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.