Deficit plan would delay benefits, cut spending

WASHINGTON – The co-chairmen of President Barack Obama’s bipartisan deficit-reduction commission on Wednesday offered a draft blueprint for wiping out trillions from projected deficits through 2020, signaling the start to a roiling season of political pain for lawmakers trying to stabilize the nation’s finances.

The plan proposes major cuts in domestic and military spending, and would remake the tax code to boost revenues. Among the changes are higher payments for Medicare patients, increased gas taxes and the delay of full Social Security benefits until age 68.

Lawmakers and analysts alike instantly predicted that the battered Obama administration would have trouble pushing the plan through.

One labor leader said the report sent a message that working Americans should “drop dead,” and House Speaker Nancy Pelosi, D-Calif., called the proposal “simply unacceptable.” Even a member of the commission, U.S. Rep. Janice D. Schakowsky, D-Ill., said the recommendations on Social Security amounted to a “nonstarter.”

The White House took a cautious approach toward the early proposals. “The president will wait until the bipartisan fiscal commission finishes its work before commenting,” White House spokesman Bill Burton said. “He respects the challenging task that the co-chairs and the commissioners are undertaking and wants to give them space to work on it.”

But Obama is hoping that the commission’s work ultimately will provide the basis of a bipartisan compromise that he can sign into law.

Coming off a midterm election season in which he was cast as a big-spending liberal, Obama has a chance to reposition himself politically by embracing a report that relies heavily on spending cuts. A key part of the message put forward by Republicans in their successful effort to retake the House was that government has grown too big. Obama could move to dampen that argument by adopting at least parts of the commission’s deficit-reduction plan as a major goal for 2011 and beyond.

The 18-member panel was created in February through an executive order signed by Obama. The proposals issued Wednesday were from the commission’s co-chairmen, Erskine Bowles, a former chief of staff to former President Bill Clinton, and Alan Simpson, a former Republican senator from Wyoming. The proposals represent a range of choices for the panel members, who are due to submit a final report by Dec. 1.

Fourteen of the panel’s 18 members must approve final recommendations. The Senate majority leader, Harry Reid, D-Nev., has said that if the commission meets its deadline, the Senate will take action on the proposal in December.

The commission vote is not binding but could provide political cover for members of Congress, who would be voting on recommendations adopted with bipartisan support from a blue-ribbon commission.

“There’s enough pain in here that it will either send people running in all directions or bring them together for possible agreement,” said Scott Hodge, president of the Tax Foundation, a nonpartisan tax research group.

The sense among many of the commissioners was that the draft proposal needed to be provocative to trigger a national debate about the severity of the debt crisis.

“I ask the American people to take a look,” Simpson said. “This is not the usual stuff. It’s all out there. We have harpooned every whale in the ocean.”

The plan calls for $200 billion in domestic and military spending cuts in 2015, a down payment on cuts that would reduce the deficit by nearly $4 trillion through 2020.

Spending and revenue would gradually come into alignment – at a level of 21 percent of the gross domestic product – through tough spending caps and an overhaul of the tax system.

As examples of possible spending cuts, the report advises reducing overseas military bases by one-third, freezing federal salaries, eliminating a quarter-million nondefense government contractors, and doing away with all spending earmarks – pet projects put forward by lawmakers and approved with little scrutiny.

The report aims to simplify the federal tax code, while expanding the tax base, by eliminating all tax deductions including those for state and local taxes, dependent children and interest on mortgage payments.

The plan would increase taxes paid to the federal government by $751 billion from 2012 to 2020.

Doing away with the deductions would allow marginal tax rates to be simplified and reduced across the board.

The lowest rate would drop to 8 percent from 10 percent and the top rate would go to 23 percent from 35 percent. The tax rate paid by corporations would be reduced to 26 percent from 35 percent.

Another recommendation is a 15-cent increase in the gas tax starting in 2013 with the revenue going toward transportation projects. Raising the price of gas in a tough economy would risk a popular backlash.

Recognizing their proposals were controversial, Simpson and Bowles included optional, slightly higher tax rates in the event that lawmakers wanted to keep certain deductions.

For example, instead of ending the mortgage interest deduction, another option would be to limit it by excluding second homes, home equity loans and mortgages of more than $500,000.

Tackling the federal government’s soaring health care tab head-on, the draft proposal looks for sacrifices from patients, doctors and others in the system, recommending among other things that Medicare beneficiaries pay more of the cost of care.

The report urges drug companies to expand discounts and pushes doctors to accept modest cuts in their Medicare fees in exchange for creating a more stable payment system.