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Simpson-Bowles cutting again

By Jennie L. Phipps · Bankrate.com
Wednesday, February 20, 2013
Posted: 9 am ET

Bowles-Simpson are back with more painful proposals as the March 1 date for automatic budget cuts, known as the sequester, gets closer.

The ideas released on Tuesday by Erskine Bowles, a Democrat who served as former President Bill Clinton's chief of staff, and former Republican Sen. Alan Simpson build on those they offered in 2010 when the men were co-chairs of the deficit reduction committee created by President Barack Obama.

The new proposals are more onerous in some ways than the old ones, which have been mostly ignored by Congress and Obama. "We learned the hard way with our commission, the harder we made (the proposal), the more support we got. It's either go big or go home. This is pathetic," Alan Simpson told CNBC's "Squawk on the Street" on Tuesday morning.

Here are portions of the new proposal, dubbed Bowles-Simpson (rather than Simpson-Bowles), that most affect people who are concerned about retirement planning. I'm sure we'll hear more, but this early line comes from a summary of the plan, released on the Bowles-Simpson website, and a joint analysis offered by both the Urban Institute and the Brookings Institution.

  • Limit contributions to tax-advantaged retirement saving plans, including employer-sponsored salary reduction plans and individual retirement accounts, capping them at 43 percent of their current limits.
  • Tax income accrued within defined contribution accounts such as 401(k)s. Interest, dividends and realized capital gains in excess of $6,330 per year would be taxable.
  • Income accrued within defined benefit plans -- old-fashioned pensions -- in excess of $177,000 per year would be taxable to the individual beneficiary.
  • 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).
  • Adopt the chained consumer price index, and apply it to cost-of-living increases government-wide with protections for low-income beneficiaries.

These proposals sound like they would make saving for retirement a lot more difficult, especially since the plan also calls for $600 billion in cuts over 10 years to Medicare and Medicaid. That's significantly more than the $400 billion the Obama administration has said it would accept.

The plan also would cut tax deductions for employer-paid health care, which could encourage employers to pay higher wages, and that would raise the amount of money employers pay into the Social Security system. Some analysts have applauded this suggestion as good for ordinary workers.

As we've seen in some of the European nations such as Greece and Spain, failure to control government spending can have horrendous consequences, but contemplating some of these changes in the current U.S. system is pretty horrific as well.

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82 Comments
Princess
February 20, 2013 at 2:09 pm

I am a 65 years old WOMAN and still woring full time because I have a Mortgage, taxes, Homerowner & Flood Insurance to pay on a $23,704.92 I made last year. I thank GOD that I am still able to go because the money they took out of my pay check from the time I start working and what they want to give me when I retire I can't live on that. I am tired of paying taxes to Schools, Hospital, Food Stamps you name it I pay it. I can't retire for all the taxes.

Phil Bereano
February 20, 2013 at 2:08 pm

the finalcial crisis in Spain is NOT due to governemtn deficits. the Socialists had a surplus, i believe until the collapse of the banks (due to lending out too much money for vacation housing constuction). The government's problem is due to proppong up the banks. Let's get our facts straight.

Dee
February 20, 2013 at 1:56 pm

also, put "all" public employees on social security. They should not have their own retirement system. How can legislators do right by citizens if their legislation regarding social security has no impact on their own lives?

Gail Sauter
February 20, 2013 at 1:56 pm

We need to fire this president and get someone in there who has a business background and does not have an agenda to ruin America. People wake up and take action.

Frank Gaulin
February 20, 2013 at 1:55 pm

How about stop giving our hard earned money to people who don't work, eneough is enough, stop the free loaders.

Joe
February 20, 2013 at 1:51 pm

The first thing on the block for reduction is the Congress pay check. If the government can not pay their bills then Congress should not get a check either.

I believe that the mortgage tax break should be on the block but that tax break should be on any home that is under $700,000 only. Plus it should be across the board that that break will be on only one home per house hold.

Finally, Social Security increases should be tied to the pay raises that Congress votes for themselves.

tim
February 20, 2013 at 1:49 pm

The President wanted this bill. Well let him have it

Dee
February 20, 2013 at 1:48 pm

Am I reading this correctly? Surely not! This plan makes it harder then ever to save for retirement and then tax retirees to death when they need their money the most.
The fact that "401K's" would be taxed at measly gains above $6,330 a year and "pensions" are left alone at 177K a year is astounding! Are they really serious, or am I misunderstanding?
I don't think that you have to be the sharpest tool in the shed to know when you're getting the axe.
Clean up the waste in spending; including special interests and bogus government job creation, and make those "necessary" public jobs have income caps and required contributions towards retirement and healthcare. Do that, along with eliminating fraud within government programs and social security, and the problem of (social security)solvency would be resolved!

CC
February 20, 2013 at 1:41 pm

Agree w dave. If you didn't pay into it you do not get it, unless you're pulling off your decessed spouse... note deceased, or unmarried child who died past age40. Older immigrants are getting it at age 65 even if they didn't work and contribute, not fair. Same for Medicare. Set up some fund for the truly indigent who don't have any resources and do not pay them at the SS rate. We all have to plan for old age.

Eric
February 20, 2013 at 1:38 pm

The largest budget expense we have is the interest on the debt. If we dont dont slow govt. spending and use more taxes to pay down the interest, we are not improving our economy.