Deficit Panel Recalibrates, Seeks More Support


A presidential commission trying to balance the U.S. budget on Wednesday softened a proposed tax overhaul to win broader support for its bold plan to slash the federal deficit.

Rather than kill the popular mortgage interest tax deduction, as proposed in a Nov. 10 draft, the commission's revision would replace the deduction with a limited tax credit.

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The changes were intended to attract backing from the 12 elected lawmakers on the 18-member panel. At a commission meeting on Wednesday, two key senators said they would support the plan.

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But the co-chairmen of the panel faced an uphill struggle to win the votes of 14 commissioners, which would trigger a congressional vote on the proposal. President Barack Obama set up the commission in February.

The panel's revised plan envisages reducing the budget deficit to 2.3 percent of gross domestic product by 2015, from 8.9 percent in the last fiscal year as the United States and other major powers struggle to right their economies after the world financial crisis and deep recession.

At Wednesday's commission meeting, seven members, including the co-chairmen, expressed support for the plan; one voiced opposition; and the remainder expressed concerns without committing one way or the other.

A final vote was set for Friday at the last meeting of the panel led by former Republican Senator Alan Simpson and Erskine Bowles, who was chief of staff for former Democratic President Bill Clinton.


Republican Senator Judd Gregg and Democratic Senator Kent Conrad, both veterans of Washington's budget wars, said they would support the plan.

Democratic Representative Jan Schakowsky said she would oppose it. Other members of Congress remained on the fence.

Republicans broadly opposed tax hikes in the plan, while Democrats objected to cuts in the Medicare and Medicaid health programs and proposed changes to Social Security pensions.

The commission's work came to a head amid an escalating government debt crisis in Europe. Fears that the contagion could spread were driving international investors into U.S. Treasury bonds in a flight to safety.

A fierce debate also was under way on Capitol Hill over Bush-era tax cuts that played a key role, along with two costly wars and a financial crisis, in boosting the deficit close to levels reached during World War Two.

Extending the Bush tax cuts would drive the deficit higher, and Obama has argued for letting them lapse for families earning more than $250,000 a year.

Republicans, who take control of the House of Representatives in January after November's Democratic election defeats, say any lapse would harm the economy.


Bowles and Simpson vowed that they will push ahead for a tough plan.

"Al and I are not going to wimp out. For us, it's go big or go home ... We're not interested in 14 votes for a whitewash," Bowles said.

As in the draft, which was widely criticized, the commission's revised plan recommends lower corporate tax rates and calls for a 15 cent per gallon increase in the gasoline tax, with revenues directed to transportation spending.

In a symbolic gesture, it calls for cutting the budgets of the White House and Congress by 15 percent and immediately freezing the salaries of members of Congress, along with a three-year freeze on non-military federal worker pay.

Instead of ending the charitable gift tax deduction, as the draft proposed, the revision calls for a 12 percent credit.

The draft also called for taxing capital gains and dividends as ordinary income, instead of the current 15 percent. The revision opened the door to a 20 percent investment income exclusion if it were offset by a higher top tax rate on ordinary income.

The revision also proposes a payroll tax holiday of $50 billion to $100 billion in 2011, while reducing the number of income tax brackets to three from the present six.

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