Commission leaders say cutting deficit will hurt

[November 11, 2010]  WASHINGTON (AP) -- Voters who last week sent Washington a message to wrestle the spiraling debt under control have gotten a message back from the leaders of a White House budget commission: It'll hurt.

A proposal released Wednesday by the bipartisan leaders of President Barack Obama's deficit commission suggested cuts to Social Security benefits, deep reductions in federal spending and higher taxes for millions of Americans to stem a flood of red ink that they said threatens the nation's very future.

Interest groups on the right and the left squealed, predictably, about the plan, which would cut total deficits by as much as $4 trillion over the next decade -- much of it from programs long considered all but sacred.

Besides Social Security, Medicare spending would be curtailed. Tax breaks for many health care plans, too. And the Pentagon's budget as well in a plan that attaches $3 in spending cuts to every $1 in tax increases.

For all the pain, the deficit still would approach $400 billion in 2015 under the proposal, released by deficit panel's co-chairmen, Democrat Erskine Bowles, a former Clinton White House chief of staff, and Republican Alan Simpson, a former senator from Wyoming.

Obama, in Seoul, South Korea, declined to comment Thursday on the commission's work but said, "We're going to have to take actions that are difficult and we're going to have to tell the truth the American people." He said there was a lot of rhetoric about the nation's debt and deficits but "a lot of the talk didn't match up with reality."

"We need to be straight with the American people," the president said. "We can't just engage in political rhetoric."

The plan arrived a week after congressional elections in which voters demanded action on the $1 trillion-plus budget deficit. Bowles and Simpson acknowledged the plan was dead on arrival but said it would prompt a more realistic national debate about what it'll take to solve the nation's huge fiscal woes.

"We have harpooned every whale in the ocean," Simpson said. Said Bowles, "This is a starting point."

The entire 18-member commission is supposed to report a deficit-cutting plan on Dec. 1, but panel members are unsure whether they'll be able to agree on anything approaching deficit cuts of the size proposed. And even if they could, any vote in Congress this year would be nonbinding, Simpson said.

During the campaign, neither political party talked of spending cuts of the magnitude offered Wednesday, with Republicans proposing $100 billion in cuts to domestic programs passed each year by Congress -- but with no specifics.

The plan would gradually increase the retirement age for full Social Security benefits -- to 69 by 2075 -- and current recipients would receive smaller-than-anticipated annual increases.

Equally controversial, it would eliminate the current tax deduction that homeowners receive for the interest they pay on their mortgages and impose a 15 cent-a-gallon tax on gasoline.

It would impose a three-year freeze in the pay of most federal employees and a 10 percent cut in the federal work force. Congressional pet spending projects, known as "earmarks," would be eliminated.

No one is expecting quick action on any of the pieces of the plan. Proposed cuts to Social Security and Medicare are making liberals recoil. And conservative Republicans are having difficulty with options suggested for raising taxes. The plan also calls for cuts in farm subsidies, foreign aid and the Pentagon's budget.

Contentious or not, Bowles said serious action was demanded. "This debt is like a cancer that will truly destroy this country from within if we don't fix it," he warned.

Current deficits require the government to borrow 37 cents out of every dollar it spends.

Still, the plan was rejected as "simply unacceptable" by House Speaker Nancy Pelosi, D-Calif., a top Obama ally.

The Social Security proposal would change the inflation measurement used to calculate cost-of-living adjustments for benefits, reducing annual increases. It immediately drew a withering assault from advocates for seniors, who already are upset that there will be no inflation increase for 2011, the second consecutive year.

The plan also would raise the regular Social Security retirement age to 68 by about 2050 and to 69 in 2075. The full retirement age for those retiring now is 66. For those born in 1960 or after, the full retirement age is now 67.

Better-off beneficiaries would receive smaller Social Security payments than those in lower-earning brackets under the proposal, and the amount of income subject to Social Security taxes would be increased.

"The chairmen of the deficit commission just told working Americans to `drop dead,'" AFL-CIO President Richard Trumka said in a statement.

From the right, anti-tax activist Grover Norquist, whose opinions carry great weight among Republicans, blasted the plan for its $1 trillion in tax increases over the coming decade. But Bowles and Simpson say eliminating costly tax deductions could allow income tax rates to be brought way down.

The proposal would leave Obama's new health care overhaul in place while greatly strengthening its cost-control provisions, including a board with the power to make cuts in Medicare payments to providers.

For most Americans with job-based health coverage, the biggest change would be to limit or eliminate altogether the tax-free status of employer-provided health benefits, which would provide a stiff nudge to force people into cost-conscious insurance plans.

"It's a very provocative proposal," said a Republican panel member, Rep. Jeb Hensarling of Texas. "Some of it I like. Some of it disturbs me. And some of it I've got to study."

The plan also calls for a major overhaul of both the individual income tax and the corporate tax systems, with the idea of lowering overall tax rates, simplifying the tax code and broadening the taxpayer base.

For individuals and families, the proposal would eliminate a host of popular tax credits and deductions, including the child tax credit and the mortgage interest deduction.

However, it would significantly reduce income tax rates. The top rate would drop from 35 percent to 23 percent.

[Associated Press; By ANDREW TAYLOR]

Associated Press writers Martin Crutsinger, Stephen Ohlemacher, Tom Raum and Ricardo Alonso-Zaldivar contributed to this report.

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