Rival debt plan: Tackles Medicare, Social Security; raises taxes

Updated 3m ago
By Richard Wolf, USA TODAY

WASHINGTON — A 6.5% national sales tax, higher Medicare premiums and lower Social Security benefits are just some of the prescriptions for reducing the national debt proposed Wednesday by a bipartisan task force, two weeks before a presidential commission issues its own report.

The recommendations from the Bipartisan Policy Center, an independent outside group, also include reduced income tax rates, fewer special-interest tax breaks and a multiyear freeze on defense and domestic spending. To sweeten the pot and create jobs, it would eliminate for one year the 12.4% payroll tax split between employers and employees, creating a $650 billion tax cut.

The center's recommendations have been eagerly anticipated in Washington because its members are budget watchdogs with vast experience. The task force is led by former Republican senator Pete Domenici of New Mexico and Democrat Alice Rivlin, former director of the White House budget office and the Congressional Budget Office, who's also a member of the presidential panel. Its report offers a road map for the more powerful commission to follow.

Nevertheless, its recommendations will be controversial at the White House and in Congress, where lawmakers must worry about the political repercussions of slashing benefits and raising taxes. The reductions in tax breaks and new sales tax would cost taxpayers far more than the lower income tax rates would save them.

"We know from personal experience that bipartisan budget agreements are extremely difficult to create — neither side gets what it wants — but they are possible," say Rivlin and Domenici in their introduction. "We have faith that our political leaders will see the urgency of working together to take the difficult actions that will restore America to economic health and constructive world leadership."


OBAMA PANEL: Recommends $200B in spending cuts
OBAMA TASK FORCE: Change Social Security to help save $3.8T

Last week, the chairmen of the 18-member presidential commission released a draft report with their own sweeping recommendations. Democrat Erskine Bowles, former White House chief of staff under President Clinton, and former Republican senator Alan Simpson of Wyoming proposed nearly $4 trillion in savings over the decade, including the elimination of all tax breaks now embedded in the tax code.

Their plan was panned by liberal Democrats, including commission members such as Sens. Dick Durbin and Max Baucus, for tilting too much toward spending cuts and changes to Medicare and Social Security. On Tuesday, Rep. Jan Schakowsky, D-Ill., who was named to the panel by House Speaker Nancy Pelosi, proposed her own plan built mostly on tax increases and defense spending cuts.

The Bowles-Simpson commission is meeting behind closed doors this week in hopes of hashing out a compromise plan that can attract at least 14 of 18 votes — the number needed to prompt congressional action under the terms of its creation earlier this year. That, however, will be difficult, because the panel includes six Democrats and six Republicans in Congress.

The Bipartisan Policy Center plan would save even more money than Bowles and Simpson proposed — nearly $6 trillion through 2020, nearly $30 trillion through 2030, and nearly $85 trillion through 2040. Even so, federal budgets would continue to run in the red, and the national debt would remain close to 60% of the economy.

Just to achieve those goals, the center's plan calls for:

•$2.7 trillion in spending cuts through 2020, including more than $1 trillion in defense spending, $1 trillion in domestic spending and $750 billion in Medicare and Medicaid savings. Defense spending would be frozen for five years, domestic spending for four years. Medicare premiums for doctor visits would increase, patients would have to pay more for health care if the program's costs exceeded a preset level, and private health plans would be encouraged as alternatives to Medicare.

•$2.3 trillion in tax increases through 2020, mostly by creating a new "debt reduction sales tax" and wiping out popular tax breaks. Six income tax rates ranging from 10% to 35% would be reduced to just two rates, 15% and 27%. Deductions for mortgage interest and charitable contributions would be replaced with 15% refundable credits that anyone who owns a home or gives to charity could claim.

•Changes to Social Security, which would be used to extend the life of the program for at least 75 years, rather than to reduce the debt — the same approach Bowles and Simpson recommended. The payroll tax cap would rise to include wages above the current $106,800 cutoff level, cost-of-living increases would be reduced, and wealthier beneficiaries would see their benefits grow more slowly. Unlike Bowles' and Simpson's proposal, the new plan does not call for raising the retirement age from 67 to 69.

Domenici and Rivlin acknowledged many of their recommendations would be tough for Congress to swallow. Domenici said it's up to President Obama to prompt action.

"It will not be done if there are not sufficient leaders in America to pursue it," he said. "We need the president of the United States to lead."

http://www.usatoday.com/news/washington ... rity_N.htm