By Kevin Drawbaugh
WASHINGTON (Reuters) - Warning of a "death spiral" without drastic changes, a group of experts on the U.S. federal budget deficit on Wednesday called for a 2011 Social Security tax holiday, a soft drink tax and government spending freezes.
In an ambitious plan to slash the deficit and the fast-mounting national debt, the group also called for a new 6.5 percent national sales tax, as well as lower and simpler individual income and corporate tax rates.
One of their proposals is "an excise tax on the manufacture and importation of beverages sweetened with sugar or high-fructose corn syrup." Others are cutting farm payments and tinkering with the Social Security retirement program.
Their plan would kill the mortgage interest and charitable contribution tax deductions and replace them with 15 percent refundable tax credits anyone could claim. The group said the plan would boost the economy, create jobs and balance the budget -- excluding debt interest -- by 2014.
"Rising debt and rising interest costs could evolve into a 'death spiral' ... Even without a crisis, rising debt will increase our reliance on foreign lenders," said a summary of the report from the Rivlin-Domenici group, which has no official government role.
It comes as a presidential commission targeting the same problem convenes on Wednesday for another closed-door session with just over two weeks before its final report is due.
Americans are worried about the deficit and want action, polls show, but politicians cannot agree on tax hikes and spending cuts, even though experts say both are needed.
Dramatic proposals unveiled last week by the leaders of the presidential commission were widely dismissed as unworkable, but they succeeded in grabbing the spotlight.
"What's clear to me is that the era of debt denial is over," Erskine Bowles, co-chairman of the presidential commission, told reporters on Tuesday evening. The other co-chairman is former Senator Alan Simpson.
Bowles said the 18-member commission, appointed earlier this year by President Barack Obama, has agreed on the need for caps on discretionary spending and that defense spending is on the table. The panel meets again on Wednesday when it will discuss taxes and the Social Security retirement program, he said.
Underscoring the presidential panel's discord, one of its Democratic members, Representative Jan Schakowsky, unveiled her own alternatives to the Bowles-Simpson proposals.
"I am releasing my own plan today because I believe that there is a better way to achieve our goal -- one that protects the poor and the middle-class," Schakowsky said on Tuesday.
Schakowsky's plan does not contain any cuts to Social Security, which she said "has nothing to do with the deficit."
Although Democrats have criticized the Bowles-Simpson proposals, an analysis by the Democratic-leaning Tax Policy Center said the plan amounts to a net tax increase benefiting lower income groups.
"The Bowles-Simpson proposal is indeed an across-the-board tax increase-- and a fairly progressive one at that," Howard Gleckman, senior associate at the center, said in a blog.
The U.S. budget deficit is presently $1.3 trillion and the national debt is more than $13.6 trillion.
(Additional reporting by Kim Dixon and Donna Smith; Editing by Dan Grebler)