• News
  • Finance

Deficit commission proposal seen as starting point for debate

Related Special Reports

The president’s bipartisan National Commission on Fiscal Responsibility and Reform failed to achieve the supermajority vote it needed to push forward its aggressive plan to cut $3.8 trillion in government debt over the next 10 years.

The hope is that it succeeded in starting a conversation on the best path to reduce the deficit.

To officially report its recommendations, the commission needed 14 of its 18 members to approve the proposal.

In the end, it fell short, garnering support from 11 members.

After the failed vote, members of the commission, including Erskine Bowles, former Clinton White House chief of staff and commission co-chair, and Dick Durbin (D-Ill.) expressed optimism that the plan set the parameters for ongoing conversation.

The proposal did succeed in achieving a semblance of bipartisan support among its 11 yes-votes.

Avowed conservatives Mike Crapo (R-Idaho) and Tom Coburn (R-Okla.), along with Durbin, an outspoken liberal, joined the commission’s more centrist members in approving the measure.

Disapproval of the report was also bipartisan. Of the seven members who voted against the report, four did so from the left, while three did so from the right.

The plan would cut nearly $4 trillion from the deficit by 2020 and reduce it to 2.3 percent of GDP by 2015.

It was broken into six basic components: discretionary spending cuts, tax reforms, mandatory savings, containments of health care costs, alterations in Social Security and reforms to the budget process.

“Liberals are going to have to suck it up and accept spending cuts and conservatives will have to suck it up and accept tax increases,” said Dan Seiver, professor of economics at San Diego State University.

He called the proposal “an excellent starting point.”

Alan Gin, professor of economics at University of San Diego, said for all the tough decisions the proposal made, it’s more likely that the partisan atmosphere in Congress prevents any traction being made on the issue.

Complicating matters is the extent to which combating the deficit is considered a priority.

“I’m of the camp that says while the deficit is important in the long term, we’re still in a situation where you have to look at the economy recovering as a first priority,” Gin said. “We could accept more deficit until we get more recovery.

“I don’t think there’s consensus on that, so that’s why there’s so much problem,” he said.

Seiver says it’s best to act on the deficit sooner than later.

“The commission’s not recommending any changes now, anyhow,” he said. “The idea is, the economy will be stronger in a few years, so things will kick in in 2012 or later. It makes more sense to get prudent when the economy isn’t so sick.”

Spokespeople for San Diego County’s congressional representatives lauded the seriousness of the commission’s proposal, and welcomed deficit reduction becoming a major topic in the 112th Congress.

Kurt Bardella, press secretary for Rep. Darrell Issa, said he has no idea how Issa would have voted on the proposal if given an opportunity, but that they view it as a starting point for discussion.

“Universally, both Republicans and Democrats agree that a conversation on entitlements and their role on the deficit needs to happen,” he said. “We need to sit down with the American people and have an adult conversation about how to get that under control.”

Joe Kasper, spokesperson for Rep. Duncan Hunter, agreed that the commission made difficult decisions, and kick-started a conversation on cuts to entitlement programs.

“The commission offered some good recommendations in certain areas, while, in other areas, some proposals might be tougher to implement, or are less feasible at the moment,” he said.

Congress likely would not have had an opportunity to vote on the full report, but on certain provisions individually, Kasper said.

“(Hunter) is open to considering any budget-cutting proposal,” he said. “He -- like the commission -- believes it’s time to get serious about budget cuts.”

Spokespeople for Reps. Susan Davis and Bob Filner declined to comment.

Under the plan, cuts to discretionary spending in both security and non-security programs would begin with $50 billion immediately, to be followed by $200 billion by 2015.

The program’s second major platform, comprehensive tax reform, would include sharply reduced rates coupled with a simplified tax code that would grow the base.

Popular tax expenditures, such as the mortgage-interest deduction (MID) for homeowners, and employees’ ability to pay their portion of health care with pre-taxed dollars, would also be eliminated as part of the tax reform.

Seiver allowed that decreasing the MID to apply to lower-priced homes and primary residences only would hurt the housing market, though he believes the country has been “over housed” for some time.

“Restricting it saves money, and preserves the only true justification for it, which is increasing home ownership. You aren’t restricting the American dream if you eliminate it from people buying a $5 million home, or their second or third home.”

The plan proposes decreasing the number of tax brackets from six to three, which would be set at 8 percent, 14 percent and 23 percent.

A new tax code would also eliminate special rates for capital gains and dividends while bringing back the inheritance tax at 45 percent for estates worth $3.5 million, or $7 million for couples.

“I’d like to see it go a little more heavily into tax increases,” Seiver said.

Specifically, he said he’d like to see the introduction of a value added tax.

The plan would reign in projected escalations in health care costs by strengthening the cost containments in last year’s health care reform bill, including reforms to physician payments, cost sharing, malpractice law and other areas.

It would also impose mandatory savings, for instance, by cutting farm subsidies by $3 billion annually.

Looking to ensure solvency for social security, the report would raise the early retirement age from 62 to 64. Infants today wouldn’t reach standard retirement age until they turned 69, as opposed to 64 years old today.

Carving out a “hardship exemption” for those unable to work past 62, the blueprint includes other reforms to ensure support for the oldest and poorest beneficiaries of Social Security.

It would also cut Social Security benefits for the wealthiest 50 percent of retirees.

The payroll tax that finances Social Security would be increased to ensure the program’s solvency. The income subject to the tax would gradually increase, from the $106,800 of today to close to $190,000 in 2020.

Finally, the plan called to reform the budget process itself so debt remains on a stable path into the future.

Though it doesn’t directly affect the budget in a measurable way, a revenue cap of 21 percent of GDP coupled with a reduction of spending below 22 percent and eventually 21 percent was also included in the bill, effectively setting a limit on the size of government.

User Response
0 UserComments