Multiple 2008 Obama supporters I know have argued that President Obama's latest budget is much like the Simpson-Bowles proposal. It is not, and in fact, goes in a different direction. Here are major differences between Simpson-Bowles (S-B going forward) and Mr. Obama.
Taxes
S-B:
Eliminate all tax expenditures—for both income and payroll taxes—except for the child credit, the earned income tax credit, foreign tax credits, a few less common preferences (retain reduced preferences for mortgage interest, employer-sponsered health insurance and reitrement savings in the third variant listed above).
Eliminate the alternative minimum tax (AMT).
Eliminate the phaseout of personal exemptions and the limitation of itemized deductions.
Replace the current six-bracket individual tax rate schedule with a three-bracket schedule with rates of 9, 15, and 24 percent (12, 20, and 27 percent in the third variant listed above).
Tax capital gains and dividends as ordinary income.
Index tax parameters using the chained Consumer Price Index.
Increase the Social Security wage base by 2 percent per year more than the growth in the average wage (making the FICA cap $140,100 in 2015).
Phase in an increase in the federal excise tax on gasoline of 15 cents per gallon (13.5 cents per gallon on average in 2015).
Eliminate corporate tax expenditures and reduce the corporate tax rate to 26 percent (27 percent in the third variant listed above).
Source: http://www.taxpolicycenter.org/taxtopics/Bowles_Simpson_Brief.cfm
President Obama:
-Anyone making $1,000,000 pays a 30 percent tax rate minimum.
-The president wants to make the Bush tax cuts permanent for anyone making less than $200,000 ($250,000 for couples)
-Seeks to expand and/or make permanent the Making Work Pay Credit, Earned Income Credit, Child Tax Credit.
-Seeks to increase top two marginal tax rates to 39.6 and 35% from 36% and 33% respectively.
-Increase Capital Gains Tax to 20% from 15% for top two tax brackets.
-Seeks to levy new fees on banks to pay for government funded mortgage re-finances.
-CNN claims Obama's business tax record is mixed in terms of hikes and cuts.
-According to CNN "serious tax policy experts will continue to beat their head against the wall because the president has done nothing to simplify the code"
Sources:
http://www.huffingtonpost.com/2012/01/30/obama-tax-plan-elections-2012_n_1241277.html
http://money.cnn.com/2012/01/30/news/economy/Obama_tax_record/index.htm
Discretionary and Military Spending
When comparing the S-B Proposal vs Preisdent Obama's proposal, the S-B proposal offers about $750 Billion in discretionary and military spending cuts over and above what the president proposes. The vast majority of this comes from military spending.
Source: http://www.washingtonpost.com/blogs/ezra-klein/post/why-republicans-like-simpson-bowles/2011/08/25/gIQAx3IClN_blog.html
Social Security and Medicare
S-B:
Simpson-Bowles would reduce Social Security benefits largely by raising the age eligible for benefits. Because S-B also raises the Social Security tax cap and introduces all newly hired state-local workers into the system, this increases the likelihood of solvency for the program. According to the Committee for a Responsible Budget, Simpson-Bowles would save $100 Billion more in Health Care Expenses over the President's proposal over the next ten years (already included in the calculation under discretionary and military spending). Simpson-Bowles does not address Medicare substantially in any other way.
Source: http://www.cbpp.org/cms/index.cfm?fa=view&id=3402
President Obama:
Supported the recently signed payroll tax deal, reducing the social security tax from 6.2% to 4.2% temporarily. Has levied an additional .9% investment tax on wealthy individuals (likely earning > $200,000 or $250,000). http://money.cnn.com/2012/01/30/news/economy/Obama_tax_record/index.htm
Impact on Debt and Deficits:
As of the publishing of the S-B Report, the national Debt stood at 67% of GDP. If Simpson-Bowles were to be instituted in it's entirety, the Report on the National Commission of Fiscal Responsibility and Reform, estimates that by 2025, the debt would fall to 55% of GDP.
In regards to President Obama, three numbers to keep in mind are:
1) $15 Trillion. This is the United States GDP according to the World Bank.
2) $4 Trillion. This is what many news outlets have been reporting as the amount Obama would shave off the deficit over 10 years. The problem, is that that $4 trillion isn't the amount the debt will be reduced by, it represents the figure that the debt will be reduced by in comparison to doing nothing.
3) $15.36 Trillion. This is approximately the US debt as of this writing.
Going back to S-B for just a minute, if we shave 12 percentage points off the debt to gdp ratio in today's dollars (this is a reasonable estimation of what they propose), the national debt would be $13.5 Trillion present-day dollars in 2025. The president's budget would add $6.6 Trillion to the debt over the next ten years by their own calculations, making the debt $22 Trillion Dollars.
For Obama's debt-reduction plan to achieve the comparable present-value impacts of Simpson-Bowles, the US GDP would have to be $24 Trillion in ten years - this represents a 60% growth in US GDP over the next ten years. This may be difficult, because from 2000 to 2010, the US GDP expanded by just 45%, however in the prior ten years, US GDP expanded by the growth rate needed.
Source: http://www.usgovernmentspending.com/spending_chart_2000_2010USb_13s1li011mcn__US_Gross_Domestic_Product_GDP_History
This is certainly doable and isn't to say that the President's budget doesn't make an impact on the long term financial stability of the country, because it may (if growth picks up) - but it is dependent on a much more robust economy than presently exists.
However, saying that the President's Budget implements Simpson-Bowles is a decidedly false narrative because even if it effectively achieves the same result, it does so in a substantially different way, without simplification of the tax code.
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