A reader asked me to post about the deficit commission report. So here it is 😉
Seriously – in case you haven’t had the chance, you can read the full report (pdf) of the 18-member commission or visit the website for more information, but I don’t know that we will see much of it other than discussions on blogs because the report failed to secure the necessary votes to send the report to Congress. That does not preclude Congress from acting on any of the commissions proposals but the question is whether there is any political will in Washington to do so. My guess? Probably not, but that doesn’t mean that some of these shouldn’t be adopted.
One recommendation – a freeze on the pay of federal workers – has already been adopted. Another – the ban on earmarks – has already failed.
Some of the recommendations in the Tax Reform section have their roots in an earlier time. The commission recommends reducing the rates, while eliminating deductions. This is reminiscent of the tax reform from the early 1980s, accomplished under President Reagan. For the most part, I don’t have a problem with the changes proposed here, including the replacement of the mortgage interest deduction with a tax credit available to all taxpayers.
In the area of Social Security, the most high-profile recommendation was the increase in the ages for retirement. But the report also recommends an enhanced minimum benefit for low-wage workers, and enhanced benefits for the very old and the long-time disabled. When you realize that the commission proposal to increase the normal retirement age to 68 in 2050, the outcry against it makes little sense; after all, the normal retirement age for anyone born in 1960 or later is already 67!
Go read the report yourself. It isn’t all bad. And if your children end up with a smaller deficit, that’s not bad, either.
VIVIAN J. PAIGE | All Politics is Local 
The age increase may be the most high profile item, but most of the fix comes from three things: changing the benefit formula for high earners, using Chained-CPI for cost of living increases, and increases in the payroll tax. The age increase is just an actuarial adjustment that has no real meaning in terms of cash flow until decades into the future. I understand that it is important for planning purposes. Just so long as the public understands this doesn’t impact current or mid-term deficits.
They state the actuarial deficit for Social Security as 1.92%. However, that include Disability Insurance (DI) which they very specifically do not address (DI is 0.3 out of the 1.92). And of problem children, that is the one that needs most immediate attention as expense already exceed income and the fund will be exhausted in 8 years. Who is going to fix DI? No one seems to be talking about this. All the focus is on Old-Age and Survivors Insurance (OASI).
The actuarial deficit for OASI doesn’t really bother me much. The main fixes certainly bring in revenue and cut costs today, but all that savings becomes an IOU to the federal budget. So, it just seems like an exercise in making an actuarial report look nice. It does reduce the deficit though.
On discretionary spending, I think it is important that we maintain and increase research funding to keep America competitive. In that sense, I disagree with the report’s position that everything must be on the table. Across the board cuts don’t, in my mind, factor in those things that are critical to our long term economic success.
Finally, on the tax side and retirement savings, instead of reforming the corporate tax code, we should think about just replacing it with a VAT, a Carbon Tax, or a Sales Tax or some combination there of. This gets us out of the complications of foreign income and it also encourages savings. Plus, it is easier to administer (well, as long as it isn’t European style VAT). A national dialogue on saving for retirement doesn’t do a whole lot in my opinion.
vivian,
Retirement – why not make it 62 so some of us can enjoy something besides work in our life if we make it that far.It is easy for those with cushy jobs but for the industrial workers and construction workers and other hazardous and physicla jobs we are broken up well before 62
The commission’s final recommendation calls for just such a hardship exemption so that people who cannot work beyond 62 can begin collecting benefits at that age even though the early retirement and normal retirement ages will be adjusting.
Or you could SAVE some of your money.
Thanks for the post! If the GOP was smart, they would take the recommendations for the tax code and run with it. It’s not quite the FairTax, but its close enough to it that they should be able to rally their base around it.
Sadly, that stupid “No Tax Pledge” makes adopting most of these ideas impossible to implement. It’s a pity that people who took it don’t realize that they have completely tied their hands when it comes to tax reform. Eliminating a tax deduction or tax credit is the same thing as raising taxes.
Warren,
what makes you think peoplecan always save money. Some people actually have to eat and get to work. As for the hardship requirement would you have to be disabled or would you just have to show you are just damn worn down after 40 years in a hard industry. Mentally and physically. the average age of a blue collar shipyard worker who dies is not even close to the average age of those in more cushy jobs. why not exempt industrial workers and high intensity jobs and let them retire early.
Show me any middle-aged adult with a full-time job, and I will show you someone living on less. That difference can be saved.
Smoking is inversely related to income. I expect drinking does, too. There’s a lot of savings there for a lot of poor people. We all make choices.
where do you sugest they save? In a bank saving book account where they would draw less then .5% interest, or maybe a C.D. at less the 3.0 % interest, or better still how about the stock market where they could loose anywhere from 10% to 100% of thier saving when the market crashes again like 2008? Then there is the old stand by of stuffing your mattress!
Over the long term — like from starting work to retirement — the stock market is certainly a good place for one’s money. Overall, a mix of stocks and bonds (about 80/20) that is consistently rebalanced, is ideal.