Final report from debt chairmen would reduce deficit $3.9 trillion by 2020

The chairmen of President Obama’s debt commission released final recommendations on Wednesday that would cut the deficit even more than their earlier proposal.

The new recommendations also seek to spur on an economic recovery by proposing $22 billion less in domestic spending cuts in 2013. They would also consider a temporary payroll tax holiday in 2011 to spark growth.

The recommendations from Democrat Erskine Bowles and former Sen. Alan Simpson (R-Wy.), would cut the deficit by $3.9 trillion by 2020, and would reduce national debt as a percentage of GDP to 40 percent by 2035.

In contrast, their earlier recommendations, which provoked complaints from the left and the right, would reduce the deficit by $3.8 trillion by 2020 and national debt as a percentage of GDP to 43 percent by 2035.

The chairmen will now start a two-day scramble to convince their fellow commission members to vote in favor of the plan on Friday. This will be difficult, as the final report calls both for tax increases---political poison for Republicans—and cuts to Social Security—anathema to many Democrats. Fourteen of the 18 commissioners must support the proposal for it to be adopted by the commission.

At the beginning of the commission's meeting on Wednesday, Bowles said their commission had succeeded no matter what happens.

Even if the plan does not get the 14 votes necessary to pass, the panel has "brought this issue of enormous importance to the attention to the American people," Bowles explained. 

"I don't know if we can agree on a plan," he added. "Nothing would surprise me in this. But I know the world is moving in our direction.

He also said the plan was not watered down to attract more support. "We are not interested in 14 votes for a whitewash," Bowles concluded. 

While some commission members have criticized the proposal, it won two votes of approval Wednesday when Sens. Judd Gregg (R-N.H.) and Kent Conrad (D-N.D.) said they would support the proposal. 

“This is a moment of truth,” said Conrad, the chairman of the Senate Budget Committee. “The nation is headed for a fiscal cliff. We have to act. This is the time for us to pull together.

"We need to have the courage to do the right thing for our children, for our grandchildren, and for our nation’s future," Conrad said.

The commission was supposed to have voted on the report on Wednesday, but Bowles and Simpson delayed the vote to buy more time. Both indicated on Tuesday that the recommendations could get as few as 2 votes or as many as 14.

On taxes, the proposal from Bowles and Simposon settles on a "zero option" that would eliminate all tax credits for businesses and individuals, including the popular mortgage interest tax break. It would also lower tax rates and create three brackets set at 8, 14 and 23 percent. 

If Congress decides it wants to keep some of the tax breaks, the chairman propose imposing slightly higher tax rates while reducing tax credits like the mortgage interest deduction. 

The chairmen added a three-year pay freeze for members of Congress to accompany their recommendation for a three-year freeze for federal employees. On Monday, President Obama proposed a two-year pay freeze for civilian workers.

They would reduce the corporate tax rate to 28 percent from 35 percent and would stop taxing income earned abroad.

On Social Security, the final plan like the draft would raise the retirement age to 68 in 2050 and 69 in 2075. It would also reduce benefits for high earners.

In many respects the final plan resembles the chairmen’s draft. It seeks $200 billion in savings in 2015 and would seek to cut the federal workforce by 200,000 workers.

Correction: An earlier version of this story misstated the tax rates proposed by the commission.

Jordan Fabian contributed to this story.