The Bowles and Simpson Traveling Circus

December 12, 2012

Dean Baker
The Exchange (Yahoo! Finance), December 12, 2012

See article on original website

The government has implemented a wide array of policies over the last three decades that have led to a massive upward redistribution of income. As a result, most workers have seen little benefit from the economic growth over this period.

Not surprisingly, the wealthy people who have benefitted from the policies that have redistributed income upward, for example NAFTA-type trade deals, Wall Street bailouts, and anti-union labor policies, don’t want the public talking about them. This is why we have the Erksine Bowles and Alan Simpson speaking tour.

For those who somehow have missed it, Morgan Stanley director Erskine Bowles and former Senator Alan Simpson were the co-chairs of President Obama’s 2010 deficit commission. While they were unable to produce a report that had the support necessary to win approval from the commission, they have made a career out of promoting their own proposal which they misleadingly imply was a report of the commission.

According to the New York Times, Bowles and Simpson get $40,000 a piece for speaking engagements where they push their agenda. This price tag tells us everything we need to know about what is going on here.

While $40,000 might not be big money among the people with whom Mr. Bowles and Mr. Simpson socialize, it sure is to the rest of us. This is a couple of thousand dollars more than the typical worker earns in a year. It is a bit less than three times the average annual Social Security benefit. And Bowles and Simpson get this money for spending an hour or so giving their tirade about the desperate need for reducing the deficit.

The incredible irony of these sorts of fees is that the substance of the Bowles-Simpson tirade is that paying for Social Security and Medicare will bankrupt our children and grandchildren. The two of them are running around the country telling people that Social Security checks to retirees that average $15,000 a year and providing health care insurance to seniors who have spent their lives working will have our children and grandchildren living in poverty.

To sell this line, Bowles and Simpson must be betting that they have some really poorly educated young people in their audience. If they learned their grade school arithmetic, they would quickly recognize these two for the hucksters they are.

The Social Security Trustees project that real wages, that means the growth in wages after adjusting for inflation, will grow on average by more than 40 percent over the next 30 years. This means that if a typical worker is making $38,000 in 2012, then a typical worker would be earning more than $53,200 in 2042, in today’s dollars.   

By comparison, the trustees report tells us that if we want to have Social Security fully funded for the rest of the century, it would take a tax increase of 1.3 percent on both the worker and the employer. This assumes that we make up the projected shortfall entirely by raising the payroll tax, as opposed to say, raising the cap on wages (currently around $110,000) that are subject to the tax. It also assumes no cuts whatsoever in scheduled benefits.

In this extreme case, the necessary tax increase, combining the employer and employee side, is just 6 percent of projected wage growth over this period. Yet Bowles and Simpson want to tell us that this tax increase will have our children and grandchildren living in poverty.

The story changes little even if we add in the projected shortfall in the Medicare program of 1.35 percent of payroll, half of which would be applied to the employee and half to the employer. Again, assuming no other changes and we make the program fully funded based exclusively on payroll tax increases, the combined tax hit for Social Security and Medicare is just 10 percent of projected wage growth over the next three decades.

Of course people will object that they have not been seeing wage increases because the rich have been getting all the gains from growth over the last three decades. This is exactly right.

The well-being of our children and grandchildren will be determined by the extent to which people like Erskine Bowles, Alan Simpson and their rich friends will be able to continue to extract all the gains from growth. If they can make the next three decades like the last three decades then our children and grandchildren will be screwed even if they stopped paying Social Security and Medicare taxes altogether. (Of course then they would be doubly screwed since they also wouldn’t have Social Security and Medicare benefits when they retire.)

In short, the whining about the deficit that Bowles and Simpson are pedaling is a huge distraction from the factors that will actually determine the well-being of the vast majority of our children and grandchildren. And the truly wealthy are prepared to pay Bowles and Simpson lots of money for this distraction.

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