The leaders of President Barack Obama’s 2010 deficit commission are offering a $2.4 trillion plan to reduce the debt over the next 10 years.
The proposal by Erskine Bowles, President Bill Clinton’s former chief of staff, and Alan Simpson, a Republican former senator from Wyoming, would accomplish debt savings in steps rather than through one major piece of legislation.
“What we are calling for is by no means perfect,” the two said in a summary of the plan. “But it could serve as a mark for real bipartisan negotiations on a plan to reduce the deficit and grow the economy.”
They issued their proposal today as Democrats and Republicans are feuding over how to halt $1.2 trillion over 10 years in across-the-board spending cuts set to begin March 1. The immediate impact of the sequester would be $85 billion in cuts.
Congress agreed to the cuts as part of a deal to increase the debt limit in 2011. The reductions are to be split almost evenly between defense and nondefense spending, and both parties agree they may damage the U.S. economy.
Under the new Bowles-Simpson proposal, one quarter of the deficit reduction would come from health-care changes including lower payments to Medicare and Medicaid providers and higher Medicare premiums for top earners. Another quarter would come from a rewrite of tax laws that would scale back most exemptions and deductions. Part of the savings would be used for deficit reduction and the rest to reduce income tax rates.
Additional savings would come from using a revised inflation gauge to slow the growth in Social Security cost-of-living payments. In addition, farm subsidies would be reduced and federal pensions would be cut back, including those for the military.
Even with those cuts, “this deficit reduction is far from sufficient to put the debt on a downward path as a share of the economy this decade,” the two said.
A further step would make additional changes to Social Security and health-care spending and revamp transportation spending, Simpson and Bowles said, without giving details.
In the past two years, Congress and Obama enacted two major pieces of fiscal legislation accounting for as much as $2.7 trillion in deficit reduction — the 2011 Budget Control Act that made the spending cuts in exchange for raising the debt ceiling, and a plan Congress passed Jan. 1 to raise taxes on households making more than $450,000 a year.
An earlier plan proposed by Bowles and Simpson in 2010 would have reduced the deficit by $3.9 trillion over nine years, with 26 percent coming from revenue increases, 57 percent from spending cuts and 17 percent from interest savings. The plan didn’t get enough support from deficit commission members to be submitted to Congress for a vote.
The 2010 plan called for clamping down scores of tax breaks that allow taxpayers to write off items such as mortgage interest and retirement savings. The savings would have been used to cut income tax rates and to reduce the deficit.
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