A presidential commission’s leaders proposed a $3.8 trillion deficit-cutting plan that would cut Social Security and Medicare, reduce income-tax rates and eliminate tax breaks including the mortgage-interest deduction.
The co-chairmen of the panel appointed by President Barack Obama suggested reducing Social Security spending by raising the retirement age to 68 in about 2050 and 69 in about 2075. The plan also would slow the rate at which benefits grow. The savings would come between 2012 and 2020.
“This country’s out of money and we better start thinking,” said co-chairman Erskine Bowles. Without “tough choices,” he said, “we’re on the most predictable path toward an economic crisis that I can imagine.”
Bowles, former President Bill Clinton’s chief of staff, and Republican former Senator Alan Simpson of Wyoming announced the proposal in Washington today, stressing that it was intended as a starting point for discussion.
None of the proposals would take effect next year to avoid disrupting the economic recovery. Bowles said income-tax rates would be reduced to three levels: 8 percent, 14 percent and 23 percent.
Wiping out all tax breaks, including the home mortgage deduction, while lowering rates would save $100 billion a year, Bowles said. Members of the panel could decide to keep some tax breaks by offering offsetting cuts, he said.
Bowles said about three-fourths of the savings would come from spending cuts with the remainder from tax increases.
‘Harpooned Every Whale’
“We have harpooned every whale in the ocean and some of the minnows,” Simpson said. “No one has done this before.”
The proposal would attempt to slow health-care costs by paying doctors participating in Medicare less, and it calls for “comprehensive” legislation to reduce medical malpractice costs.
Discretionary spending cuts in the plan include reducing congressional and White House budgets by 15 percent, freezing federal salaries and cutting the federal workforce by 10 percent. The discretionary reductions of $1.4 trillion would be split equally between defense and domestic programs, Bowles said.
“The cuts really will happen on both sides of that firewall,” he said.
The plan would cut the deficit to 2.2 percent of gross domestic product by 2015, from the current 9 percent, exceeding Obama’s goal. It would also reduce debt to 60 percent of GDP by 2024.
“This is Al’s and my proposal, nobody else’s,” Bowles said. “The president hasn’t seen this proposal.” Some members of Obama’s financial team have seen the plan and they liked some things and not others, he said.
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