- The Washington Times - Wednesday, November 10, 2010

The chairmen of President Obama’s bipartisan deficit commission tipped their hand Wednesday, releasing a stark, sweeping proposal to rein in federal debts and deficits with cuts to spending programs, Social Security and Medicaid benefits and an increase in the retirement age over the next four decades from 65 to 68.

Among the budgetary sacred cows gored in the plan — at least in one of the options offered by the chairmen — would be elimination of the popular mortgage-interest deduction for homeowners, the child tax credit, deductions for state and local taxes and charitable giving. The draft suggests matching the cuts with a simplification and streamlining of the federal tax code establishing just three rates, with the top rate dropping from the current 35 percent to 23 percent.

“This debt is like a cancer that will truly destroy this country from within if we do not address it,” said Erskine Bowles, former chief of staff to President Clinton, who joined his fellow co-chairman, former Republican Sen. Alan Simpson of Wyoming, in releasing the proposal.

The White House took a noncommittal stance on the 50-page proposal, but the draft recommendations from the Republican and Democrat heads of the 18-member National Commission on Fiscal Responsibility and Reform could prove politically explosive as the president and the newly energized Republicans on Capitol Hill grapple with record federal deficits, a weak economy and a total U.S. government debt on the brink of passing the $14 trillion mark.

Outgoing House Speaker Nancy Pelosi slammed the plan as “simply unacceptable,” while AFL-CIO President Rich Trumka called the proposed program cuts “unconscionable.”

Fiscally conservative Republicans, whose ranks were swelled by the midterm vote, were more cautious, saying the chairmen’s draft had merit, but may not survive powerful entrenched interests in Washington that have frustrated past efforts at fiscal discipline.

Given the combination of cuts and tax and benefits changes, the federal government’s overall debt would be cut from the current 94 percent of U.S. gross domestic product to 60 percent in 2024. The annual federal deficit would only be cut to about $300 billion in the next few years, and would only be fully in balance by the year 2037.

The full 18-member panel, which includes six Democratic and six Republican members of Congress, faces a deadline of Dec. 1 to produce a final report, which needs the support of at least 14 members to pass. Judging from the first responses Wednesday, President Obama may face a tougher fight from his own political base if the draft’s spending and benefits cuts are included in the final package.

“This is not a proposal I could support,” Rep. Jan Schakowsky, Illinois Democrat and a member of the commission, told reporters as the draft was being released. “On Medicare and Social Security in particular, there are proposals I could not support.”

Sen. Bernard Sanders, a Vermont independent and one of the chamber’s most liberal members, said the Bowles-Simpson draft’s proposals on Social Security and Medicaid were “reprehensible.”

“The huge increase in the national debt in recent years was caused by two unpaid wars, tax breaks for the wealthy, a Medicare prescription-drug bill written by the pharmaceutical industry, and the Wall Street bailout. Unlike Social Security, none of these proposals were paid for,” Mr Sanders, who is not a member of the commission, said in a statement.

If adopted unchanged, the Bowles-Simpson draft would mean a radical shift in the way the government is financed, using spending cuts, program eliminations and changes in the tax code to reduce the projected federal deficit for the period 2012 through 2020 by some $3.8 trillion.

The draft was released on the day the Treasury Department announced that the federal deficit for October — the first month of the new fiscal year — was $140.4 billion, down from October 2009 but still on a pace for a third straight annual shortfall topping $1 trillion. Federal revenues plummeted with the onset of the financial crisis in 2008, a deficit exacerbated by Mr. Obama’s $814 billion economic stimulus program.

If Congress cannot summon the will to reform the tax code, the draft plans suggests as an alternative that the House Ways and Means Committee try to fashion its own plan but impose an across-the-board “haircut” on popular corporate and individual deductions if no plan emerges by 2013.

With seniors a potent voting bloc and a key constituency behind the GOP surge this year, the recommended changes to Social Security could prove the most politically difficult to enact. The plan would change the formula on cost-of-living increases for the nation’s seniors, who are already facing a second straight year when Social Security benefits were not adjusted for inflation.

For future retirees, the plan also calls for the retirement age to be raised gradually from the current 65 to 68 by the year 2050 and 69 in 2075.

But the pain would be broadly shared, something deficit hawks say is key to any effective deal. Among the targets for cuts in the draft plan: farm subsidies, NASA, the federal bureaucracy, the budgets of Congress and the White House, veterans health care benefits, the Pentagon and a long list of weapons projects, international aid programs, the Smithsonian Institution and the Corporation for Public Broadcasting.

Maya MacGuineas, president of the Committee for a Responsible Federal Budget, called the draft a “remarkable plan.”

“In a period when there has been little good news on the deficit and debt front, this is truly a most encouraging sign. If this co-chair plan is meant to be the starting point, I’d say it would be a pretty terrific ending point,” she said.

The coming clash is likely to pivot on how much belt-tightening Democrats can accept and how many tax increases Republicans can stomach. House Republican leader John A. Boehner, the Ohio Republican in line to be the next speaker of the House, emphasized again Wednesday he firmly backed an extension of tax cuts for all ratepayers passed under President George W. Bush and set to expire at the end of the year.

But liberal economists said the tough budget medicine, including cuts in federal jobs and discretionary programs designed to boost employment, was the wrong prescription for a fragile economy with an unemployment rate of 9.6 percent.

“By beginning austerity in 2012, the report does not allow enough time for the economy to recover, nor does it call for the policies necessary to get the economy back on track,” said John Irons, research and policy director for the Washington-based Economic Policy Institute.

It’s not clear if the co-chairmen will be able to attract enough support in the next few weeks to pass their program, but their strongest argument may be that doing nothing is no longer an option.

Said Sen. Tom Coburn, Oklahoma Republican and a member of the commission, “In the real world, no family facing tough economic times has the luxury of treating portions of their budget as sacrosanct. Neither should Congress.”

“The fact is, if our country is going to survive for another generation, Congress has to make the tough choices now that will put us on a sustainable path,” he added.

Mr. Bowles and Mr. Simpson in their draft wrote, “American cannot be great if we go broke.”

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