Simpson-Bowles Lay It On the Line

Keynote speakers cover country’s financial, healthcare, and entitlement crises

Maureen Leahy

The fiscal path that our country is on today is simply not sustainable,” Erskine B. Bowles told AAOS fellows yesterday. “If we don’t get politicians in Washington—both on the right and left—to end this intransigence and pull together rather than pull apart, we face the most predictable economic crisis in history. Fortunately, it’s also the most avoidable economic crisis in history.”

Keynote speakers Erskine B. Bowles (left) and Alan K. Simpson provided a candid, bipartisan discourse on the nation’s economic crisis.

As this year’s Annual Meeting keynote speakers, Mr. Bowles made his remarks alongside Alan K. Simpson, addressing “America’s Debt and Deficit Crisis: Issues and Solutions,” to a packed crowd in the Grand Ballroom of the McCormick Place Convention Center.

Mr. Simpson, the colorful former Republican senator from Wyoming, and Mr. Bowles, White House Chief of Staff under President Clinton, are best known for co-chairing the 2010 National Commission on Fiscal Responsibility and Reform, which produced a proposal (Simpson-Bowles plan) to reduce the nation’s deficit by $4 trillion over 10 years. Although the plan was rejected, the bipartisan duo is committed to finding a long-term fix for the nation’s economic crisis.

Before starting their address, Mr. Bowles thanked Walter B. Beaver, MD, his orthopaedic surgeon, who was in the audience. “I can stand here today because he reconstructed both of these shoulders and both of these knees! Without him, I wouldn’t be here.”

Debt drivers
Mr. Bowles noted that the $4 trillion reduction—$1 trillion from tax code reforms and $3 trillion from spending cuts—that he and Mr. Simpson recommended is not the maximum amount, nor the ideal amount, needed to reduce the deficit over the next decade. Rather it is the minimum amount the deficit must be reduced over the next 10 years in order to stabilize the debt and keep it on a downward path.

“Our country’s deficits, which account for more than $1 trillion per year, are a cancer that will destroy America from within,” said Mr. Bowles. He outlined the following five principle drivers of debt that he and Mr. Simpson agree a long-term fiscal solution must address:

Health Care—According to Mr. Bowles, the United States spends twice as much as any other developed country in the world on healthcare. “In 1981, we spent 10 percent of the federal budget on health care. This year we are spending 25 percent, and by the end of this decade, we’ll be spending a third of the federal budget on health care.”

“Healthcare is totally unsustainable. It is the driving engine that is taking us into the vapors; it is the mastodon in the kitchen,” added Mr. Simpson. “There is no cost-containment in any healthcare plan before the American public, except down the road. And down the road no politician will touch it with a stick.”

“We came to the conclusion that everyone should have healthcare insurance,” said Mr. Bowles. But if that’s the case, he noted, more primary care providers—physicians, nurses, and physician assistants—will be needed. The country will also need to enact real tort reform, to pay for quality not quantity, and to emphasize delivery of coordinated care, among other things. “Together, these should reduce the cost of health care by about $600 billion over the next decade,” said Mr. Bowles.

Defense—The United States spends more on defense than the 17 next-largest countries combined, according to Mr. Bowles. “We are bearing a disproportionate responsibility for global world peace,” he said.

Income tax code—In Mr. Bowles’ opinion, this country has the most inefficient, ineffective, and globally anti-competitive tax code that man could dream up. “Our recommendation is to broaden the base, simplify the code, wipe out all back-door spending, and use 92 percent of the money to reduce income tax rates. We think that will create dynamic growth in the country.”

Social Security—Over the next decade, according to Mr. Bowles, Social Security will be $900 billion cash negative. “When FDR created Social Security, the average life expectancy was 63 years of age and the Social Security retirement age was 65. Today, the average life expectancy is closer to age 79, and you get Social Security at age 62—we have an arithmetic problem,” he said.

Mr. Bowles and Mr. Simpson recommend making some very small changes to Social Security to make it sustainably solvent, including raising the retirement age—by 1 year 40 years from now, and by 1 additional year 65 years from now to provide for the needs of future generations.

Interest on the debt—According to Mr. Bowles, the United States is currently spending about $230 billion a year on debt interest. “If we stick our heads in the sand and do nothing, we’ll be spending more than $1 trillion on interest alone within the next decade.

“Our country’s fiscal crisis is not a problem that we can solely grow our way out of. We could have double-digit growth for decades and not solve this problem,” cautioned Mr. Bowles. “It also is not a problem that we can tax our way out of; raising taxes will not do a darn thing to change the demographics of the country or to change the fact that health care is growing at a faster rate than the gross domestic product (GDP).”

He added, “As much as Alan and I would like to tell you that we can solve this problem solely through cuts, we can’t—not without disrupting a very fragile economic recovery or hurting the truly disadvantaged.”

Man-made crises
Mr. Simpson and Mr. Bowles also lamented that it’s taken manmade crises—the debt ceiling crisis, the sequester, and continuing resolutions—to bring real attention to these issues.

“Congress woke up and said, ‘This is crazy. Why would we put the full faith of the U.S. government in jeopardy?’ So they stepped up to the plate—and they postponed the debt ceiling until May 28,” said Mr. Bowles.

“And the sequester? Well, across-the-board discretionary spending cuts are just plain stupid. Who does that? Plus, there are no cuts to the entitlement programs, which are growing at a faster rate than the nation’s gross domestic product.”

As for continuing resolutions, Mr. Bowles pointed out that the United States hasn’t had a federal budget in 4 years; it’s been operating a month-to-month basis. “And as recently as yesterday, Congress did not implement a budget, but rather a new continuing resolution,” he lamented.

The tipping point will come, according to Mr. Simpson, when borrowers tell the United States that despite the country’s proven addiction to debt and a dysfunctional government, they love us anyway. “When they ask for more money for their money, inflation will kick in and interest rates will go up, and it’s the little guy who will suffer.”

“Alan and I agree—and it’s the reason we came here today—that this problem can be solved and life will be better for our future generations, but it will require that the public push their elected representatives to get it done,” said Mr. Bowles.

“We’re tired of the pettiness; there has to be compromise,” said Mr. Simpson. “If you can’t compromise on an issue without compromising yourself, you should never be in Congress.

He concluded, “Erskine and I often say, ‘pull up a chair, we don’t do b.s. or mush, we’ll tell you where your country is’—and that’s all we do.”

For more information, visit www.fixthedebt.com

2013 Annual Meeting News
Tuesday through Friday, February 19 – 23, 2013.
http://www.aaos.org/news/acadnews/2013/AAOS2_3_22.asp