Fiscal panel looks across pond for help

Members of the White House fiscal commission are looking across the Atlantic for a formula to curtail the nation’s deficits.

Erskine Bowles, the commission’s Democratic co-chairman, has repeatedly praised the fiscal austerity plan of the new Conservative-led government in Britain.

“I’d like to see us do something the Brits just did, taking 75 percent out of spending and 25 percent out of revenue” to reduce the deficit, Bowles said Wednesday at an economic forum held by the U.S. Chamber of Commerce.

He added that the breakdown on deficit reduction in the U.S. could be different, with perhaps two-thirds of savings coming from spending, and the rest from new revenue.

“I just want to see the vast majority of [deficit reduction] come out of spending,” Bowles said.

The British plan proposed by new Prime Minister David Cameron is aimed at tackling a deficit even higher than the one faced by the Obama administration and Congress. While the U.S. deficit for 2010 is expected to equal 10 percent of gross domestic product, the United Kingdom’s budget shortfall is projected to surpass 12 percent of that country’s GDP.

Economists generally consider a deficit equal to 3 percent of GDP to be the maximum a country can sustain.

In order to reach the 3 percent target in four years, Cameron has proposed a plan heavy on spending cuts; he would reduce most government agency budgets by 25 percent. Cameron also calls for an increase in the U.K.’s value-added tax on goods.

European countries have recently shifted their focus from stimulus spending to fiscal austerity measures.

Cameron’s plan has won plaudits from officials at the European Union, which is dealing with severe fiscal problems in Greece, Spain and Portugal. Leaders of Europe’s biggest economy, Germany, have pressed other developed countries, including the U.S., to cut high debt levels so they won’t hinder economic growth in the long run.

Obama, who has pressed for more short-term stimulus spending to deal with stubbornly high unemployment, created the fiscal panel to develop a deficit-cutting plan for the U.S.

A proposal from the fiscal panel that resembles what’s being done in Europe would likely please conservatives.

Republican lawmakers on Obama’s fiscal panel have pressed Congress to look primarily at spending cuts, rather than tax hikes, as a means for getting the nation’s finances in order.

Sen. Judd Gregg (R-N.H.), a member of the White House fiscal commission, praised Bowles for focusing the panel’s attention on the spending side of the deficit equation.

“When [Bowles] said 75 percent [of cuts] should be spending, and 25 percent should be on the revenue side, he really set them on the right track,” Gregg said at the Chamber of Commerce event Wednesday.

Gregg spoke optimistically about the prospects for tackling spending, noting that President Obama himself chose Bowles to lead the commission.

“And what a choice,” Gregg added.

U.S. spending is equal to about 24 percent of GDP, higher than the historical average of 18.5 percent, according to the Congressional Budget Office (CBO). Spending levels are set to rise further in coming decades as healthcare and other entitlement costs increase, according to the CBO’s latest long-term budget projections.

Any package heavy on spending cuts would likely draw opposition from the left, just as it has in Britain.

The opposition Labour Party has blasted Cameron’s plan to cut spending and raise taxes as “reckless” when the economy is still in recovery. Cameron’s critics have pointed to official economic forecasts showing that the austerity plan would increase the chance of a double-dip recession.

Rep. Jan Schakowsky (D-Ill.), a liberal on the fiscal commission, said she has concerns about cutting spending when the unemployment rate is still near double digits. She pointed to economists — as well as the Obama administration — who have warned against spending cuts when the strength of the economic recovery is uncertain.

“I’m particularly offended … by the notion that the vast majority [of savings] should be disproportionately large on the spending side, when we’ve got tax cuts for the wealthy that some of us hope to reinstate, when there’s a bipartisan suggestion about cutting $1 trillion without harming national security from the defense budget, when we’re still subsidizing oil companies with tax breaks and companies that move jobs overseas,” Schakowsky told The Hill.

Rep. Xavier BecerraXavier BecerraTrump's EPA quietly revamps rules for air pollution Flurry of lawsuits filed over citizenship question on census Trump continues to put Americans first by adding citizenship question to census MORE (D-Calif.), another liberal on the fiscal commission, said Bowles was right to try to move the commission forward, but that any fiscal reform plan would be unique to the United States.

“How we resolve our economic challenge is premised on an American solution,” Becerra said. “It won’t be the British solution.”