Deficit-reduction panel offers bitter medicine

McClatchy NewspapersDecember 1, 2010 

WASHINGTON — President Barack Obama's special bipartisan deficit-reduction panel issued its final report Wednesday, one that’s expected to frame the debate over how America should tame its out-of-control federal debt for the next two years and beyond.

The report urges a sweeping range of controversial proposals, from deep cuts in most government spending to overhauling the tax code, reducing defense spending and trimming future Social Security benefits — all to slash $4 trillion from projected budget deficits by 2020.

The National Commission on Fiscal Responsibility and Reform delayed its vote on the proposals until Friday to give the panel members time to review the 59-page document, titled "The Moment of Truth."

"Our challenge is clear and inescapable: America cannot be great if we go broke," the report’s preamble says. "Our businesses will not be able to grow and create jobs, and our workers will not be able to compete for the jobs of the future without a plan to get this crushing debt burden off of our backs.”"

Officially, Congress is obliged to review only proposals that win support from 14 of the panel'’s 18 members, meaning they must get bipartisan backing Friday.

In practice, however, many budget experts say the panel already has succeeded in helping the country confront the hard choices that must be made if America is to avoid being swamped by out-of-control federal spending and debt.

"I'm going to support it. I don't think the votes are important. This is the start of a process that will work itself out over the next few months," said panel member Alice Rivlin, a former vice chair of the Federal Reserve and budget director under President Bill Clinton.

The commission's co-chairmen — former Clinton White House Chief of Staff Erskine Bowles and retired Wyoming Republican Sen. Alan Simpson — drafted the report. It warns that failure to change America’s dangerous debt buildup menaces the nation’s future. Last year’s federal budget deficit was $1.3 trillion. If that's left untamed, nearly 17 percent of all federal spending would go to simply paying interest on the nation’s debt in 2020.

"The American people are a long way ahead of the political system in recognizing that now is the time to act," their report says. "We believe that far from penalizing their leaders for making the tough choices, Americans will punish politicians for backing down — and well they should."

The panel's controversial recommendations include:

— Collapsing today's five income tax rates into three brackets: 8 percent for the lowest incomes, 14 percent for middle incomes and 23 percent for the wealthiest.

— Lowering the corporate tax rate to 26 percent from 35 percent today.

— Ending $1.1 trillion in popular tax breaks to permit these low rates, ranging from deducting mortgage interest to receiving health insurance from employers on a pre-tax basis. That would broaden the tax base and make virtually all Americans pay more in taxes.

— Taxing capital gains and dividends as ordinary income rather than at today's 15 percent rate.

— Raising payroll taxes on the wealthy so that 90 percent of taxable wages would be subject to the payroll tax by 2050.

— Increasing the federal gas tax by 15 cents a gallon to pay for transportation improvements.

—Raising the age at which Americans can get Social Security benefits — to 68 by 2050 and 69 by 2075 — reflecting that Americans are living and working longer.

— Allowing early retirement benefits for career manual laborers.

— Boosting benefits for Americans aged 81 to 85.

— Capping spending on almost all government programs through 2020 except for Social Security, Medicare, Medicaid and some defense programs.

— Requiring the president to propose annual limits on war spending, a major change when America is fighting two wars without a tax increase to pay for them, which has never happened before in U.S. history.

— Imposing a three-year freeze on congressional pay, which now increases annually.

— Freezing pay for civilian federal workers.

— Gradually reducing the government's civilian work force by 10 percent.

One commission member came out immediately in favor of the panel's report.

"To be clear, I am supporting this plan as a package, because it represents genuine bipartisan compromise, with both Democrats and Republicans making concessions. I don't like everything in this package, but I like even less where our country is headed without it," Sen. Kent Conrad, D-N.D., the chairman of the Senate Budget Committee, said in a statement.

Another hedged:

"This is just the down payment on what are going to be some difficult, real sacrifices the people in this country are going to have to make," said Sen. Tom Coburn, R-Okla.

The outcome of Friday's vote on the report rests largely with two groups of commission members: those close to congressional leaders and those who are prominent on the money committees.

In the House of Representatives, liberal Democratic leaders have made it clear that they find most of the report’s proposed cuts unacceptable. House Republicans, however, have been more circumspect.

The real nuts-and-bolts deliberations, though, will come in the congressional tax and budget committees starting next year. That means four commission members in particular should be closely watched Friday. They are:

— Rep. Dave Camp, R-Mich. When Republicans take control of the House next month, Camp is expected to become the chairman of the House Ways and Means Committee. While he's a die-hard conservative — he wants all the Bush-era tax cuts extended permanently — he's also eager to see the tax code dramatically revamped.

— Rep. Paul Ryan, R-Wis. Ryan will become the House Budget Committee chairman next month, and he's also a Ways and Means member. He's known as a strong idea man, willing to offer dramatic proposals that would make long-term dents in the deficit.

— Sen. Max Baucus, D-Mont. The chairman of the Senate Finance Committee, Baucus is known as a consensus builder. His mission is to make sure that Democrats can brag that they championed the middle class, so any changes have to meet that goal. Baucus has the blessing of Senate Democratic leaders.

— Conrad. He's a serious budget hawk, willing to compromise with Republicans.

ON THE WEB

Commission's final report

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