By Alexander Bolton - 11/10/10 10:28 PM EST
The chairmen of President Obama’s fiscal commission sparked a political firestorm Wednesday with the early release of a report proposing sweeping changes to Social Security, Medicare and the tax code.
The plan would reduce the deficit by nearly $4 trillion over the next decade by making dramatic spending cuts and overhauling the tax code by wiping out deductions, such as the popular tax break on mortgage interest.
Speaker Nancy Pelosi (D-Calif.) said it was “simply unacceptable.”
“Any final proposal from the commission should do what is right for our children and grandchildren’s economic security as well as for our nation’s fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare,” she said in a statement.
AFL-CIO President Richard Trumka said the chairmen had told “working Americans to ‘Drop Dead,’” while Rep. Raul Grijalva (D-Ariz.) faulted the report for cutting Social Security benefits while reducing corporate and upper-income taxes.
Republicans reacted cautiously to the report, released a week after the GOP scored a huge victory in a mid-term election dominated by concerns about federal spending. Incoming House Budget Committee Chairman Paul Ryan (R-Wis.) and two other Republicans on the commission released a statement calling the proposal “provocative,” but commending the co-chairs for moving the debate forward.
The White House reserved judgment in a statement that said the president would not comment until a full commission report is released.
It’s unclear whether that will even happen. The commission report must be agreed by 14 of the 18 members to win approval, and some liberals on the panel criticized the chairman’s proposal.
Senate Democratic Whip Dick DurbinDick DurbinRetailers have jumped the shark Dems gain upper hand on budget McConnell: Senate could drop flood money from spending bill MORE (D-Ill.), a commission member, balked at the heavy emphasis on spending cuts in the plan.
Co-Chairman Erskine Bowles, a Democrat, said that about 75 percent of the proposed deficit reduction came from spending cuts and 25 percent from “the revenue side.”
When asked Wednesday afternoon whether the 75 percent-to-25 percent ratio of spending cuts to revenue increases was too titled toward reducing spending, Durbin said: “To me it is.”
“We’ve got a few things to work out,” he said. “One step at a time.”
Bowles, a former Clinton White House chief of staff, described the report as a “strong starting point.”
“What we have done is lay out a strong predicate for how the nation faces up to a very critical problem,” he said.
Bowles warned that if Congress did not act to reduce the deficit, which is projected at $1.5 trillion in 2010, the nation’s economy would nosedive in the future.
“We face the most predictable economic crisis in history,” he said. “Every single member of Congress knows the path that we are currently on is not sustainable.”
The proposal released to the public Wednesday was produced by Bowles and his GOP co-chairman, former Sen. Alan Simpson (Wyo.). They said it reflects their thinking and has yet to win approval from the wider commission.
The 18 members of the fiscal commission will meet Wednesday afternoon and in the weeks ahead to forge an agreement that could win the body’s approval, they said.
Democratic and Republican leaders in the Senate and House have promised the co-chairmen that any proposal that won the support of 14 members of the commission would receive an up-or-down vote, according to Bowles.
The proposal is full of politically controversial ideas that lawmakers and commissioners alike may have a difficult time swallowing.
The plan raises taxes to boost government revenues to 21 percent of gross domestic product and cuts spending to 21 percent of GDP. In 2010, spending was 23.8 percent of GDP while revenue was 14.6 percent.
It would enact discretionary spending caps and implement $200 billion worth of domestic and defense spending cuts in 2015, reducing total discretionary spending by $1.4 billion in outlays over the next decade.
It would simplify the tax code by consolidating income tax rates into three individual rates and one corporate rate.
Bowles tried to dispute the notion that the plan would amount to a huge tax increase by arguing that it would lower income tax rates across the board.
For example, top earners who now pay a 35 percent rate on the highest levels of their income would see it drop to 23 percent. Middle-income earners who pay a 25 percent rate would only have to pay 14 percent under the Bowles-Simpson plan.
But popular tax breaks such as the mortgage interest tax deduction and the child tax credit would face elimination.
Bowles and Simpson said they were open to allowing some popular tax breaks to survive but noted that would boost the lower income tax rates they proposed.
Most controversially, the Bowles-Simpson plan would eliminate the special tax rate for capital gains, which are now taxed at 15 percent. (Capital gains rates are schedule to rise to 20 percent at the end of this year unless Congress acts.)
The chairmen would tax capital gains at the individual income rate, which at its highest would be 23 percent, or a new corporate rate, which would be 26 percent.
Bruce Reed, executive director of the fiscal commission, said the capital gains rate under the chairmen’s plan would not exceed the capital gains rates during the Reagan administration.
It is the proposed reforms to Social Security that sparked the most political controversy on the left on Wednesday.
They have called for increasing the retirement age by one month every two years after it reaches 67 under current law. That means the retirement age would climb to 68 by 2050 and 69 in 2075. Bowles said workers in jobs that require heavy physical labor could receive hardship exemptions and retire at 62. Their plan would also increase the cap on payroll taxes so that the taxable maximum would include 90 percent of all wages by 2050.
Bowles estimated that 57 percent of the proposed Social Security savings would come from spending cuts and 43 percent from revenue increases.
Grijalva, co-chair of the Congressional Progressive Caucus, said the plan would be bad for the public.
“Congress should be having a realistic, productive conversation right now about how to reduce our budget deficit and maintain a secure retirement system for those who have earned it,” he said. “Instead, we’re debating a proposal from a commission dedicated to cutting crucial social programs and reducing corporate and upper-income taxes at the same time.”
But Bowles said that nearly every member of the commission praised the Bowles-Simpson plan as a serious effort to prevent an explosion of the national debt. Even so, he acknowledged the plan includes unpopular recommendations.
“Every member of the commission today at the meeting said they thought it was a serious plan,” Bowles said. “Nobody I think likes everything in it or dislikes everything it. We need to debate it, come up with reasonable compromises.”
Simpson said the chairmen released their plan so the other commissioners could think about it.
“The purpose is for them to chew on this, get back together,” he said.