New Deficit Plan: Just as Controversial as the Last One

The co-chairmen of President Barack Obama's deficit commission are sticking with politically explosive proposals to raise the Social Security retirement age and curb benefit increases in a revised plan to wrestle the deficit under control.

The new plan by Erskine Bowles and Alan Simpson, to be publicly unveiled Wednesday, faces an uphill slog because of proposals to curb Social Security and Medicare costs, curtail a huge assortment of tax breaks like the deduction for mortgage interest and almost double the federal tax on a gallon of gas.

Though the ban appears unlikely to win enough bipartisan support from the panel to be approved, Bowles declared victory on Tuesday, saying that he and Simpson have at least succeeded in initiating an "adult conversation" about the political pain it will take to cut the deficit.

Bowles acknowledged the plan faces resistance from the 18 deficit commission members. Obama named the commission in hopes of bringing a deficit-fighting plan up for a vote in Congress this year, but it appears to be falling well short of the 14-vote bipartisan supermajority needed.

Only Minor Changes

A new version of the plan, obtained by The Associated Press, makes mostly minor changes to a draft that whipped up enormous controversy when unveiled earlier this month. Some domestic spending cuts are modestly higher than previously proposed, and health care savings from overhauling the medical malpractice system would reap less than proposed earlier this month.

Unlike their original proposal, Bowles and Simpson stop short of calling for caps on medical malpractice awards. Instead they recommend changes in how awards are made.

But other proposals remain the same. Among them are a gradual increase in the Social Security retirement age to 68 by 2050 and 69 by 2075, using a less generous cost-of-living adjustment for the programs and increasing the cap on income subject to Social Security taxes.

The plan also retains a 15-cents-per-gallon increase on gasoline, a three-year freeze on federal worker pay and cutting 200,000 workers from the federal payroll through attrition.

The proposal obtained by the Associated Press was a draft that was still undergoing changes Tuesday evening.

How to Cut the Deficit

Other recommendations:

- Eliminate congressional pet spending projects, known as "earmarks."

- Reduce the corporate income tax rate to 28% from 35%, and stop taxing the overseas profits of U.S.-based multinational corporations.

- Overhaul individual income taxes and corporate taxes. Gives Congress the choice of reducing the top rate to as low as 23% and no higher than 29%. The lower the rate, the fewer the tax credits and deductions available to taxpayers.

Under one scenario proposed by Bowles and Simpson, taxpayers would face three tax brackets of 12%, 21% and 28%. Taxpayers would still be able to claim an earned income tax credit and child tax credit as well as all standard deductions and exemptions. Capital gains and dividends would be taxed at ordinary income tax rates. Taxpayers could claim a mortgage interest deduction up to $500,000 and only on their primary residence.

If Congress does not undertake a comprehensive overhaul of the tax system by 2013, the plan calls for a "fail-safe" provision that would trigger across-the-board reductions in tax breaks, designed to raise revenue by $80 billion in 2015 and $180 billion in 2020.

Starting an 'Adult Conversation'

Bowles was White House chief of staff when former President Bill Clinton negotiated a balanced budget plan in 1997; Simpson is a former GOP senator from Wyoming,

Only Bowles and Simpson are guaranteed to support the plan when the panel votes. None of the 12 House members and senators named by Obama have committed to the proposals, though Bowles and Simpson could pick up support from nonelected deficit hawks - like Democrat Alice Rivlin - who won't have to defend themselves to voters.

"I don't know if we're going to get two votes or five votes or 10 votes or 14 votes," Bowles told reporters. "There are enough reasons to vote 'no' in this plan for anybody to vote 'no'."

A supermajority of 14 of the 18 panel members would have to approve recommendations for a possible vote in the lame duck session of Congress. That seems out of reach, but Bowles says it's just as important to have jump-started a national debate on what it'll really take to bring the deficit under control.

"Our goal in this whole process has been really simple," Bowles said. "It's basically been to start an adult conversation here in Washington about the dangers of this debt and the deficits we are running."

Added Bowles: "The era of deficit denial in Washington is over."


Increase your money and finance knowledge from home

Banking Services 101

Understand your bank's services, and how to get the most from them

View Course »

Understanding Credit Scores

Credit scores matter -- learn how to improve your score.

View Course »

Add a Comment

*0 / 3000 Character Maximum

3 Comments

Filter by:
sgentilejr

Read the plan above carefully. It calls for rewarding with tax cuts the companies that moved their production abroad. It calls for lowering of the UPPER income tax rate for the Already Super Wealthy___and to pay for it all they want to make you work years longer so you die before you collect social security and they want to eliminate the tax deduction you now have for interest on your mortgage. And on top of that they want another 15 cents per gallon for gasoline as an added on tax on the poor__because the wealthy have their vehicles listed as and registered as Corporate assets and they deduct the full cost of the vehicles and all repairs, auto insurance and all the fuel costs as a business expense.

December 01 2010 at 6:26 AM Report abuse rate up rate down Reply
1 reply to sgentilejr's comment
warrenbent

It's already impossible for corporations to pay income taxes. Like all other corporate expenses, corporate income taxes are paid by some combination of shareholders, employees, and consumers. Lower corporate income taxes mean higher shareholder returns, more employment/wages, and less cost of consumer goods (just as would lower raw material costs, or lower energy costs, etc.). Maybe you want to earn less and pay more, so the knuckle-dragging goons in Foggy Bottom can extract another pound of your flesh, but not me.

December 01 2010 at 11:48 AM Report abuse rate up rate down Reply
gberes7

Cut the deficit by taxing companies based on the wages of employees overseas performing jobs which were outsourced from the U.S.

December 01 2010 at 5:34 AM Report abuse rate up rate down Reply