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No More Bacon, Says Simpson

Charged with proposing policies to regain fiscal sustainability, Alan Simpson and the debt commission he co-chaired have laid out sobering realities.

By Matt Hamill

*Yes, America is on an unsustainable fiscal path, says former Wyoming Republican senator Alan K. Simpson, a general session keynote speaker at the NACUBO 2011 Annual Meeting in Tampa, July 9–12.

But Simpson and colleague Erskine Bowles, named co-chairs of the National Commission on Fiscal Responsibility and Reform by President Barack Obama in February 2010, have proposed a plan to restore fiscal restraint and balance the federal budget. Bowles, a former chief of staff for President Clinton and former director of the Small Business Administration, recently guided the University of North Carolina system as its president through five years of economic crisis.

President Obama charged the bipartisan deficit commission with identifying policies to improve the country's fiscal situation in the medium term and to achieve fiscal sustainability over the long run. In addition to Simpson and Bowles, the commission comprised a balanced mix of Democrats and Republicans and senators and representatives, plus a couple of CEOs, a union president, and a former director of the Office of Management and Budget.

READ AN ONLINE EXTRA, "Tough Choices for America," in Business Officer Plus.

The plan itself, submitted to Congress in December 2010 in a report titled "The Moment of Truth," proposes a six-part effort that would involve tough discretionary spending cuts, comprehensive tax reform, health-care cost containment, mandatory savings (partly from reforming student loan programs), Social Security reforms, and changes in the budget process. (Read "The Moment of Truth.")

As the preamble to the report states, commission members arrived at inescapable conclusions: "The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead."

The key is that everyone must feel the pinch, says Simpson, in an interview with Business Officer from his office in Wyoming. "We've had no shared sacrifice in this country since the Second World War, except for the military. We knew we had to hit everybody. If there's anyone we've left out, we'd like to have their names and the name of their organization so we can include them in our efforts!"

But, Simpson believes that "The Moment of Truth" is accessible. "The report is 67 pages," he says. "It's in English. It wasn't written for politicians or panderers or journalists. It was written for the American people."          

As this issue goes to press, some members of Congress are reexamining the recommendations in an effort to develop a broader solution to the short-term fiscal challenges facing lawmakers—how to wrap up action on the unfinished FY11 budget, develop the FY12 budget, and approve an increase to the debt ceiling. 

Discretionary Cuts Don't Add Up

Skeptics, critics, and even supporters of the recommendations alike have speculated that the upcoming debt-ceiling vote might constitute a tipping point for the federal government.

"The tipping point will come," says Simpson, "when the people who have all those pieces of paper in their hands—those treasuries and bonds and all that wonderful stuff—see that this debt is going to go past $14.4 trillion. They're going to say, 'We want some money for our paper.' The people who hold our paper are not our good old Uncle Henry, who would be willing to stretch us a little. Half is owned by foreign governments, much of it by China. That point may be the tipping point."

The commission's plan does not set out "to do something draconian. That's why we really hold the heavy lifting off until the year 2013," Simpson says. "We know there's a gradual recovery afoot. And yet, the job market doesn't sustain it. We have a 'cut-and-invest committee' that we suggest. We need growth, we need education, we need science and technology—but we needed that before this ever came about, too.

"You have people that are of my faith—the Republican party—who are coming to Washington to get rid of the Department of Education, Air Force One, all congressional pay and benefits. That's a sparrow belch in the midst of a typhoon. Won't get you anywhere."

Simpson has no use for the effort to make cuts in discretionary spending. "The discretionary budget is 16 or 18 percent of the total budget," he says. "People can't understand that Medicare and Medicaid, with their huge growth, are almost impossible to cap. Those 'mandatory' items, which are on automatic pilot, will simply crush the discretionary budget. The whole thing—culture, art, education, Homeland Security—will be crushed. So, here they are messing around with dramatic discretionary cuts, both trying to irritate 'the other side.' So far, what the president and the Republicans in the House have done is strictly around the fringes."

The Road to Authentic Change

Simpson maintains that the only path to significant progress will be to deal with what he calls the "big four"—Social Security, Medicare, Medicaid, and defense—which the commission's report does tackle. For example, it prescribes Medicare and Medicaid reforms and savings.

"Let's go to Medicare," Simpson says. "I tell you what you do. You cut providers' fees and salaries. You ask for more co-pay out of the patient. You do 'affluence testing.' A person who could buy half the county gets a heart operation that costs $180,000, and he has to put up only $1,200. And then you do something with hospitals that keep two or three sets of books instead of one. And you do something with Medicaid, addressing the gimmickry among the states, because they can't handle it."

Congress hasn't fundamentally addressed the solvency of Social Security since the 1980s, during Simpson's years in the U.S. Senate—he served from 1979 to 1997. While there, he chaired the Committee on Veterans' Affairs, the Subcommittee on Immigration and Refugee Policy, the Nuclear Regulation Subcommittee, and the Subcommittee on Social Security and Family Policy. He also was a member of the Special Committee on Aging.

On the other side of the revenue-and-expenditure equation is the question of taxes. Simpson points out that tax revenue is now at 15 percent of GDP, whereas for the last 20 years the average has been 21 percent.

 "We have the lowest tax revenue stream since the Korean War," he says. "With two wars going on, this is the first time in the history of the United States that we haven't had a tax to support a war or two, including the Revolution."

Cautions for Higher Education

Simpson says he and others found the cost of education "stupefying," and the commission would discontinue the prac-tice of subsidizing student loans.

"Fifty thousand bucks a year—this is madness. You can go to the University of Wyoming or any fine land-grant college and get just as good an education—that's where I went. I think the universities are in peril if they continue this course.

"If we're going to do something [for the student], we said we would take care of helping at the end when they suddenly leave the cloistered halls and the bell towers and wander out into a mean, nasty America where they are going to have to hustle to get a job."

Simpson cautioned higher education administrators to remain vigilant about affordability and operational cost-effectiveness. "I'll put it this way. The proposals right now, of the president and the Republicans, will get you about 1.6 percent of the deficit reduced. There isn't a single chief financial officer, CEO, or president of a university, who can't with a sweep of his or her arm cut 5 percent out of whatever they're doing.

"Erskine [Bowles] was a devastating force when he was head of the University of North Carolina system. Go look what he did with his budget—stunning. There's where you better be looking. Because, the people of America, as they lose their bucks and lose their jobs, are also losing the most precious thing they have—and that is their children—to a system that they can no longer afford. They're looking around saying, 'What did those guys do with their money? What does Harvard do with its billions? What does Yale do with its billions? Hell, they ought to start paying tuition with it.'"

"It's sad that there is something going on in the country between the haves and the have-nots," says Simpson. "It's real, and it shouldn't be. It's class warfare."

How did the country reach this precipitous place? Simpson can tell you. "If you really want to know how we got here, don't think the American people weren't fully engaged in that, because they sent people to Washington to get money and bring home the bacon. We're all at fault.

"But, let me tell you, the pig is dead. There's no bacon to bring home anymore."

MATT HAMILL is senior vice president for advocacy and issue analysis, NACUBO.

Return to Map Your Future in Tampa.