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Home Publications Blogs Beat the Press Morgan Stanley Director Erskine Bowles and Alan Simpson Still Want to Cut Social Security and Medicare

Morgan Stanley Director Erskine Bowles and Alan Simpson Still Want to Cut Social Security and Medicare

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Monday, 29 April 2013 04:42

The Washington Post gave Erskine Bowles and Alan Simpson another opportunity to push their case for deficit reduction, which includes plans for cutting Social Security and raising the age of eligibility for Medicare. The Post does not mention Mr. Bowles affiliation with Morgan Stanley. This could have something to do with his persistent refusal to ever include a Wall Street speculation tax in his deficit reduction plans.

Many other countries, including the UK have long had such taxes. Much of the European Union is likely to impose a tax of 0.1 percent on stock trades and 0.01 percent on derivatives. The Joint Tax Committee of Congress has projected that the 0.03 percent tax proposed by Senator Tom Harkin and Representative Peter DeFazio would raise almost $40 billion annually. Counting interest savings, this tax alone would meet almost 20 percent of the arbitrary $2.5 trillion deficit reduction target picked by Bowles and Simpson.

It is also important to note that Bowles and Simpson's claim about using the chained CPI for the annual Social Security cost-of-living adjustment seems deliberately misleading. They tell readers:

"The plan also includes a shift to the chained consumer price index to provide more accurate indexation of provisions throughout the budget."

While the chained CPI is arguably a better measure of the rate of inflation seen by the population as a whole, there is no evidence that it provides a better measure of the rate of inflation seen by the elderly. In fact the experimental elderly index constructed by the Bureau of Labor Statistics (BLS) shows that the current measure of inflation understates the rate of inflation seen by the elderly.

If Bowles and Simpson were actually interested in accuracy (as opposed to cutting Social Security benefits), they would propose having the BLS construct a full elderly CPI. They have consistently backed away from this idea, which could lead to higher Social Security benefits.

Comments (7)Add Comment
It's the System Stupid, Not the Data: Cars Have Gas Tanks So They Don't Run Out
written by Last Mover, April 29, 2013 7:35
Two years ago from Alan Simpson:

Simpson said that questioning his data wasn't helping to solve the underlying problem.

"This is the first time, the first time -- and Erskine [Bowles, the deficit commission co-chair,] and I have been talking for a year and many months -- that anyone’s going to sit around and play with statistics like this," he told HuffPost. "Anything I tell you, you repudiate. You’re the first guy in a year and a half who’s stood out here with a sharp pencil playing a game that doesn’t have a damn thing to do with: 'What the hell are you going to do with the system?'"


The Social Security "system" is going as planned overall. The whole point of planning the surplus funding of the trust was to account for the well known coming bulge in boomers. When the boomer bulge flattens out again the surplus declines with it.

Under Alan Simpson's bizarre explanation, every car with a gas tank faces a funding crisis because pay-as-you-go driving can't keep the tank from running out of gas. There has to be off site large surplus excess tanks full to the brim, ready and waiting to be drawn down for the next surge in driving that everyone knows is coming.

If some pointy headed pencil neck geek like Dean Baker thinks he's fooling anyone about millions of cars not stranded and abandoned for lack of gasoline because the gas storage tanks weren't big enough, well he's got another think coming doesn't he.
The point
written by Merciless Time, April 29, 2013 8:05
For those wishing to deconstruct the New Deal and Great Society, government spending cuts will keep unemployment high (reduced payroll tax contributions) and interest rates low (no growth for the trust fund surplus) and SS disability claims high (combined with the previous two, eats at principal). This downturn is an Oppourtinity to at last prove the corporarists are right! What's not to love?
Professor
written by Dave Kingsley, April 29, 2013 8:59
I have utmost respect for your views and agree with most of them. However, as a statistician, I do not believe that the concepts incorporated in the "chained CPI" are statistically valid. Indeed, Kahneman & Tversky have shown empirically that the rational person hypothesis is not in accord with how consumers make decisions. I have many other problems with the calculation of the CPI but substitution bias and hedonic adjustment models are not empirically supportable.
statistics
written by David, April 29, 2013 11:12
Applying the CPI to seniors is like saying the average age of a US consumer is 35, so we should treat the average senior like they are 35 years old. That's just nonsense and ignorant. Which is what passes for wisdom in DC, apparently.
elderly pay little for health care...
written by pete, April 29, 2013 12:42
This is weird. My mother was in and out of the hospital for many years. Paid little or nothing for these visits, simply the medicare premium and AARP add on. Drugs were cheap, companies will give them away if asked. So, health care should be downweighted for the elderly. Food...hmm they eat less...
...
written by denise, April 29, 2013 2:31
Pete - my Medigap premium has risen 59% in three years. All by itself it more than wiped out all my COLAs during that time, leaving me with reduced purchasing power in just that short time.

But in any case, your point is fallacious. What's relevant is not how much retirees spend compared to working people - it's how much inflation they face.
Another Reason To Fight The Chained CPI
written by PJR, April 29, 2013 8:53
The chained CPI also is arguably a worse (rather than better) "measure of the rate of inflation seen by the population as a whole." Debate over this measure, and the assumptions that it requires, is needed before the measure is used for anything.

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Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.

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