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Panel weighs deep federal budget cuts to trim deficit

Some lawmakers say the draft plan, which would revamp the tax code, wouldn't survive Congress.

November 11, 2010|By Peter Nicholas and Lisa Mascaro, Tribune Washington Bureau

Reporting from Washington — The co-chairmen of President Obama's bipartisan deficit reduction commission on Wednesday offered a draft blueprint for wiping out trillions from projected deficits through 2020, signaling the start to a roiling season of political pain for lawmakers trying to stabilize the nation's finances.

The plan proposes major cuts in domestic and military spending, and would remake the tax code to boost revenue. Among the changes are higher payments for Medicare patients, increased gas taxes and the delay of full Social Security benefits until age 68.

Several lawmakers and analysts predicted that the plan, should it be adopted by the full 18-member commission, would be unlikely to survive a vote in Congress.

One labor leader said the report sent a message that working Americans should "drop dead," and House Speaker Nancy Pelosi (D-San Francisco) called the proposal "simply unacceptable." Even a member of the commission said the recommendations on Social Security amounted to a "nonstarter."

The White House took a cautious approach toward the early proposals. "The president will wait until the bipartisan fiscal commission finishes its work before commenting," White House spokesman Bill Burton said. "He respects the challenging task that the co-chairs and the commissioners are undertaking and wants to give them space to work on it."

Obama is hoping that the commission — which he created in February through an executive order — will produce a report by Dec. 1 that could then be approved in a nonbinding congressional vote. Coming off a midterm election season in which he was cast as a big-spending liberal, Obama has a chance to reposition himself politically by embracing a report that relies heavily on spending cuts.

Three congressional Republican members of the commission appointed by House Minority leader John A. Boehner (R-Ohio) were also restrained in their reaction. In a joint statement, Dave Camp (R-Mich.), Paul D. Ryan (R-Wis.), and Jeb Hensarling (R-Texas) said: "This is a provocative proposal, and while we have concerns with some of their specifics, we commend the co-chairs for advancing the debate. We will continue to work toward solutions that help spur economic growth and restrain the explosive growth of government spending."

The proposals issued Wednesday were from the commission's co-chairmen, Erskine Bowles, a former chief of staff to ex-President Bill Clinton, and Alan Simpson, a former Republican senator from Wyoming.

"I ask the American people to take a look," Simpson said. "This is not the usual stuff. It's all out there. We have harpooned every whale in the ocean."

The plan calls for $200billion in domestic and military spending cuts in 2015, a down payment on cuts that would reduce the deficit by nearly $4 trillion through 2020.

As examples of possible spending cuts, the report advises reducing overseas military bases by one-third, freezing federal salaries, eliminating a quarter-million nondefense government contractors, and doing away with all spending earmarks — pet projects put forward by lawmakers and approved with little scrutiny.

The report aims to simplify the federal tax code while expanding the tax base, by eliminating all tax deductions including those for state and local taxes, dependent children and interest on mortgage payments.

The plan would increase taxes paid to the federal government by $751 billion from 2012 to 2020.

Doing away with the deductions would allow marginal tax rates to be simplified and reduced across the board. The lowest rate would drop to 8% from 10% and the top rate would go to 23% from 35%. The tax rate paid by corporations would be reduced to 26% from 35%.

Another recommendation is a 15-cent increase in the gas tax starting in 2013, with the revenue going toward transportation projects.

Recognizing their proposals were controversial, Simpson and Bowles included optional, slightly higher tax rates in the event that lawmakers wanted to keep certain deductions.

For example, instead of ending the mortgage interest deduction, another option would be to limit it by excluding second homes, home equity loans and mortgages of more than $500,000.

The proposal suggests expanding a number of initiatives in the healthcare overhaul Obama signed into law in March, including strengthening a controversial independent board designed to identify savings in Medicare. The report urges drug companies to expand discounts, pushes doctors to accept modest cuts in their Medicare fees in exchange for creating a more stable payment system, and recommends that Medicare beneficiaries pay more of the cost of care.

Many of the proposals appear certain to stir opposition from lawmakers, industries and others, who fought similar ideas to streamline Medicare when Democrats were writing the new healthcare law. But the future of the more than $500-billion program remains unclear as Medicare deficits threaten to overwhelm the federal government as soon as the next decade.

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