The co-chairs of the U.S. Debt Commission explain the thinking behind their $3.8 trillion fix for America's afflicted budget
What motivated the two of you to release this plan?Erskine Bowles: We have to start the dialogue. The path we're on is unsustainable. Every member of Congress knows that. And I think we had to lay a predicate out there that would force action by this Congress and future Congresses. I think the problem is that deep.
Alan Simpson: I was interested to hear the other day that Admiral Mike Mullen [chairman of the Joint Chiefs of Staff] said that debt is the biggest national security problem we have. You and I know, Charlie, as business guys, that if we don't get this debt under control it's going to crowd the private sector out of the market, and small businesses can't grow and create jobs. You have to think about all those people who want to make sure that we invest in education and infrastructure and high-value-added research and development. We can't do that if we continue to have this amount of debt build up in the country. It just will eat the budget alive.
So tell me how you made your choices about tax cuts vs. spending cuts?Bowles: We listened. We think we have bigger problems on the spending side than on the revenue side. We then tried to look not at just hard numbers but tried to figure out what we could really cut. As an example, we've made $163 billion of cuts in the discretionary budget in the year 2015. The President gave us a goal to get to 3 percent of GDP. We actually got to 2.2 percent of GDP [offering] specifics, things we would actually cut out of a budget.
Paul Ryan [one of the 18 members of the Debt Commission and the incoming House Budget Committee chairman] wants to know why you didn't take on health care.Bowles: We don't do as much as Paul would like us to do, but we have...$500 billion worth of cuts in the next 10 years. That's no small potatoes. Where do we get the money from? We get the money from providers, from doctors themselves, from drug companies, from hospitals. We also get the money by charging people more for the services they are provided. And we get the money from lawyers. We have real tort reform in this package.
Simpson: There isn't any question we touched health care. We dinged Medicaid, Medicare, Social Security, the whole works.
What's your proposal say about Social Security?Bowles: I think we've taken a very balanced approach. We closed the gap to get to 75-year solvency.
Simpson: That's the key. We're not balancing the budget on the back of Social Security. That's just garbage.
Bowles: If we stay on automatic pilot, the Social Security trust fund runs out in 2037. What we do is try to address that now. We raise a little bit of revenue. We have a few benefit cuts, principally on the upper-end people so that we can preserve Social Security's solvency for 75 years.
What about the Bush tax cuts?Bowles: If you give more tax cuts, you lose revenue. First of all, I don't think people like you and me need a tax cut, Charlie. We've said, let's broaden the base, simplify the code, bring down rates, and cut the deficit. There are $1.1 trillion worth of tax expenditures, what I call spending, in the tax code that basically benefit people like us. What we're saying is, let's eliminate them. Charitable deductions, mortgage-interest deductions, deductions for state and local taxes. And if we eliminate them, let me tell you what we can do on income-tax rates. We can [bring them down] to 8 percent, 14 percent, and 23 percent. And we can take the corporate rate down to 26 percent.
Simpson: We're going to unleash a pile of scratch that those corporations are holding back. They're just looking around wondering what's going to happen in this country. What is it they have, $2 trillion or something that they're holding back?
How did we get here?Bowles: It's frightening. We'll be paying a trillion dollars in interest costs in 2020.
Simpson: I can tell you exactly how we got here. For the last 75 years we were sent to Washington to bring home the bacon. We were sent to Congress to get money. If they got it, they were reelected.
That's how the system became dysfunctional?Simpson: You bet.
Watch Charlie Rose on Bloomberg TV weeknights at 8 p.m. and 10 p.m.