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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
Sir Charles
February 20, 2013 at 3:29 pm

Lee right, Please go back home, All of 50 Million of you. Were broke.

Charlie
February 20, 2013 at 3:26 pm

Yeah go ahead and skru us again. But please don't take away the raise politicians get every year, or the expense accounts or ask them to take less pay or benefits or retirement or one of the many homes they have in different states. Do I need to say more?

Randy
February 20, 2013 at 3:21 pm

Once again, I see no mention to cut Federal Pension plans. What the government wants is for everyone to work until they nearly drop dead to pay for their retirement and medical plans. it is not bad enough that they have robbed from Social Security all these years, but now theses two clowns want to hit 401 K's and our private pensions.

And it is not the wealthy ( and I am far from it!!!) , but our oversized government that is the problem. I say God Bless the wealthy, they are why most people even have a job.That is what Obama and his boys are truly good at, the art of misdirection and blaming it all on Wall Street and the wealthy so nobody looks at them. Who just paid of Obama's golfing outing, I wonder.

I know one thing , our economy could not do without Wall lStreet, but we could sure do without all those big spenders in Washington. Just how long can we go in debt to borrow money from China to give to Pakistan. That is the kind of debt everyone's children and grandchildren are getting left with.

Let's hear them start by cutting their plans 1st!! Also they need to be on the same Medical Plans as the rest of us. If his own "Obama Care" Plan is so good, then why are they not on it. I sure would love to be able to ask that Nancy P. that. Or that no good Harry R.

And for all of you who think that the Democrats are such big supporters of Minority groups , I say baloney. That is what they have sold them, but their purpose is just to keep them happy and maintain an ever increasing voting base. Just so they can keep doing the same thing....Spend and Waste our Money. And eventually control every part of our daily life.

Every minute we are losing more and more of our rights and freedoms as Americans, but maybe that is the big plan of misdirection, .... keep us focused on money and taxes while they eat away at our Freedoms.......just a thought.

And for all you Liberals, I am a veteran who served MY Country. And earned my opinion and did my part so you could have yours.

MissyT
February 20, 2013 at 3:05 pm

We need to cut and start cutting. I understand this sequester cuts about 2% from the budget.....the NEW budget which is about 6-8% over last years budget, so all departments are getting 4-6% more than last year. The whole system is a joke and the journalists aren't even reporting this - in the tank for politicans instead of protecting the hard working american citizens who pay too much already for cronies and companies in bed with the administration (think Goldman Sachs).

Time to cut and get on with making the difficult but necessary decisions. All the BS about head start programs which now reportedly do no good to educate children but create more paperwork for teachers - let's cut the baloney and the taxes for all of us who are being soaked dry.

NO pity from me for a budget that has to be cut by 2% when my disposable income has been ransacked by this government!

Claudia
February 20, 2013 at 2:59 pm

None of these extreme ideas will help the economy, people, or anything else. They will just hurt people who already haven't got enough money to live on, pollute the world, and make this a miserable place to live. We are just pandering to the rich corporations who now are trying to take more and more from the people who do all the work supporting their life style. There exists wasteful spending in every area of the country and we need to fix that but by cutting social security, headstart, medicare, and education would be cutting programs that are not wasteful. Also, as a great power the USA needs to be a part of this world and that means helping where we can. I do like George's comment about having the federal government pay back everything it borrowed.

William
February 20, 2013 at 2:47 pm

How can goverment run health care or any other company, when it can run itself?

Steve
February 20, 2013 at 2:42 pm

That's the way congress, wait until their pants are down then shoot.

Mike
February 20, 2013 at 2:41 pm

I like raising the SS payroll tax limit. Wasteful spending could be cut by streamlining government as Sen. Coburn suggested as he found things like 10 agencies running 50 programs all trying to do the same thing and this is rife in the government. I like having the government pay back the IOU's they left in the SS trust fund. Do not use the chained CPI, period. Increase medicare payroll tax to 2.9%. Defense needs either cutting or streamlining (Coburn included defense). Why does the US have to spend more on defense than the next 15 nations most of which are allies. Don't build the pipeline as that only favors Canada and the oil will be on the export market raising gas prices in the US. If we are now a net exporter of oil, why do we still depend on Middle East oil? Would you believe this kind of wrangling between the WH and Congress has been going on since at least 1803?

George
February 20, 2013 at 2:14 pm

I believe congress could take a lesson from Senators Bowles and Simpson. Congress is too concerned about their political parties. I'll just vote for the person with the best ideas and I don't care about their political party. When determining how to reduce our horrendous federal deficit I'd recommend 1. Have social security taxes on the full income of everyone, or at minimum a FICA cap of $250,000 (Why can't the wealthy help fix the problem?). 2. Have the federal government pay back to social security what they borrowed, 3. Address the issue of people paying no taxes and not even filing taxes (It's higher that you'd think), 4. Look at the lack of fair corporate governance (Stock owners would not approve of the high executive pay if they truely had a vote via their proxies), 5. Review IRA contribution limits, 6. Cut wasteful federal spending, 7. Stop being the world's police force. Get other countries to share the burden.8. Don't have the federal government run anything that can reasonably be run by private enterprise. Well that's a start!

lee
February 20, 2013 at 2:10 pm

Stop all foreign aid until we get our act togeather. Build the pipe line, Key Stone.Park Air Force 1, stop exporting oil, uncap all the oil wells in the gulf o Mexico. Do I need go on,just look around.