Erskine Bowles says probability of reaching ‘fiscal cliff’ deal before Dec. 31st is low

President Barack Obama meets with National Commission on Fiscal Responsibility and Reform co-chairs Erskine Bowles, left, and Alan Simpson in the Oval Office, Feb. 18, 2010, before the public announcement. (Official White House Photo by Pete Souza)

Hitting Washington with a strong dose of reality, the co-chairs of the bipartisan National Commission on Fiscal Responsibility and Reforms warned that the probability of striking a deal to avert the “fiscal cliff” by the end of the year is low.

Erskine Bowles, who served as the White House Chief of Staff in the Clinton Administration, confessed that he is “really worried” about the lack of progress being made to reach a balanced, bipartisan deficit reduction deal before the Dec. 31st deadline.

“I think it would be insane to breach this fiscal cliff. Yet, I think there’s only a one-third possibility we’ll actually get something done before Dec. 31st,” said Bowles. “If we go over the cliff, I think you’ll see economic growth slow by as much as 3% to 5%. That’s obviously enough to put us back into recession since we’re only growing 1.5% to 2% now. It will throw another 2 million people out of work. Unemployment will go to 9%.”

Bowles’s statement, made at a breakfast yesterday organized by the Christian Science Monitor, was a jarring contrast to the optimistic rhetoric by lawmakers on Capitol Hill that a deal could be reached.

President Barack Obama meets with National Commission on Fiscal Responsibility and Reform co-chairs Erskine Bowles, left, and Alan Simpson in the Oval Office, Feb. 18, 2010, before the public announcement. (Official White House Photo by Pete Souza)


Read more: CBO analysis shows ‘fiscal cliff’ will sharply reduce long-term deficits but lead to a recession in 2013

The country faces a combination of tax increases (averaging about $2,000 per family) and steep across-the-board cuts to defense and non-defense government programs (known as “sequestration”) on Jan. 1, 2013 unless the White House and Congress agree to a deal during the lame duck session.

The non-partisan Congressional Budget Office has repeatedly warned that going over the fiscal cliff would plunge the U.S. back into a recession next year, although the spending cuts and increase in tax revenues would help pay down a significant portion of the nation’s debt and place the country on a better fiscal path over the long-term. However, both Republicans and Democrats have agreed that the sequestration mandated by the Budget Control Act of 2011 is a terrible way to cut government spending

“The problem is real. The solutions are painful, and there’s not going to be an easy way out of this,” said Bowles. “The problem is so big, in fact, the only way to solve it is with a balanced plan that raises revenues and cut spending, and one without the other won’t work.”

Bowles highlighted two of the key sticking points in the deficit negotiations: increasing tax revenues and reforming entitlement programs such as Medicare, Medicaid, and Social Security.

Read more: Obama intensifies pressure on House Republicans to extend middle-class tax cuts

On the revenue side, Bowles revealed that the President is seeking $1.5 trillion in additional revenues, a portion of which would be achieved by allowing the Bush-era tax cuts to expire for the top 2% income earners.

Bowles explained that Obama is seeking rate increases on the top 2% because of fears that Congress would bow to special interests that would fight back against the elimination or steep cuts to tax expenditures, such as tax deductions for charitable contributions or mortgage interests.

“He has some flexibility there. But, you know, he has real reasons why he wants to see the increase in rates,” said Bowles. 

Bowles pointed out that Republicans want less tax revenues in the deal and insist on raising revenues only by “broadening the base and simplifying the [tax] code” instead of increasing rates.

Bowles’s Republican colleague, former Wyoming Sen. Alan Simpson, stressed that tax expenditures should be eliminated or significantly scaled back because those tax deductions and credits benefit only a fraction of Americans.

“Only 27% of the American people itemize, which means three-fourth of the American people never heard of these things in the tax code which takes $1.1 trillion and suck right out of the economy,” said Simpson.

The other sticking point worrying Bowles is entitlement reforms, particularly for health care programs like Medicare and Medicaid.

“There’s been no serious discussions yet about entitlement cuts and reforms, except for the fact that the President has in his budget $325 billion in health care cuts, and that’s simply not enough to slow the rate of growth of health care to the growth of rate of the economy,” said Bowles.

Simpson also underscored the need to reform Social Security to preserve the program’s solvency. However, Simpson argued that Social Security reforms should not be used to solve the deficit.

“Social Security has to be dealt with on its own level. It isn’t part of solving the deficit by hitting Social Security and hurting seniors,” said Simpson. 

Both Simpson and Bowles urged Congress and the White House to put aside partisan interests and reach a deal to avert the fiscal cliff.

“Al and I are going to do everything we can to bring about the compromise – the honorable compromise – it takes to get a deal done that makes sense for the country and phases in these changes so we don’t disrupt a very fragile economic recovery, so we don’t hurt the truly disadvantaged but we do put our fiscal house in order,” said Bowles. “”I really think we must do it. I think it’s my generation that screwed this up, and we got to be the ones that fix it.

 

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7 Comments on “Erskine Bowles says probability of reaching ‘fiscal cliff’ deal before Dec. 31st is low

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