With Social Security proposal, deficit panel touches third rail

WASHINGTON — The leaders of a special panel that's exploring ways to reduce the federal deficit released a dead-on-arrival proposal on Wednesday to reduce Social Security benefits to future retirees and repeal a number of popular tax breaks.

The proposal from the co-chairmen of the National Commission on Fiscal Responsibility and Reform would wipe out nearly $4 trillion from projected deficits by the end of the decade. It would sharply cut military spending and potentially affects numerous sacred cows in politics, including retirement benefits and tax breaks for homeowners.

"Our country has tough choices to make. Without regard to party, we need to be willing to tell Americans the truth," said the report by Democrat Erskine Bowles, the president of the University of North Carolina system, and former Republican Senate leader Alan Simpson of Wyoming.

To avoid harming a fragile economic recovery, the cuts anticipated in the commission leaders' proposal would be gradual and wouldn't even begin to take effect until the 2012 fiscal year, which begins on Oct. 1, 2011.

The leaders' report, which was released ahead of a full committee plan that must be issued by Dec. 1, would save $200 billion in domestic and defense spending by 2015, and would impose caps on how much spending outside defense and retirement benefits can be authorized.

It also lays out three paths toward consolidating tax brackets, with one option into just three personal income tax brackets — 8 percent, 14 percent and 23 percent, and one corporate tax rate, 26 percent. All are sharply lower than current tax brackets, and the plan would eliminate the creeping alternative minimum tax, now threatening to ensnare 21 million more Americans.

Another tax option has three higher brackets and eliminates mortgage interest deduction on second residences and homes valued at more than $500,000. It also would repeal the homeowner deduction for state and local taxes.

Roughly $85 billion would be saved through expanded cost sharing in Medicare and a cap on catastrophic care, another way of saying costs will shift to patients and that there could be limits on end-of-life care.

On Social Security, the so-called third rail of American politics, future retirees could see reduced benefits if they're wealthier, and a special minimum benefit would be created for low-wage workers who had a full career but face poverty in retirement. The retirement age would be indexed to measures of longevity, so if the national life expectancy rate rises, so would the age of retirement to receive benefits.

Balanced budget advocates lauded the proposal.

"It is truly a remarkable plan," Maya MacGuineas, the president of the Committee for a Responsible Budget, said in a statement. "This plan does it all . . . brings down future deficits and debt, protects the most disadvantaged, makes government more effective and efficient, and promotes economic growth and competitiveness."

David Walker, who warned of the nation's unfunded liabilities when he was the comptroller general, said in a statement, "Their proposal puts everything on the table and proposes changes in every major area, including budget process, Social Security, health care, defense and other discretionary spending, and tax reforms."

That's precisely why it's highly unlikely that 14 of the 18 commission members are willing to sign onto a plan that hits so many sacred cows. In statements, no commission member outright endorsed the plan and several noted they expected to "improve" on it.

"I look forward to reviewing it in depth and hopefully improving on it," said retiring Sen. Judd Gregg, R-N.H.

Added Sen. Kent Conrad, D-N.D.: "Some of it I agree with; some I strongly disagree with. We will have a chance to offer alternatives as we advance the process later today and next week. Our task ahead will be difficult, but we must continue to work toward reaching a bipartisan agreement."

A joint statement from Republican commission members Rep. Dave Camp of Michigan, Rep. Jeb Hensarling of Texas and Rep. Paul Ryan of Wisconsin praised the report but stopped well short of endorsing it, noting that, "We have concerns with some of their specifics."

House Speaker Nancy Pelosi, D-Calif., was more blunt.

"This proposal is simply unacceptable," she said.

Rep. Raul Grijalva, D-Ariz., the chairman of the House Progressive Caucus, suggested the proposals were dead on arrival.

"If the co-chairs of the deficit commission were dead set on gutting Social Security and Medicare from the beginning, they could have saved time and effort by releasing this proposal the day after the commission was formed," said Grijalva, who's not on the commission.

The Obama administration also was cool to Wednesday's proposals.

"The President will wait until the bipartisan fiscal commission finishes its work before commenting," said spokesman Bill Burton. "These ideas, however, are only a step in the process towards coming up with a set of recommendations and the president looks forward to reviewing their final product early next month."

Other controversial parts of the Bowles-Simpson proposal would:

  • Raise the gas tax by 15 cents to fund transportation spending
  • Freeze salaries of all non-defense government employees for three years
  • Cut the federal workforce by 10 percent
  • Merge the Commerce Department and Small Business Administration
  • Slow the growth in foreign aid spending
  • Eliminate all congressional earmarks, pork-barrel spending
  • Fund Smithsonian, national parks through fee increases
  • Cancel the Marine Corps' V-22 Osprey an amphibious assault vehicle
  • Cancel the Expeditionary Fighting Vehicle
  • Force the Air Force to substitute many F-16 fighter jets for F-35's.

    Co-Chair Proposal

    Savings detailed


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