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Factbox: Fiscal commission urges sharing the pain
(Reuters) - A national commission appointed by U.S. President Barack Obama to examine how to ease the country's deficit and rising debt burden released its long-awaited report on Wednesday. Here are the main highlights:
IF THE PLAN IS IMPLEMENTED, IT WILL:
- Cut taxes
- Cut the U.S. budget deficit by nearly $4 trillion
- Reduce the budget deficit to 2.3 percent of gross domestic product (GDP) by 2015, from 8.9 percent in the last fiscal year
- Cap revenue as a share of the economy to 21 percent and cap spending under 22 percent, from the estimated 15.8 percent and 25.1 percent in 2011, respectively
- Stabilize the growth in national debt by 2014 and reduce the debt to 60 percent of GDP by 2023 and 40 percent by 2035, from the 68.9 percent forecast for 2011
COMPREHENSIVE TAX REFORM
- Cut rates, broaden the base, simplify the tax code, and curb "tax expenditures," which disguise spending via the tax code. Reform corporate taxes, and cap revenue to avoid excessive taxation.
- Cut income tax rates across the board, and reduce the top rate to between 23 and 29 percent
- Replace the current number of income tax brackets from six to three
- Tax all capital gains and dividends at ordinary income rates
- Eliminate the Alternative Minimum Tax
- Reform mortgage interest: provide a 12 percent nonrefundable tax credit available to all taxpayers; mortgage capped at $500,000; no credit for interest from second residence and equity
- State and municipal bonds: interest taxable as income for newly issued bonds
- Maintain the earned income tax credit and child tax credit
- Eliminate itemized deductions so all individuals take standard deductions
- Employer Provided Health Care Insurance: exclusion capped at 75th percentile of premium levels in 2014, with cap frozen in nominal terms through 2018 and phased out by 2038. Excise tax reduced to 12 percent
- Charitable Giving: 12 percent nonrefundable tax credit available to all taxpayers; available above 2 percent of Adjusted Gross Income floor
- Retirement: Consolidate retirement accounts; cap tax-preferred contributions to lower of $20,000 or 20 percent of income, expand saver's credit
CUT DISCRETIONARY SPENDING
- Cap both security and non-security spending to force budget discipline on Congress. Cut low-priority programs.
- Streamline government operation. Offer $50 billion in immediate cuts and sketch out $200 billion in illustrative 2015 savings
- Dedicate a 15 cent per gallon hike in gas tax to transportation funding to fully fund U.S. transportation trust fund.
- Make the federal government more efficient: cut the White House and congressional budget by 15 percent; impose a three-year pay freeze on members of Congress pay; impose a three-year pay freeze on federal workers and Defense Department civilians; cut the size of the federal workforce through attrition; cut federal travel and vehicle budgets; sell excess federal land; eliminate all congressional earmarks.
- Cap discretionary spending through 2020: hold spending in 2012 to 2011 levels, return spending to pre-2008 levels by 2013, and limit future spending growth to half the projected rate of inflation through 2020.
- Require equal percentage cuts from both security and non-security spending
- Enforce spending caps in Congress via a "belt and suspenders" approach to block the passage of any legislative bill that exceeds the caps, and make the Senate wait until a bill is scored by the nonpartisan Congressional Budget Office before voting on it.
- At the end of every congressional session the CBO would have to certify discretionary spending approved by Congress was within limits, and if it was not, the White House Office of Management and Budget would be required to take action.
- Require the president to propose annual limits for war spending
- Establish a disaster fund to budget for catastrophes
- Stop the abuse of emergency spending by making Congress define emergency spending
SOCIAL SECURITY REFORMS
- Gradually increase early and full retirement ages, based on increases in life expectancy
- After the Normal Retirement Age reaches 67 in 2027 under current law, index both the normal and Early Eligibility Age to increases in life expectancy, effectively increasing the normal retirement age to 68 by about 2050 and 69 by about 2075, and the earlier retirement age to 63 and 64 in lock step
- Gradually increase the taxable maximum to cover 90 percent of wages by 2050
- Reduce poverty by providing an enhanced minimum benefit for low-wage workers
- Enhance benefits for the very old and the long-time disabled
- Give retirees more flexibility and create a hardship exemption for those who cannot work beyond 62
HEALTH CARE COST CONTAINMENT
- Reform physician payments, cost-sharing, malpractice law, prescription drug costs and government-subsidized medical education
- Cut agriculture subsidies. Modernize military and civil service retirement systems. Reform student loan programs and the Pension Benefit Guarantee Corporation.
- Reform the budget process
(Reporting by Alister Bull in Washington; Editing by Stacey Joyce)
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