Retirement Blog

Finance Blogs » Retirement » Simpson-Bowles cutting again

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.

«
»
Bankrate wants to hear from you and encourages comments. We ask that you stay on topic, respect other people's opinions, and avoid profanity, offensive statements, and illegal content. Please keep in mind that we reserve the right to (but are not obligated to) edit or delete your comments. Please avoid posting private or confidential information, and also keep in mind that anything you post may be disclosed, published, transmitted or reused.

By submitting a post, you agree to be bound by Bankrate's terms of use. Please refer to Bankrate's privacy policy for more information regarding Bankrate's privacy practices.
82 Comments
dynamo
February 21, 2013 at 10:19 am

Only ONE comment on this thread is OK. The REST are RACE IST
and stuck in the Bagger Bubble where they make up their own version of reality. Stop being so ignorant and screaming the word "socialism." All you are doing is showing how ignorant and uneducated you are! GET IT NOW? Willfully ignorant and knowlege free, that's the Bagger Bubble way!

john
February 21, 2013 at 12:06 am

Bowles and simpson can take their plan and put it where the sun doesn't shine..

kasman
February 20, 2013 at 11:52 pm

I wonder how much money we could save by not paying for all the retirement and benefits for the politians. I'll bet it would be a bigger savings than cutting medicare and social sec.
If they had to live in our system, I'd bet there would be alot difference discussion going on about cuts.

D.Duck
February 20, 2013 at 11:26 pm

Of course retirees are paying through the nose because under the OBummer Administration we're all responsible for our fellow bros. I'm not one who believes in paying for bums. It's their fault they're addicted to drugs, alcohol or whatever. They choose to tune in/dropout. As far as I'm concerned they can ask Carol King (not her real name), for a rendition of It's Too Late Baby. Then we can all hear a tearful rendition of James Taylor's (also not his real name), of wanting to be in Mexico or somewhere.

owen
February 20, 2013 at 10:57 pm

Politians in the congress don't care about ordinary american people because they and their family are taken care by the rich. BUT GOD DON'T LIKE UGLY AND THEY WILL ALL FELT THE TEARS AND PRAYERS OF GOD'S PEOPLE. God will answer our prayers.

Michael
February 20, 2013 at 9:46 pm

It is unconscious-able for government to attack our Retirement savings. This is an insult that breaks the moral contract between government and citizen regarding our retirement savings. We need for all politicians and government workers to be immediately part of Social Security. We need to remove all tax deductions for those in politics. We need to put a cap on government salaries and benefits. We need to cut all government retirement benefits and savings to a level consistent with those in the private sector. WE NEED TO VOTE THOSE SUPPORTING THIS PROPOSAL OUT OF OFFICE.

Gerry Hetzel
February 20, 2013 at 8:59 pm

Lets start making all those in government, including all white house employees of high ranking, stop their pay checks on retirement and get social security like everyone else, plus get their own health insurance. They are no better than the average american!!!!! plus stop the welfare checks going to people that do not work, also if you are pregnant and not married, you receive NO welfare checks for each child, no food stamps, and you pay taxes like everyone else. I am sick and tired of paying taxes for the young people that are getting pregnant just to get a check from the government. I worked for that check to help them and I am sick and tired of it. This government we have now is socialism and do not kid yourself that is the truth. People with 6 kids getting money from the government, food from the government, cheap housing, and then they go out and buy the big screen TV's that the working man cannot afford, but they can buy the expensive things because the working man is paying taxes to give these creeps the money so they can sit on their rear ends and collect and not work!!!!!

dave
February 20, 2013 at 8:48 pm

"Buy American"...better act fast. If this keep up, all manufacturing moves off-shore!

erica erickson
February 20, 2013 at 7:58 pm

since politians only work 185 days a year and in the private sector that would be considered part-time so for me getting part
time pay and NO retirement would be a good solution and should not get a pension for only working one term if not re-elected...

John
February 20, 2013 at 7:48 pm

Go out of your way to Buy American. Your dollar is the most powerful vote that you have.