The True Value of Compromise: Simpson-Bowles

The True Value of Compromise: Simpson-Bowles


For the past eight years, Bonnie and I have been very grateful to be invited to the annual Schwab EXPLORE Conference for the top 100 fiduciary investment managers in the country who use Schwab as the custodian for their client assets. Last month, the highlight of the 2012 conference in Dana Point, California, was the presentation by Senator Alan Simpson and Erskine Bowles on America’s Debt and Deficit Crisis: Issues and Solutions

Democrat Erskine Bowles was a businessman and investment banker prior to serving as President Clinton’s Chief of Staff. His major responsibility was dealing with federal budget negotiations between the White House and Congress. Alan Simpson, a Republican, served as senator from Wyoming for 18 years. In 2010, President Obama appointed both men to Co-Chair the National Commission on Fiscal Responsibility and Reform.

Thanks to their seasoned leadership abilities and genuine respect for each other, the commission succeeded in producing a balanced, comprehensive plan that if implemented in the near future, could avert the United States from falling off “the fiscal cliff” on which we are now perched. Their relatively simple plan, originally only 12 pages long (now expanded through negotiation among the Commission members to nearly 70 pages in length), the Simpson-Bowles Plan itemizes imperative spending cuts, and at the same time raises tax revenues that are also described as imperative.

There is nothing more loaded and controversial than reforming the federal tax code and at the same time reducing federal spending. The commission, however, succeeded in producing a bi-partisan framework to actually solve the fiscal crisis in 10 years, but it failed to gain any material political support because negotiation and compromise have become the deadliest of sins in present-day Washington, D.C. Simpson and Bowles are not giving up on America yet, because they know from their own personal experience in Washington that flexible solutions have succeeded in the past.

Bowles stood at the podium first and delivered two breathtaking sentences in a row: “We now face the most predictable Economic Crisis in history. Fortunately, I think it’s also the most avoidable.” He continued to outline for the primary causes of our debt and deficit crisis:

  1. Heath Care: Mr. Bowles reported that we spend twice as much on health care as any other of the industrialized nations, yet we suffer highly inferior outcomes. The USA ranks between 25th and 50th as measured by life expectancy and infant mortality. The cost of our health care is growing faster than our Gross Domestic Product, and this is obviously unsustainable. Health Care costs are already 25% of the Federal Budget and they are increasing at a rapid pace. In the face of these facts, it continues to surprise me when politicians defend our Health Care system as the best in the world. Really? By what measure?
  2. Defense: We spend more than the next 15 countries combined on defense. Most budgeting for expenditures, whether in the private or government sector, are based on a relative strength analysis. In terms of Defense, the USA wants to occupy the lead position, but must we spend more than the next 15 countries combined to lead with relative strength?
  3. Tax Code: Bowles’ main point here was that the corporate tax code, which currently rewards behavior that keeps capital offshore, demands reform because it taxes money that is repatriated within our own borders. This is capital that could be used to create jobs. No one would argue with the point that our personal tax code is too complicated. Wouldn’t we welcome reforms that would simplify the code, eliminate and modify tax deductions, and result in fewer and lower tax brackets?
  4. Compound Interest: Right now, the interest rates on our national debt are at historic lows. Even so, the interest on our $16 trillion national debt runs $250 billion per year. If interest rates were to double, they would still be below normal ranges, yet the interest cost would double to $500 billion. Of every dollar our federal government spends, 41 cents is borrowed.

The work of the commission on fiscal responsibility and reform is currently stuck in a political ditch because it recommends both spending cuts and tax increases to achieve a sustainable path for the future of our country. Most reasonable people on both sides of the aisle agree that the solution requires both spending cuts and tax increases. However, the majority of Republicans are so entrenched in their position regarding “no new taxes” that it has become a threat to our very survival as a country.

Simpson and Bowles will continue to travel the country promoting their balanced and bi-partisan solutions. I admire both men for their dedication and service. Senator Simpson is the elder of the two at 80 years-old. Neither man needs to be working and traveling as much as they are, but they are determined to forge a path away from this cliff of certain disaster. They believe in the tradition of compromise between the parties that is basic to our history as a nation. Their work is vitally important because it is just about the only example of bi-partisan cooperation we can see with our own eyes when we watch the two make appearances together as genuine colleagues and friends – each full of wit and wisdom from his own unique perspective. As they expressed quite honestly, everyone has something to hate about what needs to be done, and that makes us all equal. They have insulted every sacred cow in the country at this point. Our country is so evenly divided that bi-partisan compromise is the only way out.

Our policy solutions need to be flexible just like our modern buildings in California, which are designed to absorb and withstand earthquakes. As Simpson-Bowles have outlined in the Commission’s Plan, we can solve our severe fiscal situation with reasonable adjustments to Social Security, Medicare, Defense, and Tax Reform.

I asked Simpson and Bowles directly if they could see any hope in light of the current political stand-off. Bowles reported that he had just met with a bi-partisan group of 60 senators who requested help moving the ball down the field. As mature, reasonable adults, I think we need to advocate for the Simpson-Bowles recommendations. It may be our only hope.

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