Tag: Simpson-Bowles

Oh Crap! Another Simpson-Bowles Plan

A couple years back two dudes, Simpson and Bowles, got together with a group of guys and had a commission that was suppose to be an alternative to the bullsh*t of the budget debate…….it was a complete failure!  Even the prez who created the commission did not take any of their advice for the argument on the deficit….I other words it was a complete waste of time and energy……(go figure….a waste coming out of Washington)…….

Their first plan was a bust ….so what to do next?    How about another budget plan?

The former chairmen of President Obama’s 2010 fiscal commission, Erskine Bowles and Alan Simpson, on Friday will release a new deficit reduction plan in the hopes of reviving a debt grand bargain this year.

The two-step plan has about $800 billion more in spending cuts than President Obama is seeking and $1.1 trillion more than Senate Democrats have proposed, while adopting roughly the same amount of new taxes from tax reform called for in Obama’s 2014 budget.

The new Bowles-Simpson plan calls for $585 billion in tax revenue from a reform process that starts by eliminating all deductions — then adds back in only those most needed — adopts a territorial tax system and maintains progressive tax rates. This is less than the $975 billion in tax increases in the Senate budget.

By their measure, the newest Bowles-Simpson plan will achieve $5.2 trillion in deficit reduction including laws enacted since 2010, compared to $4.3 trillion in reductions in the Senate-passed budget and Obama budget. Both of these calculations assume that $1.2 trillion in automatic sequester cuts are going to be turned off.

Bowles and Simpson say that their plan will bring the national debt down from 78 percent of the economy to 69 percent of gross domestic product. This compares to 70 percent for Senate Budget, 73 percent for Obama and 55 percent for the House-passed budget authored by Rep. Paul Ryan (R-Wis.).

The Ryan plan balances without raising taxes by cutting $4.6 trillion in spending, while keeping the $1.2 trillion sequester in place.

The vast majority of the cuts would come from Medicare. Medicaid is largely insulated, except for a plan to eliminate a tax that some states use to drive up the federal government’s share of Medicaid payments.

The new plan would expand Medicare’s means testing — charging wealthier seniors a higher premium — an area where Republicans and the White House agree.

There you have a synopsis of the ‘new’ plan…..but will it be as worthless as tits on a boar…..kinda like their first attempt?

Flaws In Simpson-Bowles

A debt plan to the Right……a debt plan to the Left…..and then there is Simpson-Bowles…..I have signed on to the plan that was come up with by the Simpson-Bowles Commission….we need answers and we definitely need solutions…..I liked the plan a lot….beat the holy Hell out of the alternatives that have come from the mouths of our elected officials.  Recently reading some papers and such from the Economic Policy Institute, I found a critique of Simpson-Bowles written by Ethan Pollock and I thought I would give you his concerns on the plan….after all I want to be fair……..

1) It would weaken the economy by cutting way too fast

The proposal admits that Congress should not cut too soon “in order to avoid shocking the fragile economy,” but addresses this by “waiting until 2012 to begin enacting programmatic spending cuts, and waiting until fiscal year 2013 before making large nominal cuts.” Given the current weak state of the economy, it’s clear that this timetable was way off. But it’s not like this was unexpected: In Aug. 2010 (three months before the Bowles-Simpson proposal was released) the Congressional Budget Office projected that the unemployment rate would be still be 8.4 percent in fiscal year 2012. Of course, it was possible that the economy would outperform this projection, but it was also possible it would underperform. Given this uncertainty, the proposal should have included an economic trigger and not just a simple-minded timeline—for example, the cuts would only take effect if the economy was experiencing healthy growth and well on its way to full recovery. At the time, EPI had recommended this trigger be set at 6 percent unemployment for six months, which in retrospect looks quite prescient.

2) It had an unbalanced ratio of spending cuts to revenue increases

The advertised ratio of spending cuts to revenue increases was 3-to-1. This isn’t totally accurate: Excluding interest savings (which are a function of both spending and revenue decisions) and including the additional revenue assumed in the baseline (i.e., the assumed conditions against which the proposal is measured) from the expiration of the high-income Bush tax cuts, the ratio was closer to 55-to-45.

But that’s still too heavily weighted towards spending cuts. Over the last two decades, budget deals have skimped on tax increases in favor of heavy spending cuts, and the most recent deal—the Budget Control Act—was 100 percent spending cuts. Furthermore, the Bush tax cuts themselves account for nearly half of the total debt accrued during this period. Finally, spending cuts exacerbate the massive and growing income inequality in this country by generally falling on middle- and low-income households (Paul Ryan’s budget, for example) while federal tax increases can be designed to ensure that high-income individuals pay their fair share.

3) A completely counterproductive and politically-driven revenue cap

As a policy matter, the revenue cap that Bowles-Simpson proposes—21 percent of GDP—makes no economic sense. Remember, deficit reduction packages are supposed to reduce the deficit. Yet this provision would “prevent” future Congresses from reducing the deficit through tax increases above 21 percent, which would effectively rule out the federal revenue levels that nearly every single other developed country already achieves—and that rising costs of health care provision all but guarantee the United States will need in coming decades. The best thing to say about this provision is that there isn’t an enforcement mechanism, which also suggests that even its authors didn’t think it was good policy.

4) Inexorable cuts to public investments

The proposal doesn’t explicitly cut items like education, infrastructure, and research and development, but it does prescribe funding levels for the broader non-security discretionary (NSD) portion of the budget that houses nearly all non-defense public investments. As my report last year shows, it is pretty much impossible to make drastic cuts to NSD without cutting public investments.

So why do public investments matter? Because the whole economic point of deficit reduction is to improve the living standards of future generations by ensuring that we do not pass onto them high levels of debt. But financial debt isn’t the only kind of debt that we can pass on to them. For example, failing to maintain our infrastructure and bequeathing crumbling roads and bridges is also a form of debt. So is providing poor prospects for obtaining a decent education. Reducing the debt load on future generations by cutting an investment in those same future generations doesn’t make them any better off, and thus negates the entire point of deficit reduction in the first place. Given the high returns of public investment, it is likely the net effect on these generations will be strongly negative.

5) It would undermine retirement security by cutting Social Security

The Bowles-Simpson proposal wouldn’t only cut Social Security benefits, it would do so in a way that harms the middle class. According to the Social Security Actuary, medium-income retirees would see their benefits drop by 4 percent for those who retire in 2030 to nearly 20 percent for those who retire in 2080. This is largely a function of two separate cuts, both of which fall on the low- and middle-class: raising the retirement age and using an alternate method to calculate cost of living adjustments, the so-called “chained CPI.”

Proposed cuts to Social Security need to be put in the context of broader retirement security. Social Security represents one of three sources of retirement security, the other two being defined benefit pensions and household savings (IRAs, 401(k)s, real estate, etc.). But private savings do a poor job of providing actual security—just ask a near-retiree how their nest egg fared after the financial collapse—and it’s unclear how much savings the average household can accrue in the first place when median wages continue to stagnate. Further, defined benefit pensions are becoming less and less common as more and more companies choose to drop them in favor of defined contribution plans (401(k)s or similar plans) which, again, provide little actual security against economic volatility. Social Security is the last reliable source of true retirement security for the middle class, and that means it’s more important than ever to protect it against cuts like these.

So yes there are draw backs or flaws, if you will, in the plan…..but to be honest….it is far superior to anything that I have heard or read coming from Washington….solutions need to be found and instead of working on that….our elected “people” and I use the term loosely…..play games and point fingers one to another and all the while the economy goes down the drain….and each one of them will blame the other……sorry but like the tango it takes two parties to dance.

Is There A Plan To Fix The Deficit?

Sure there is regardless what you see, read or hear…..the plan that all want to ignore is the Simpson-Bowles……Repubs do not like it because they will have to go against Nordquist…..Dems do not like it because they would have to change a few of the entitlement positions….I do not like it because I think it does not go far enough in areas……but you decide…….read it here…..

The 6 Tenets of “The Plan”

1.      Discretionary Spending Cuts

  • Eliminate all Congressional earmarks
  • Reduce Congressional and White House budgets by 15% (including travel budget)
  • Freeze Congressional pay until 2014
  • Freeze federal workers’ wages through 2014
    • Also, eliminate 200,000 federal jobs by 2020 (10%)
    • Also, eliminate 250,000 federal non-defense contractor jobs by 2015
  • Hold discretionary spending in 2012 to 2011 levels; by 2013, reduce descretionary spending levels to those of 2008. After 2013, increase the spending by half the rate of inflation.
  • Both  security and non-security funding cut in equal percentages
  • Increase transportational revenues until the transportaion trust fund is fulled-funded (includes a gas tax-hike starting at $0.15)
  • Create a committee to cut $11 billion of unnecessary programs by 2015
  • Cut $1 billion of “low-priority” Army Corps of Engineers programs by 2015
  • Cut oversea’s budget by 10%, cut contributions to the U.N. by 10%, and cut foreign aid budget by 10% by 2015
  • Cut almost $1 billion in fossil fuel research funds
  • In order to spend above the caps: (1) Affirmative vote from House of Reps (2) 60-vote point of order in the Senate
  • President proposes annual limits to war spending
  • Establish a disaster fund based on the average amount spent in the past decade (rolls-over annually)
  • Create a committee to cut duplicative, unnecessary, or non-priority programs from spending

2.      Tax Reform

  • “The Zero Plan”
  • There will only be 3 personal tax brackets
    • There will only be 1 corporate rate
    • All deductions, loopholes, and credits will be eliminated
      • This includes EITC and mortgage interest deductions
    • The 3 tax rates will be 8%, 14%, and 23%
  • The 2nd Plan
    • Personal deductions would increase to $15,000
    • The 3 tax rates will be 15%, 25%, and 35%
    • Repeal or extensively limit tax deductions
      • This includes state, local, and mortgage interest deductions
  • The 3rd Plan
    • Force Congress to reform taxes by raising taxes each year that they fail to act
  • Implications of Their Suggested Changes
    • The above 3 plans allow Congress to only collect taxes on income made in the US
    • It redudes or eliminates taxes on revenues companies earn abroad and US expatriates
  • The report also suggests raising the gas tax by $0.15/gallon

3.      Healthcare Cost Reduction & Reform

  • More lower-income citizens would be put into Medicaid-managed care
  • Freeze Medicare payments through 2013, cut them in 2014, and create a better physician payment formula
  • Medicaid co-pay amount would increase
  • Reform or repeal the Community Living Assistancer Services and Supports program – it is unsustainable
  • Begin previously-planned cuts to Medicare Advantage and home health care programs
  • Use pilot programs more often
  • Create savings by reducing administrative costs, excess payments, and fraud, reforming cost sharing, medical malpractice, and Medigap coverage, and eliminating state gaming on the program
  • Create a spending cap for Medicaid/Medicare growth
  • If the health care system overspends in 5 years, Congress and the President may be forced to increase premiums or co-pays
  • If the health care system overspends in 5 years, Congress and the President may be forced to raise the Medicare eligibility age
  • Create a long-term budget for total health care spending, limit growth to GDP growth plus 1%

4.      Mandatory Spending Cuts

  • Government expenditures and revenue stop at 21% of GDP
  • Reduce argicultural subsidies
  • Eliminate federally subsidized student loans in which the government makes interest payments while the student is in school
  • Reform military and civil service health and retirement savings programs
  • Charge market rates for federal electricity-generation
  • Require the TVA to charge rates to cover its costs
  • Give Postal Service more rule over their restructuring
  • Increase user fees with inflation

5.      Social Security Reform

  • Retirement age will increase based on longevity statistics
    • In 2075, estimated retirement age will be 69
  • Raise the Contribution ceiling:
    • Currently, people only pay Social Security taxes on the first $100,000 that they make – This accounts for only about 85% of taxable wages
    • Let’s take the ceiling up to 90% by 2050
  • Ensure the minimum benefit is 25% higher than the poverty line
  • Use “chained CPI” instead of standard CPI to measure Social Security cost of living adjustments
  • Increase benefits to individuals older than 85
  • Achieve a net-reduction in benefit payments by (1) increasing benefits for low-income beneficiaries and (2) decrease benefits for higher-income people

6.      Process Reform

  • Enforce deficit reduction targets
  • Adopt triggers for extended unemployment benefits based on the unemployment threshold
  • Only allow spending cap adjustments for review of IRS enforcement, anti-fraud efforts in health and labor programs, and disability claims

Read the bill here.  If you think there is more that could be done, then read the whole thing and draw an informed conclusion…..