Originally Posted by
WSJ
Panel Chairmen Recommend Cutting Federal Spending by $200 Billion
By COREY BOLES And MARTIN VAUGHAN
WASHINGTON—The co-chairmen of a deficit commission established by the White House would seek to limit federal spending on health care, gradually raise the retirement age and lower the corporate tax rate to 26%, according to a draft set of proposals released Wednesday.
The sweeping plan is likely to provoke a political firestorm. It touches many of the third rails of politics, including defense spending, Social Security and middle-class tax breaks long seen as inviolate.
It isn't a final document. The co-chairs—Erskine Bowles, a chief of staff in the Clinton White House, and former Republican Sen. Alan Simpson of Wyoming—presented the draft plan to members of the 18-strong committee earlier Wednesday. It was presented as a series of options that could be taken together or considered individually as a way to bring down federal spending.
The Commission released a draft of recommendations for President Barack Obama. The panel calls for changes in the tax codes including elimination of the popular deduction for mortgage interest. Video courtesy of Fox News.
Members of the panel emerged from the meeting saying they thought the proposals were "provocative," but they failed to endorse them outright.
According to the draft, the plan identifies $200 billion in discretionary-spending cuts by 2015, with half the savings from reductions to Pentagon spending. It would place limits on tax breaks for homeowners by removing deductions of interest on second homes, home-equity loans and mortgages worth more than $500,000.
For businesses, the plan would lower the corporate tax rate but remove a number of deductions currently available. It would make permanent the research-and-development tax credit. The federal gasoline-tax rate would start to rise from 2013, increasing by 15 cents a gallon at that stage. Federal subsidies to agribusinesses would begin to be slashed by $3 billion a year.
On Social Security, the plan would gradually increase the retirement age when people can start receiving benefits to 68 at around 2050 and to 69 by 2075. It would combine a cut in benefits with an increase in taxes levied on wealthier seniors' benefits.
The savings would be phased in over time and include a freeze on salaries and bonuses paid to federal employees for three years, at a savings of $15.1 billion by 2015.
The plan would propose cutting the federal work force by 10% for a further savings of $13.2 billion by 2015.
It would seek to rein in federal spending on health care, both by introducing further proposed changes, including reform of tort law, and by seeking to slow Medicare growth.
Congressional earmarks—inserting money into legislation for lawmakers' pet projects—would be banned permanently, saving $16 billion.
The panel co-chairmen proposed establishing a committee to identify further budgetary cuts going forward.
"This is really a starting point, and it's an honest starting point," Sen. Richard Durbin (D., Ill.) told reporters during a break in panel deliberations.
"I told them that there are things in there that inspire me, and there are things in there that I hate like the devil hates holy water. I'm not going to vote for this thing," Durbin said.
Mr. Durbin is one of 18 members of the deficit-reduction commission that is to make recommendations by Dec. 1.
Panel members were expected to hold meetings next week aimed at narrowing differences.
Another member of the panel, Rep. Jan Schakowsky (D., Ill.), said she is encouraged that a proposal was put on the table that would restore Social Security to long-term solvency. At the same time, she said it was "not a proposal that I could support right now."
"This is a serious and impressive effort," said Rep. Paul Ryan (R., Wis.). "It's a good start."
The panel would need 14 of 18 members to agree on a plan for it to receive an automatic vote from Congress.
The panel was established by the president to discuss longer-term overhauls to federal spending that are seen by economists as necessary to bring the federal debt back to managable levels.
The panel was told to come up with a proposal that would bring the federal budget deficit back to about 3% of U.S. gross domestic product by 2015, compared with 8.9% in fiscal 2010, which ended on Sept. 30. If the plan were adopted in its entirety, it would reduce the deficit to 2.2% of gross domestic product by 2015.
The budget deficit was 8.9% of GDP in the fiscal year that just concluded on Sept. 30.
But despite the spending cuts and changes to the tax code, it would still take until 2037 to balance the budget entirely. It would do so using a mix of spending cuts and tax revenues, about 75% in spending reductions and about 25% from the tax side.
"We have harpooned every whale in the ocean, and some of the minnows," said Mr. Simpson. "No one has ever done that before."
Illustrating the difficulties the panel will have in reaching the requisite 14-member supermajority, external pressure groups didn't hesitate to criticize the draft proposals.
"If Democrats...entertain for one minute the idea of cutting Social Security, it would be both a policy disaster and a monumental political blunder—and they'd risk losing the Senate and maybe even the White House in 2012," said Stephanie Taylor, co-founder of the liberal Progressive Change Campaign Committee.
Draft report of the US fiscal commission
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