• NOVEMBER 8, 2010

Deficit Panel's Leaders Push Cuts

Proposal to Save $3.8 Trillion Targets Medicare, Pentagon, Middle-Class Tax Breaks

By JOHN D. MCKINNON, COREY BOLES And MARTIN VAUGHAN

WASHINGTON—The leaders of a White House commission laid out a sweeping proposal to cut the federal budget deficit by hundreds of billions a year by targeting sacrosanct areas of U.S. tax and spending policy, such as Social Security benefits, middle-class tax breaks and defense spending.

The preliminary plan in its current form would end or cap a wide range of breaks relied on by the middle class—including the deduction for home-mortgage interest. It would tax capital gains and dividends at the higher rates now levied on wage income. To compensate, one version of the plan would dramatically lower and simplify individual rates, to 9%, 15% and 24%.

For businesses, the controversial plan would significantly lower the corporate tax rate—from a current top rate of 35% to as low as 26%—but also eliminate a number of deductions. It would make permanent the research and development tax credit.

Overall, the plan would hold down the growth of the federal debt by roughly $3.8 trillion by 2020, or about half of the $7.7 trillion by which the debt would have otherwise grown by that year, according to commission staff. The current national debt is about $13.7 trillion.

The budget deficit, or the amount by which federal expenditures exceed revenues each year, was about $1.3 trillion for fiscal year 2010, which ended on Sept. 30.

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• NOVEMBER 12, 2010

Deficit-Cutting Chairmen Call Washington's Bluff (11/12/10)

By GERALD F. SEIB

Perhaps you don't want to play poker with Alan Simpson and Erskine Bowles.

Mr. Simpson, the Republican and former Senator from Wyoming, and Mr. Bowles, the Democrat and former White House chief of staff, are chairmen of the federal deficit-cutting commission charged with devising a way to reduce the red ink Washington is producing. They oversee an 18-member, bipartisan panel that is supposed to come up with a plan by Dec. 1, provided they can get 14 of the 18 commission members to agree on something.

That's a big if. But the two have at least increased the odds of success with the clever way they rolled out their own personal recommendations Wednesday on how to suck up that red ink.

Specifically, they jolted the capital by laying out ideas to achieve some $4 trillion in deficit reduction by 2020. Look carefully at what they did and how they did it, and you'll see that their effort was designed to box in those on all sides who would rather talk in high-sounding generalities about the deficit than deal with the unpleasant specifics.

That doesn't mean they will succeed, but their tactics have at least given them a better shot.

Consider:

—By offering even more deficit reduction than necessary to achieve the commission's target, they sent a message: See, it isn't THAT hard to come up with a plan, especially if you're willing to go after popular as well as unpopular programs.

When the commission was created by President Barack Obama and filled out with leaders from both parties in Congress, it was told to devise a way to cut the deficit to 3% of gross domestic product by 2015, from about 8% this year. The chairmen went further and proposed specific spending and tax measures that would reduce the deficit to 2.2% of GDP.

That allows panel members to dismiss some of the most unpopular ideas while still hitting the target. More important, it says to everybody that this isn't impossible by any means. We've shown how to not just hit our target, but to surpass it.

—By making their ideas public, they made it harder for other commission members to run and hide. The commission now can't simply bury controversial or unpopular ideas. It has to say to the world that it has rejected them and take responsibility for having done so.

—They have made everybody uncomfortable at the outset, which is necessary to be sure no group or special interest can feel singled out for pain. They proposed raising the retirement age (oh-so gradually, to 69 by the year 2075) for Social Security and suggested modest curbs in benefits for upper-income seniors and an adjustment in the inflation escalator for all benefits. That was enough to make liberals scream.

They suggested more than $100 billion in defense-spending cuts by the year 2015, as well as an increase in the gas tax and a reduction in a range of tax deductions and credits, including the home-mortgage deduction, which was enough to make conservatives and moderates scream.

—The two men scooped up all the good ideas on the table, made them their own and in many cases ratcheted them up. Mr. Obama, in a little-noticed comment about a month ago, said lowering the corporate tax rate might be a good idea. So the Simpson-Bowles plan proposes reducing the corporate rate to as low as 26% from the current 35%, in return for eliminating other tax credits and deductions. The tax rate goes down, tax revenue goes up.

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Yes, the Commission has called the bluff.. but I really wish they had put forth a portion of the proposal that would actually be net additive on revenue side of the equation.

-- Edited by Sanders on Saturday 13th of November 2010 03:57:53 PM