Budget

Pelosi, political left rip proposal from debt commission chairmen

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.

{mosads}Labor unions and liberal Democrats lit into the preliminary
proposal, which the two chairmen touted as the first serious plan to tackle the
country’s growing debt.

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 Durbin (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. 

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