Warning that the nation is on an unsustainable fiscal path, the co-chairmen of President Obama’s deficit reduction commission rolled out a final plan this morning that challenges lawmakers to put politics aside and to embrace a series of unpopular spending cuts and tax increases to get the “crushing debt burden off our backs.”
As promised, the “Moment of Truth” report from co-chairs Erskine Bowles, a former aide to President Clinton, and former Sen. Alan K. Simpson, Wyoming Republican, aims to reduce the national deficit by $4 trillion by 2020 and gradually pay down the soaring debt with a mixture of sweeping cuts, including cuts to domestic and military spending, as well as Social Security and Medicare, and various tax increases.
“After all the talk about debt and deficits, it is long past time for America’s leaders to put up or shut up,” the preamble to the report reads. “The era of debt denial is over, and there can be no turning back.”
The Bowles-Simpson plan is eight months in the making and now goes to the full commission for a vote on Friday. It must receive support from 14 of the panel’s 18 members in order for it to be forwarded to Congress. If a consensus is reached, House Speaker Nancy Pelosi, California Democrat, and Senate Majority Leader Harry Reid, Nevada Democrat, have said they will hold a vote on the plan before the end of the lame-duck session.
Though unlikely, that possibility would put lawmakers in a thorny political position. Not only was a similar draft version floated last month hammered away at by various interest groups from across the political spectrum, but also they would have to respond immediately to fresh demands of voters in the recent election: lower taxes, reduced spending, and a plan to curb the $13.79 national debt — while also trying not to jeopardize the country’s fragile economic recovery.
The report calls for a three-year pay freeze for members of Congress, a three-pay freeze on federal workers, including the Defense Department’s civilian work force, and a 200,000-person reduction in the government work force.
It also includes a ban on earmarks, or pork-barrel spending, and a 15-cent increase in the federal gas tax to pay for transportation projects.
To simplify and to lower individual and corporate tax rates, the co-chairmen’s plan eliminates or scales back $1.1 trillion in tax breaks, ranging from the popular deduction on mortgage interest to charitable givings, both of which would be replaced with 12 percent nonrefundable tax credits available to all taxpayers.
The changes, the co-chairmen claim, would allow the corporate tax rate to drop from 35 percent to 26 percent and for the six existing individual tax brackets (currently ranging from 10 percent to 35 percent) to be boiled down to three: 8 percent, 14 percent and 23 percent.
Those rates would rise if lawmakers decided to bring back certain breaks, such as the child tax credit, highlighting the fact that tax breaks reduce federal revenue.
Meanwhile, capital gains and dividends would be taxed a normal rates, the child tax credit would stay, and the employer-provided health insurance credit would be phased out gradually by 2038.
The proposal also would reform or repeal multiple parts of Medicare, including the so-called “doc fix” and the Community Living Assistance Services and Supports (CLASS) Act.
As for Social Security, the plan aims to gradually make the retirement benefit formula more progressive by reducing benefit growth, particularly for high earners, and increasing the baseline benefit for low-wage workers, making it no less than 125 percent of the poverty line in 2017.
The plan would increase benefits for the elderly and disabled and raise the national retirement age from 67 in 2027 to 68 by 2050 and 69 by 2075.