to increase to 20.5 percent of the economy, up from even the 19.8 percent in the President’s budget after all his tax hikes are implemented and far above the 18 percent historical average.

This would raise taxes by close to $1 trillion from 2012 to 2020, or more than $8,000 for every household in America. The only positive note surrounding this large of a tax increase is that the co-chairs did not do it through a VAT…

The proposals also have serious faults, such as higher tax rates on capital gains and dividends, the elimination of the home mortgage deduction, and the elimination of accelerated depreciation, thus raising taxes on capital investment. Tax hikes such as these would be exceedingly harmful to the economy.”

The issues of deficit reduction, tax-code reform, entitlements, and spending are not simple and a solution to the problems presented by these issues must be carefully thought out.  The Simpson-Bowles plan is severely flawed and would hurt our already ailing economy.  That’s why Heritage Action has opposed it.

To be clear, we’ve killed the proposal once and will ensure it does not rise from the dead.

Moreover, the Heritage Foundation has provided viable solutions:

Saving the American Dream: The Heritage Plan to Fix the Debt, Cut Spending, and Restore Prosperity

The New Flat Tax—Easy as One, Two, Three


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