Simpson-Bowles Proposal Doesn’t Put The “End” In Budget Agenda

As the U.S. national debt approaches 14 trillion (that’s nearly 95% of the U.S. GDP), two politicians have finally made some concrete budget-cutting proposals. The chairmen of Obama’s deficit commission, former Republican senator Alan Simpson of Wyoming and former Clinton Chief of Staff Erskine Bowles, proposed a bi-partisan, compromise budget plan on November 10.

The Simpson-Bowles proposal plans to cut the budget by 200.3 billion by 2015 and reduce the deficit by nearly $4 trillion by 2020, thereby aiming for a budget that is no greater than 21% of the GDP. Although the co-chairs’ budget plan deals with the largest sectors of the federal budget, Social Security and Medicare, the proposal is at best only a suggestion of issues to discuss, for it fails to attack the real root of America’s fiscal problems.

To save on Social Security payments, Simpson and Bowles plan to raise the retirement age gradually to 69 by 2075 and index payments to a chained CPI to generate more accurate payment figures. But the proposal fails to recognize that Social Security in itself is a doomed program. There just aren’t enough people in America’s workforce to generate the revenue needed to make the payments. In addition, the Simpson-Bowles plan further burdens the existing structure by creating a special minimum salary benefit and including newly hired state and local workers in Social Security after 2020.

Although nearly a quarter of the federal budget is fixed in healthcare payments through Medicare and Medicaid, the Simpson-Bowles plan only spreads the cost rather than decreasing it significantly. In addition, Simpson and Bowles also fail to recognize that Obamacare will cost at least $2.5 trillion during the first ten years of real implementation. As with Social Security, these non-discretionary outlays will only decrease if consumers are given more control.

To pay for the deficit and other newly instituted programs, Simpson and Bowles propose increasing taxes up from the 19.8% of the economy to 20.5%, meaning an average increase of more than $8,000 in taxes from every American household from 2012 to 2020.

However, the proposal also includes heavy defense cuts, which amount to $20 billion. Aside from cuts in defense and changes in Social Security and healthcare, the Simpson-Bowles plan chips off parts of various sectors of government spending to reach its total of $200 billion in cuts, including the bold elimination of all earmarks and farm subsidies. The plan also proposes a 15-cent increase in gasoline tax.

Yet even if eliminating earmarks and increasing gasoline tax were feasible, the Simpson-Bowles plan will not result in a dramatic decrease in the budget and deficit, for it does not understand the fundamental reasons why the U.S. government expenditure is so great. The proposal is a start, but not an end.

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2 Comments

  • Pat McClellan
    November 23, 2010

    Good god this article is terrible. Seriously, NYU Local editors, why would you publish this?

    This analysis is just awful. For one thing, saying the plan means an average increase of $8000 in taxes for every American family is foolish and a ridiculously simplistic view of the tax system. The plan calls for eliminating most tax breaks and deductions that currently exist, dramatically lowering the income tax and also decreasing corporate taxes, and levying a consumption tax in the form of much higher gasoline taxes (to fund national infrastructure projects). To just say this represents an average per household increase of $8000 in taxes is to fail to make even the most basic attempts to grapple with the pros and cons and complexities of the massive changes to the tax code that Simpson and Bowles are proposing.

    Furthermore, where is the $2.5 trillion price tag for Obamacare coming from? That’s an absolutely enormous figure to just throw out there with no citation from a respectable source.

    Moving on: In addition, the Simpson-Bowles plan further burdens the existing structure by creating a special minimum salary benefit and including newly hired state and local workers in Social Security after 2020.— Elaborate. What exactly do you mean by “special minimum salary benefit”? If you’re referring to gradually raising the percentage of taxable income that people towards the top of the income distribution are subject to from 86% to 90%, this is actually just restoring Social Security funding to its original basis, as growth in income over time means that upper income individuals have ended up having more of their income exempt than the Social Security program was intended to leave untaxed. Second, why would newly hired state and local workers NOT be in Social Security after 2020? Unless there’s a secret plan to exclude new workers from the program after 2020 that I wasn’t aware of, this is kind of a nonsense sentence.

    Finally, your unsupported assertion that Social Security is a doomed program with not enough workers to fund it is disingenuous at best. Will there be a funding crisis in roughly 20 years? Yes. You know what would fix it though? Temporarily increasing taxes to cover the budget shortfall caused by the Baby Boomers for several years, and then the funding crisis ends. Ezra Klein in particular has done some great work arguing this point.

  • Evelyn Cheng
    November 23, 2010

    I agree that Simpson and Bowles are proposing a very complex plan, one that cannot be properly analyzed in this short post. This website thoroughly reviews the entire plan, including the tax hikes and the cost of healthcare: http://www.heritage.org/research/reports/2010/11/bowles-simpson-commission-co-chair-report-a-good-and-welcome-first-step

    The “special minimum salary benefit” would increase the minimum amount given to retirees. Although this act seeks to prevent workers from retiring into poverty, any increase in outlays is an additional cost. But rather than increasing the percentage of taxable income paid towards Social Security, benefits will be tied to a chained CPI so that the poorest and most elderly receive the most benefits. (http://economics21.org/commentary/fairly-understanding-simpson-bowles-social-security-proposal)

    Raising taxes is not a viable solution to solving the deficit because the deficit exists due to excess spending. Including any new workers in the Social Security program will increase costs, even if the workers do not enter the system until after 2020. Benefits such as Social Security are nice, but as the Simpson-Bowles plan suggests, if America wants to be fiscally stable the government needs to cut spending even if it hurts.

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