Debt panel co-chairmen urge overhaul

By CQ StaffWith a Dec. 1 deadline approaching, the co-chairmen of the National Commission on Fiscal Responsibility and Reform called for a tax code overhaul and steep federal spending cuts in a draft of their suggested recommendations to reduce the nation’s debt.

Democrat Erskine Bowles and Republican Alan K. Simpson called for a tax overhaul that reduces rates, simplifies the tax code, broadens the base and reduces the deficit. They also urged spending cuts beginning in fiscal 2012, with reductions from all areas of the budget.
Included on the list are changes in Social Security that would boost benefits for the poorest Americans while cutting them by nearly one-fifth for the wealthiest wage earners.
Among other steps, the panel leaders called for changing the formula used to calculate cost of living adjustments for Social Security and other benefit programs.
The leaders also proposed indexing the full retirement age to life expectancy, which they said would advance the retirement age by one month every two years after it reaches 67, the level set by current law. That would push the normal retirement age to 68 in about 2050 and 69 in about 2075.
For those unable to work beyond 62, exceptions would be made.
The two leaders also urged a three-year freeze on federal pay, including military pay except for combat troops. And they called for a 15 percent reduction in the White House and congressional budgets.
The proposed three-year freeze in military pay excludes combatants but nonetheless likely will trigger dissent in Congress. Lawmakers in recent years have increased military pay beyond what the president has requested.
Pentagon procurement would take a big hit too, a $20 billion reduction that likely would upset lawmakers already concerned that the military is shortchanging modernization. In addition, the cuts include shuttering one-third of U.S. overseas bases, to the tune of $8.5 billion in savings.
The draft calls for changing the unpopular system used to calculate payment rates for physicians who see Medicare patients, known as the sustainable growth rate. Since 2003, Congress has averted payment cuts called for under the formula, which is adjusted every year to reflect differences between actual spending and overall targets set to hold down spending on physician services.
Doctor groups and lawmakers of both parties have called for repealing the formula, but the price tag for a long-term solution has been politically and fiscally prohibitive.
The draft asks the Centers for Medicare and Medicaid Services to replace the current formula by 2015, with modest reductions in payment rates to physicians until then.
Other cost savings would come from increasing cost sharing programs in Medicare and requiring plans to offer rebates for brand-name drugs as a condition of participating in Medicare Part D.
The commission leaders embrace one of Republicans’ top health care priorities by urging enactment of a comprehensive overhaul of medical malpractice laws and capping non-economic and punitive damages.
Bowles said that he and Simpson are not asking anyone to vote on this particular plan, and that it is only “ a starting point.”
“What we need to do is debate it,” Bowles said.
White House spokesman Bill Burton said President Obama, who is traveling in Asia, “will wait until the bipartisan fiscal commission finishes its work before commenting. He respects the challenging task that the co-chairs and the commissioners are undertaking and wants to give them space to work on it.
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.”
Others were less measured in their response. House Speaker Nancy Pelosi, D-Calif., called the draft proposal “simply unacceptable.”
Hard Choices
The Bowles-Simpson recommendations call for politically painful steps that would pare federal benefits for many Americans who now receive them and limit or erase existing tax breaks for millions of individuals and businesses.
Although the draft targets both spending and tax breaks, the bulk of the proposed savings would come from reduced spending.
The two leaders urged Congress to adopt tight discretionary spending caps, and they offered potential cuts to domestic and defense spending that would add up to $200 billion in savings in 2015.
They called for changes to farm subsidies and to the military and civil service retirement systems that would save billions from entitlement spending.
The pair said their draft would cut projected deficits by nearly $4 trillion through 2020, reducing the red ink to 2.2 percent of the gross domestic product (GDP) by 2015.
They said their plan would cap federal revenue at or below 21 percent of GDP, drive spending down first to 22 percent and then 21 percent; and reduce the national debt to 60 percent of GDP by 2024 and 40 percent by 2037.
Push-back against the recommendations was not long in coming.
The current Senate Budget Committee chairman and presumptive next House committee chairman, both members of the fiscal commission, offered praise for the draft but pointedly refused to say which parts they support and which they oppose.
In an interview, Rep. Paul D. Ryan, R-Wis., who is expected to lead the House Budget Committee next year, called the draft “an impressive and serious effort” but only the beginning of the process.
He said there are “things in it I like and things in it I don’t like.” But he declined to elaborate and said he was not ready to say whether he would support the plan.
“We should applaud the fact that these co-chairmen are putting forward a serious and impressive effort,” Ryan said. “Having been the author of the only plan that was out there to fix this problem, it’s nice to finally see somebody else come up with a plan.”
Ryan said the commission has yet to determine the process for considering and voting on the co-chairmen’s plan and any other commission proposals — a process that may prove determinative of whether the panel can reach a consensus on anything.
Kent Conrad, D-N.D., chairman of the Senate Budget Committee, adopted a similarly cautious tone on the Bowles-Simpson report.
“This is not the conclusion of the commission’s work. This is the beginning,” Conrad said. “I commend them for putting together a serious proposal. It reveals just how difficult it is to put the nation on a sound fiscal course. 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.”
Jan Schakowsky. D-Ill., a more liberal commission member, objected to the proposed Social Security changes. She said it remains unclear whether the commission will vote on a single proposal or a series of offerings. She added that she would prefer to split up the recommendations.
“The one thing we haven’t agreed on: Do we have to agree upon a full proposal that meets all the goals?,” she said. “Can there be separate votes, or even one vote on a number of things that would at least set us in the right direction? I think that’s very important, deciding where we go from here.”
Senate Finance Chairman Max Baucus, D-Mont., said Simpson and Bowles “have performed a very valuable service” in offering their proposal. However, he said he “has some concerns” about the package.
“I cannot support this version right now at this time,” he said.
Conrad said he was disappointed that the co-chairmen didn’t include the kind of consumption tax he had hoped. But he said he would support other items, such as examining a switch to a two-year budget cycle from the current annual one.
Conrad said that a Bipartisan Policy Center task force led by former Clinton White House budget director Alice Rivlin and former Senate Budget Chairman Pete V. Domenici, R-N.M., now retired, may include a tax on consumption in the budget-balancing proposal it will unveil on Nov. 17.
The key to advancing any proposal will be securing 14 of 18 votes, and that means getting Republican support for the final package.
Sen. Michael D. Crapo, R- Idaho, said he was “hopeful” that could happen, even as he and colleagues on the commission digested the co-chairmen’s proposal.
“I actually do believe that the threat our country faces from our fiscal problems right now is sufficiently real that we have to come together,” she said.
-- Kerry Young and Paul M. Krawzak, CQ Staff