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The small-government vision of Bowles-Simpson

By Ezra Klein

Brookings's Hank Aaron is fair as they come, and he's really not impressed by Simpson-Bowles:

Even more troubling than timing, is the program itself. Over the first nine years, 70 percent of the deficit reduction under the Bowles-Simpson “mark” would come from spending cuts, 30 percent from added taxes. The steady-state spending level, as a share of GDP, would be 20.5 percent of GDP. That is lower than spending averaged from 1980 to 2008 when none of the baby boomers had yet retired and claimed Social Security and Medicare and when spending on health care per person was a minor fraction of what it will be in 2020.

He also notes that:

Deductions for contributions to IRAs, Keogh plans, and 401k plans would be ended ... [and] Social Security benefits would eventually be cut by 25 percent for people earning $43,000 today and by 40 percent for those earning $100,000. Note the double whammy -- less Social Security and no tax-sheltered savings plans.

By Ezra Klein  | November 15, 2010; 10:00 AM ET
Categories:  Budget  
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Comments

Your title here comes closest to the way I personally think of the debate of the ideological VISIONS of the parties.

I just don't understand why the "superior intellect" progressives are unable to paint the two visions of the parties in stark terms that makes it clear why GOP ideology is destructive to what most most Americans want.

For example, in order to manage national debt, the Dems should simply point out that there are only a few ways to do what the GOP wants. And since the GOP does not want to raise taxes on he wealthiest 1% whose incomes and wealth have skyrocketed in recent decades, and since the GOP does not want to cut DOD spending, then that means we MUST severely limit or even kill Social Security, Medicare, Medicaid, and many other smaller gvmt programs.

I hear many ordinary people talking in these terms, but I don't see the Dem leaders doing so. I don't see them sticking to talking points on the basic math of the competing visions. I repeat, I DON"T SEE THEM STICKING TO THE BASIC MATH OF THE COMPETING VISIONS.

We actually have seniors voting for the GOP to save Medicare and Social Security though if they had any active braincells under that blue hair they'd realize that the GOP actually has long-term goals to downsize or kill those programs.

My only explanation for this bizzare inability by Dems to properly frame the gap between these visions is that I seriously don't think Dem leaders are progressive. I think they are wolves in sheep's clothing. They simply don't try to make their case and don't try to exploit their numerical advantages when they have them, so I am lost to think of another reason.

Posted by: lauren2010 | November 15, 2010 10:31 AM | Report abuse

How do they justify such a large cut in Social Security benefits? Those cuts are much larger than is required to fix the SS actuarial deficit. Are they proposing to continue using payroll taxes to subsidize the rest of the government?

Posted by: tl_houston | November 15, 2010 10:49 AM | Report abuse

Wow, I am more impressed with it every time I read about it.

All of those retirement plans are taxable on withdrawal now (with the exception of the Roth IRA/401k, which are very limited). I also can't find that in the presentation anywhere to see where he's getting that.

The only thing it's missing is the mechanism to change health care spending, and, as places like Indiana and companies like Whole Foods have shown, Health Savings Accounts are the way forward. We need to get prices down and reduce over-consumption. We simply can't afford $1M in care for everyone, it doesn't make any sense. Of course, to give it some chance with Obama, that was off the table.

Posted by: staticvars | November 15, 2010 11:01 AM | Report abuse

In the midst of the worst depression in 80 years, Brookings scholars advocate deficit reduction. It's a completely ass-backwards economic policy, which of course makes it the conventional DC wisdom.

Posted by: stonedone | November 15, 2010 11:01 AM | Report abuse

Can anybody answer this question for me? Is there anything in the Bowles-Simpson proposal that would requires sacrifice by a 65-70 year-old wealthy guy, like Bowles or Simpson? (I am asking partly because they would seem to belong to the group of people who put us into the situation and gained from it. And their "plan" calls for huge sacrifices now and in the future by many wage-earners and veterans, for example.)

Posted by: pjro | November 15, 2010 11:12 AM | Report abuse

Bowles-Simpson has done nothing to further the discussion other than to show how absolutely stupid the players are.

For example, think for one minute about that arbitrary 21% of GDP cap on federal revenue. The nonsense of that proposal can be understood immediately in the context of health insurance. If the government does NOT collect taxes to pay for health coverage, citizens must pay premium to insurance companies instead. However, if the government assumes responsibility for collecting the premium through taxes, people stop paying the insurance companies. These people wouldn't be out any additional money and would probably get a better deal, but the ratio of tax revenue to GDP would necessarily go up. The only way to reverse it would be to cut other taxes and the services those taxes cover.

There are services that the government could possibly provide that people might want to purchase from the government in the form of taxes. Child care and elder care come to mind, as well as better education funding to maintain if not reduce teacher to student ratios. Such options would be precluded by this arbitrary spending cap while people would still find it necessary to spend their dollars elsewhere in the "marketplace" to get these services. I, for one, would like more public options.

In closing, I'd also like to see people talk about the merits of a progressive consumption tax instead of just jumping in with the VAT.

Posted by: bcbulger | November 15, 2010 12:02 PM | Report abuse

EK:

You laughed at the report when it came out (remember the empty chair picture?), along with everybody else.

Why do you keep writing about something that everyone agrees is DOA?

Posted by: 54465446 | November 15, 2010 12:02 PM | Report abuse

It's interesting to note that Ezra complained when people described Obama's plan to slow the growth of Medicare Advantage as a "cut," while here he doesn't protest when Aaron calls the Bowles-Simpson plan to slow the growth of Social Security as a "cut."

In contrast, one of the Social Security trustees argues that the median wage-earner would continue to see rises in SocSec benefits under Bowles-Simpson, with the highest increases at the lowest income levels.

http://www.economics21.org/commentary/fairly-understanding-simpson-bowles-social-security-proposal

Posted by: tomtildrum | November 15, 2010 12:25 PM | Report abuse

Henry Aaron is apparently impossible to please. Consider:
"the plan contains some modest increases in Social Security benefits, so that it actually increases the deficit"

Overall increase in Social Security is a strike against!

"Social Security benefits would eventually be cut by 25% for people earning $43,000 today and by 40% for those earning $100,000."

Benefit decrease for better-off SS recipients is another strike against!

I might add that Aaron is out of touch if he thinks that the the plan "sets unnecessarily strict targets that make needed political agreements needlessly difficult" and that a "value-added tax" would be an easier political sell. On April 15 the Senate voted 85 to 13 to declare that "the Senate opposes a Value Added Tax".

Finally Aaron complains about spending being only 20.5% of GDP yet the plan does not call for bringing spending down to this level until 2040, and even then dipping below 21% just creates a surplus, since the revenue target is 21% from 2030 on. 30 years from now it will be the Gen-Xer who is around 70 years of age, not the boomer. Aaron's opinion accordingly has every appearance of a desperate reach for any convenient excuse for a bigger government.

Posted by: bdell555 | November 16, 2010 1:52 PM | Report abuse

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