April 29, 2013
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.
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