The American economy has been facing serious challenges most notably the recession and the property crash witnessed in 2008. As Salaam (2012) asserts, the American economy was already on the decline way before the 2008 crash. He suggests that the recession began way back in 2000 and most notably in 2007, but the country was spared the pains by the unsustainable boom in property sector. When the slump hit in 2008, the country was least prepared for it.
This slump has persisted to this day. VCU (2014) concedes to this fact saying that the recession has resulted to a huge and growing national debt. The UNT (2014) argues that the country is in a fiscal crisis because revenues have decreased considerably, yet government spending keeps rising by the day. To cover the difference, the US Government resorted to huge borrowing, a fact that has seen the USA domestic debt rise sharply. According to UNT (2014, p.10), by 2010 government spending had shot up to 24% of the GDP while the overall tax collection had dropped to 15% of the GDP thus creating a huge budget deficit of about 9%. A look at the federal debt commencing from 2001 when the debt stood at 33% of the GDP reveals that the same has grown exponentially to 62% by 2010.
The government has shown concerted efforts to mitigate the slump although very little remains to be seen in terms of real gains. Salaam (2012) confirms that the US economy is still in the woods. He suggests that the government should embrace a monetary and fiscal stimulus to jump-start the economy. The UNT (2010, p.11) projects the national debt could rise to 90% of the GDP by 2020 if the current trend goes unchecked. By 2035, it would have risen to 185% of the GDP. The other side of the national debt is the growing interests that the US must pay on its debts. The UNT (2010, p.12) predicts that the nation would be paying over $1 trillion in interests alone by 2020. The Obama administration has since responded with the creation of the National Commission on Fiscal Responsibility and Reform (NCFRR), also known as the Simpson-Bowles.
The White House (2014) describes the NCFRR as an organisation that was created by President Obama in 2010 through Executive Order number 13531. The commission is bipartisan because its formation was the result of expert negotiation and consensus between the two leading political parties in the USA namely the Democrats and the Republicans. According to the White house (2014), President Obama created the organisation as a tool to handle the fiscal challenges facing the American economy through a bipartisan approach, and hopefully restore responsibility, stability, and sustainability to the economy. To achieve this end, the president appointed two professional at its helm; one a former politician and the other a political technocrat. Therefore, the NCFRR is also known as Simpson-Bowles because President Obama appointed both Erskine Bowles and Alan Simpson as its co-chairmen.
The short term objectives of the commission was to table recommendations to the government on how she may be able to fully finance all her programs and operations in such a way that by 2015, the government would be operating at about 3% deficit on the Gross Domestic Product (GDP). The long term goal was to provide recommendations that would motivate fiscal reforms in order to improve all sectors of the economy and result to a healthy economy and sustainable growth. According to the White House (2010), the specific areas of the economy that the government wanted the NCFRR to address were the growth of entitlement expenditure, and the yawning gap between the revenues collected by the government vis-a-vis federal spending.
Leadership of the NCFRR
The NCFRR is headed by two individuals. One is a seasoned professional Erskine Bowles. According to the White House (2014), he is a former White House staff, working as the Chief of Staff under President Bill Clinton and currently heading the University of South Carolina. This man has a good background in Economics having served previously as the Small Business Administration head in 1993, and a co-founder of the financial firm Carousel Capital. He was instrumental in the adoption of the Balanced Budget Act of 1997.
The other one is Alan Simpson, a politician and a lawyer. The White House (2014) exposes his broad experience in both politics and fiscal work, having served as the Wyoming Senator, as the Republican whip, and the chair of the Social Security Sub-committee. At one time he was a lecturer at the Harvard’s Kennedy School of Government.
The White House (2014) asserts that the membership of the NCFRR is 18 members. Bipartisan arrangements demand that the Senate leaders appoint 6 members i.e. 3 by Democrats and 3 by Republicans. The House leaders do the same, bringing the total to 12. The president appoints the remaining 6 members, among whom 2 must be from a different political party in exercise of bipartisan agreements. For any recommendation to get congress approval, and therefore enter the funding and implementation stage, it must garner a minimum of 14 votes out of the 18 members otherwise it’s discarded. However, the members also have leeway to re-structure it and resubmit if need be, in the hope of achieving a higher percentage of the approval vote.
According to the White House (2010), the government pumped substantial funding into the commission so that there would be a director and some staff engaging in the routine activities of the commission. The commission would not pay salaries to the commissioners. However it would pay travel allowances and also per Diem to the commissioners.
According to Section 7 of the executive order Number 13531 (White House 2010), the commission would stand dissolved 30 days after presenting its report.
According to Jacobson and Wogan (2012), President Obama appointed the commission in February 2010 and the commission immediately began its work. The NCFRR has so far presented two reports to congress. They presented their first report in December 2010 entitled “National Commission on Fiscal Responsibility and Reform (Simpson-Bowles I)”. The VCU (2014, p.3) notes that the NCFRR presented its second report to Congress on 19 February 2013 entitled “A Bipartisan Path Forward to Securing America’s Future (Simpson-Bowles II).
The most notable recommendations of the reports were huge cuts on military spending, the tax and social security reforms, and hefty cuts on government spending especially discretionary, strict controls on medical spending, deficit reduction, and the national debt reduction. Again, the commission advocated for higher taxes in order to generate more revenue for the federal government. According to the VCU (2014, p.3), the recommendations would increase government tax collection by over $2.5 trillion. The commissioned envisaged a situation where the state would save $3 expenditure for every $1 in collected revenue.
National Commission on Fiscal Responsibility and Reform (Simpson-Bowles I)
VCU (2014) informs that besides the recommendations outlined above, the commission also gave the following recommendations on health spending;
- Medicare: Begin funding reductions starting at 1% from 2014 and institute physician payments freeze in order to save about $22 billion. Design a system that enables medical care across medical providers while paying doctors for quality rather than quantity of service.
- Increase funding to government authorities that control Medicare fraud. Reduce funding for Medical education in hospitals.
- Reduce payments for bad debts in Medicare, reduce funding for administrative functions, and so on.
- Repeal the class act in order to stem any increase in the deficit over the next ten years.
- Pursue projects which promise lower costs on Medicare delivery.
- Establish a long-term national healthcare budget, closely monitored by the President and the Congress.
However, this report never saw the light of day because it failed to get the 14-vote support, managing only 11 votes. This was a major setback for the Obama administration especially after such a huge investment in both resources and manpower.
Interestingly, VCU (2014, p.1) alleges that although President Obama was instrumental in the creation of the commission, after it presented its report he did not fully support its recommendations.
A Bipartisan Path Forward to Securing America’s Future (Simpson-Bowles II)
This report was an attempt by co-chairs Simpson and Bowles to build consensus between Democrats and Republicans to pass recommendations aimed at implementing bigger cuts to federal spending and to re-write the tax code so as to achieve a $2.4 trillion reduction in the national deficit (VCU, 2014, p.3).
This recommendation also advocated for lower taxes unlike the first report, hoping to increase the taxes by about $1.3 trillion. Another major difference was in health care spending. This new report advocated for bigger cuts in health care that would save the government about $600 billion, unlike the initial recommendation that would save the government about $480 billion. (VCU, 2014, p.3), suggests that the recommendation shows bias towards healthcare spending so much that it raised the following two proposals;
- The government would raise about $850 billion higher collection of revenue and by reducing payments to medical providers discretionally caps.
- The government would raise a further $2.4 trillion by instituting major entitlements and tax reforms, and by instituting more major cuts in federal spending.
The VCU (2014, p.3), alleges that despite being released, this second report is incomplete and requires some more fine-tuning before the commission presents it finally for approval and the subsequent vote by the Congress.
Jacobson, Louis, Wogan, J.B. Ryan and the Simpson-Bowles Commission: The Full Story. Tampa Bay Times – Politifact. 30 August 2012. Web. 20 April 2014. <http://www.politifact.com/truth-o-meter/article/2012/aug/30/ryan-and-simpson-bowles- commission-full-story/>
Salam, Reihan. US Economy Weakened Years before the Crash. CNN International Edition. 23 June 2012. Web. 20 April 2014. <http://edition.cnn.com/2012/07/23/opinion/salam-economy-woe/>
The White House. President Obama Establishes Bipartisan National Commission on Fiscal Responsibility and Reform. Office of the Press Secretary. 2014a. Web. 20 April 2014. <http://www.whitehouse.gov/the-press-office/president-obama-establishes-bipartisan- national-commission-fiscal-responsibility-an>
The White House. Executive Order 13531 -- National Commission on Fiscal Responsibility and Reform. Office of the Press Secretary. 18 February 2010b. Web. 21 April 2010. <http://www.whitehouse.gov/the-press-office/executive-order-national-commission- fiscal-responsibility-and-reform>
Virginia Commonwealth University (VCU), School of Medicine. National Commission on Fiscal Responsibility and Reform (Simpson-Bowles I). 26 March 2014. Web. 21 April 2014. <http://www.medschool.vcu.edu/ohi/finance_reform/documents/Simpson- Bowles%20I%20&%20II.pdf >