The co-chairs of President Barack Obama’s deficit reduction commission released Wednesday a revised version of their plan to reduce the burgeoning deficit by $3.8 trillion through 2020.
In releasing the revised report called “The Moment of Truth,” co-chairs Erskin Bowles, former chief of staff to Bill Clinton, and Alan Simpson, a former Republican Senator from Wyoming, said that “The era of debt denial is over, and there can be no turning back.” Together, they said, “we have reached these unavoidable conclusions: The problem is real. The solution will be painful. There is no easy way out. Everything must be on the table. And Washington must lead.”
The revised report proposes a six-part plan that includes reducing the deficit to 2.3% of GDP by 2015 and “sharply” reducing tax rates—including limiting the mortgage interest deduction—while also abolishing the Alternative Minimum Tax (AMT), and cutting “backdoor spending” in the tax code. The plan would also cap revenue at 21% of GDP and get spending below 22%, and stabilize debt by 2014 and reduce debt to 60% of GDP by 2023 and 40% by 2035. Just as in the draft version of the report, released on Nov. 10, the plan would also include cuts to Social Security and Medicare. The new plan would also cut 200,000 federal government jobs by 2020 and reduce defense spending.
Nancy Altman, co-chair of the Strengthen Social Security Campaign, said in a statement that “Social Security did not cause the federal deficit and cutting benefits will not fix it. Social Security has not added one cent to the deficit. To include Social Security in this commission’s work puts the retirement security of the vast majority of Americans at great risk.”
But concerns remain that the commission's plan could undermine Americans' retirement security. The American Society of Pension Professionals and Actuaries (ASPPA) said that the plan "would eliminate all tax expenditures including retirement tax preferences." The plan also calls for reducing the defined contribution limit "by more than half," ASPPA says. "Tax-free contribution limits would be cut from the current limit of $49,000 to a new cap of $20,000 or 20% of pay." If adopted by Congress, ASPPA continued, this plan "would effectively eliminate employer-sponsored profit sharing plans, shifting responsiblity for retirement savings to workers."
The 18-member deficit reduction panel planned to discuss the newly revised plan on Wednesday and render a final vote on Friday. But the wide-held view is that the Commission’s report will fail to garner the 14 votes needed to send it to Capitol Hill for consideration and a vote.
Erskine and Bowles noted in the report that the Congressional Budget Office (CBO) projects if the nation continues on its current course, deficits will remain high throughout the rest of this decade and beyond, and debt will spiral ever higher, reaching 90% of GDP in 2020.
As baby boomers retire and health care costs continue to grow, the two said, the “situation will become far worse.” By 2025, they continued, “revenue will be able to finance only interest payments, Medicare, Medicaid, and Social Security. Every other federal government activity–from national defense and homeland security to transportation and energy–will have to be paid for with borrowed money.” Debt held by the public, they said, “will outstrip the entire American economy, growing to as much as 185% of GDP by 2035. Interest on the debt could rise to nearly $1 trillion by 2020. These mandatory payments–which buy absolutely no goods or services–will squeeze out funding for all other priorities.”