Debt commission final report leans right, but conservatives say it’s just a first step

Jon Ward Contributor
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Summoning the most urgent and stern rhetoric possible, President Obama’s debt commission co-chairmen released their final report Wednesday morning upon a capital culture waiting eagerly to tear it to shreds.

“America cannot be great if we go broke,” the report said. “After all the talk about debt and deficits, it is long past time for America’s leaders to put up or shut up.”

Coming in at a modest 59 pages, the report, titled, “The Moment of Truth,” was full of detail, and full of spending cut pain for virtually every interest group in Washington, with $3.9 trillion of reductions to the federal deficit by 2020.

Overall, the plan hewed fairly closely to the draft released by co-chairs Alan Simpson and Erskine Bowles a month ago, and is fairly conservative in its approach, though anti-tax groups will not like it. But compared to the liberal plan released by Rep. Jan Schakowsky, an Illinois Democrat on the commission, the plan is hawkish about the need to cut spending, reform the tax code and make serious changes to Social Security.

“It does recognize that spending is the problem,” said Sen. Mike Crapo, Idaho Republican, who also said he was glad that the solution proposed to increase government solutions is to reform the tax code, not increase taxes.

Nonetheless, conservatives on the commission said that while they liked many things in the plan, it did not go far enough, most significantly on cutting spending and in reforming health care and the Medicare system as well as undoing President Obama’s new health law.

“It doesn’t even solve the problem. It just allows us to put in place … a pathway that says to Americans and the world, we are serious about doing something,” said Sen. Judd Gregg, New Hampshire Republican. “The problem will still be there … We’d still have a debt to GDP ratio above 60 percent by 2020.”

(Click here to read the final report and click here to read a comparison of all three proposals laid out in recent weeks).

The plan recommends reducing the national debt to 60 percent of the gross domestic product by 2023 and 40 percent by 2035, reducing spending to 21 percent of the economy, and capping federal revenues at 21 percent of the economy as well. All of these are measures that reflect a clear concern about the size of government and about the importance of retaining the confidence of the nation’s creditors that the U.S. can repay its debt.

Conservatives said that the 21 percent level of spending, however, is much higher than the historical average of 20 percent.

“While there is arguably a balanced level of effort devoted to spending cuts and revenue increases, the targets chosen would enshrine a larger federal government, largely because the proposal’s starting point is the unusually high level of Federal spending that exists today,” said Steve McMillin, a former Bush administration budget official now with Hamilton Place Strategies.

An emphasis on broad tax reform that broadens the tax base to make more Americans pay taxes, while lowering rates simultaneously, also remains in the plan. The report recommends reducing six brackets to three, and going to a system of either 8, 14 and 23 percent, or – if the government retains a number of tax deductions and exemptions – to 12, 22 and 28 percent.

The current brackets are 10,15, 25, 28, 33 and 35 percent, and are scheduled to go up to 15, 28, 31, 36 and 39.6 percent if the Bush tax cuts expire at the end of this year.

The report also recommends lowering the corporate tax rate to 26 or 28 percent, up from its current 35 percent rate.

There are $50 billion in immediate cuts suggested that include some highly symbolic moves, such as a 15 percent reduction in the budgets for Congress and the White House, a three-year freeze on pay for members of Congress, a reduction of the federal work force, a ban on all earmarks, and a reduction in federal travel, vehicle and printing budgets.

As for Social Security, the plan sticks by Bowles and Simpson’s recommendation from earlier this month that the retirement age be raised to 68 around 2050 and 69 around 2075, an idea that was decried by labor unions and the left when they first suggested it earlier this month. That is one of numerous recommended changes to the program, though the report suggests raising benefits for the poorest and oldest Social Security recipients, and recommends increasing payments from wealthier Americans, making it more progressive.

The changes would make Social Security – which is scheduled to become insolvent in 2037 – solvent for 75 years.

Senate Majority Whip Dick Durbin, an Illinois Democrat, said that he was in favor of the retirement age increases, commenting that while he knew the liberal base would be angered by his comment such a move on the timetable announced is “hardly radical.”

But the Service Union Employees Union denounced the plan as a “job-killer,” saying that plans such as Schakowsky’s and others “demonstrate … that we can reduce the deficit without cutting jobs or undermining the safety nets of Social Security and Medicare.”

Rep. Paul Ryan, Wisconsin Republican, said the debt commission had been a success by elevating the discussion “toward the adult level it needed to go to.”

But Ryan said the plan did not do anything to fix the problem of health care spending. He said that he understood that while Bowles and Simpson were in a difficult position as presidential appointees, and thus would have had a hard time targeting Obama’s health care overhaul, he believes the new law is a big part of the problem.

“We are hastening the day when the only option is the public option,” said Ryan, who has been a leading conservative to propose overhauling the health care system in a more free market direction.

The commission’s 18 members will not vote on the report until Friday, to give them time to process the report. But a few said immediately where they stood. Schakowsky was the first definitive no, but Sen. Kent Conrad, North Dakota Democrat, Honeywell International CEO David Cote and former Clinton White House budget director Alice Rivlin said they would vote yes.

Simpson, opening the commission’s Wednesday meeting, acknowledged that Congress – which is not obligated to pass legislation based on the report’s recommendations even if 14 of 18 members approve it – will likely disregard their recommendations for the moment.

“It may be buried in an unmarked grave soon,” he said.

But he added that when the national debt nears the federal limit of $14.3 trillion early next year, the report and its ideas will resurface.

“This cadaver will rise from the crypt,” he said.

*This story originally stated that the Bowles/Simpson plan was originally released earlier in December, and that federal spending has historically been 18 percent of GDP.

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