The co-chairs of President Obama’s bipartisan deficit panel laid out their recommendations for closing the U.S. government’s $1 trillion deficit on Wednesday, compiling a laundry list of recommendations that include raising Social Security’s retirement age and dramatically cutting corporate tax rates.
But the recommendations seem politically hampered from the outset, as the draft recommendations also called for the elimination of or drastic cutbacks in popular political programs like defense spending, farm subsidies and home mortgage tax deductions.
According to the panel’s co-chairs, Erskine Bowles, a Democrat, and Sen. Alan Simpson, a Republican, the proposal could reduce the deficit to “sustainable levels” by 2015 by erasing $4 trillion in projected deficits and eventually balance the budget with no borrowing by 2037.
It would also extend the life of Social Security for an additional 75 years, according to the draft recommendations.
“We're clearly on unsustainable path,” Bowles said. “We can't grow our way out of it. We can't tax our way out of it. We can't cut our way out of it. We've put a balanced approach out there.”
To reach a deficit-neutral balance sheet, the co-chairs recommended tough caps on discretionary and defense spending while also reducing and simplifying the tax code both for individual and corporations, creating just three individual tax brackets and one lowered corporate tax rate.
The panel recommends the elimination of the home mortgage interest deduction for certain loans, the elimination of the Alternative Minimum Tax, and other similar targeted programs.
The goal, the draft said, is to broaden the tax base by eliminating loopholes but at the same time lower the overall tax burden for both corporations and individuals. While more individuals would pay income tax, the lowest income tax bracket would fall to 8% (as compared to the 15% bracket now) while the corporate tax rate would drop from 35% to 26%.
On the spending side, the draft proposal recommends slowing the growth of foreign spending and slashing government subsidies to farmers to the tune of $3 billion a year. Federal employee salaries would be frozen for three years while the federal workforce would be reduced by 10% through attrition by 2015 at a savings of $15.1 billion.
Social Security’s retirement age would be gradually raised to 68 by 2050.
The panel’s recommendations are just a start and may never see a vote in Congress. The panel would need 14 out of the 18 members to agree on the recommendations in order to get an automatic vote in Congress.
There was already some opposition to the plan in current form, some of the strongest opposition coming from the left. Rep. Jan Schakowsky, D-Ill., who also sits on the deficit panel said “this is not at all something I could support,” citing concerns with the cuts to Social Security. Sen. Max Baucus, D-Mon., also express concerns.
Rep. Paul Ryan, R-Wis, who also sits on the panel and has been one of the loudest Republican voices on the issue of fiscal restructuring of the government’s balance sheet, called the plan “a good start” and "a serious and impressive effort” according to The Wall Street Journal.
"This is a provocative proposal, and while we have concerns with some of their specifics, we commend the co-chairs for advancing the debate," the Republican members of the House Budget committee - Rep. Dave Camp, Ryan and Rep. Jed Hensarling - said in a statement.
The White House declined to weigh in on the draft recommendations, saying that President Obama "looks forward to reviewing their final product early next month."
The co-chair's recommendations come on the same day the Treasury Department said that the U.S. Goverment started with a $120 billion deficit in October, the third-largest on record.