Via Ezra, here's another extremely critical review of the Simpson-Bowles plan from Henry Aaron, Senior Fellow in Economic Studies at Brookings. One of his primary concerns is that this proposal seems to have been created in a vacuum that didn't take into account the ongoing economic crisis.
All responsible budget analysts agree that the United States faces a daunting deficit problem. It should be addressed soon. But how soon is not clear. After the recovery is well under way, most would agree, and certainly before the debt/GDP ratio gets too large. What is not clear is what “well under way” means and whether it will happen soon enough to prevent to debt/Gross Domestic Product ratio from getting too large. The Bowles-Simpson plan would start deficit reduction in fiscal 2012, which starts on October 1, 2011, not even eleven months from now. Since unemployment is likely then to still be in the vicinity of 9 percent or higher, that is too soon, as premature deficit reduction could intensify and lengthen the recession. This is not a minor issue, as nothing more effectively depresses revenues and generates deficits than a weak economy.
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....
All in all, the draft plan is replete with magic asterisks, that infamous device in President Reagan’s first budget that promised spending cuts that never came. It sets targets for overall spending and taxation so low that it will be impossible to sustain even basic promises to provide pension and health benefits to the elderly, disabled, and poor.
The spending cuts are so numerous and so deep, the tax changes are so large and disruptive, that they are not only unlikely to be adopted but would have needlessly adverse effects if they were.
Aaron certainly isn't the first to point out that the proposal isn't serious. Nor realistic for the vast majority of Americans. Ezra highlights this part:
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.
Add to that we have no idea when the housing market will stabilize and whether the most significant investment most retirees and near-retirees own--their homes--will ever provide the kind of financial security they once did. This could be a disastrous proposal for retirees, and for the whole economy.