Deficit-cutting plan stumbles in uphill climb

WASHINGTON Thu Dec 2, 2010 6:54pm EST

Senate staff members pick up copies of President Barack Obama's 2011 Budget as it is distributed on Capitol Hill in Washington February 1, 2010. REUTERS/Jonathan Ernst

Senate staff members pick up copies of President Barack Obama's 2011 Budget as it is distributed on Capitol Hill in Washington February 1, 2010.

Credit: Reuters/Jonathan Ernst

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WASHINGTON (Reuters) - A bold plan to slash the budget deficit appeared on Thursday to be falling short of the support needed from members of a presidential commission to trigger congressional action.

But the plan had won more backing, from Democrats and Republicans, than many expected in February when President Barack Obama set up the commission with the task of finding ways to cut the $1.3 trillion deficit and $13.8 trillion debt.

Although the plan drafted by panel co-chairmen Erskine Bowles and Alan Simpson was unlikely to go to Congress, it will likely provide an abundance of ideas that could frame the politically explosive deficit debate in 2011 and 2012.

"The deficit isn't going away and when Capitol Hill finally wakes up to this sobering fact, they will have a roadmap in front of them courtesy of Simpson and Bowles," said Chris Krueger, research analyst at financial firm MF Global.

Brian Gardner, policy analyst at investment firm Keefe Bruyette & Woods, said, "We think it will be a baseline for next year's budget battles; we believe significant components could find their way into the president's budget to be released in February as well as congressional budget proposals."

With anxiety over government debt roiling markets in Europe, U.S. lawmakers remain deeply divided over tax and spending issues, as reflected within the commission, which was expected to disband after its last meeting on Friday.

Nine members have said they will vote for the plan. Four have said they will oppose it. One said he was leaning toward a "no" vote. Four commission members remain uncommitted. But analysts are betting the plan will not gather the 14-vote majority needed for it to be sent to Congress.

"It remains highly unlikely that any proposal will get the necessary 14 votes to become an official recommendation," said Steve McMillin, a partner at Hamilton Place Strategies, a Washington policy advisory firm.

DEFICIT NEAR WORLD WAR TWO LEVELS

The Bowles-Simpson plan is coming at a time when the U.S. budget deficit is the highest it has been since World War Two.

Polls show voters are deeply concerned, and they made that clear in the 2010 congressional elections, when Republicans scored enough victories to retake the House in 2011 and gain seats in the Senate.

At the same time, a government debt crisis is rolling through Europe -- from Greece to Ireland -- and raising concerns about the credit-worthiness of larger nations.

The plan proposes a major tax code overhaul and deep spending cuts to eventually balance the U.S. budget, reaching every corner of the government and offending special interests across the political spectrum.

Republicans have criticized the tax hikes the plan calls for and said it does too little on cutting healthcare. Democrats have slammed it as too harsh on Medicare and Social Security, government programs for the elderly.

"Reducing our federal deficit is imperative, but we cannot cut the deficit at the expense of veterans, seniors, ranchers, farmers and hard-working families," said Democratic Senator Max Baucus, who said on Thursday he would oppose the plan.

Baucus chairs the Senate Finance Committee and is a commission member. So is Republican Representative Dave Camp, the front-runner to be the next chairman of the tax-writing House Ways and Means Committee.

CAMP TO OPPOSE PLAN

Camp also vowed on Thursday to oppose the plan, saying tax increases it proposed would impede economic growth. He also said the proposal failed to address healthcare spending that he said was the No. 1 driver of mounting U.S. debt.

The panel's revised plan envisions reducing the budget deficit to 2.3 percent of gross domestic product by 2015, from 8.9 percent in the last fiscal year -- a figure bloated by efforts to lift the U.S. economy out of its deepest recession since the 1930s, Bush-era tax cuts and two costly wars.

To accomplish that goal, the plan urges deep cuts in military and domestic programs starting in 2012, a 15 cent-a- gallon hike in the gas tax and requiring Medicare participants to pay more costs themselves. It also recommends raising the age for receiving Social Security benefits.

The commission's work came to a head amid a debate over Bush-era tax cuts that greatly boosted the deficit. Extending those cuts would drive the deficit higher. Obama has argued for letting them lapse for families earning more than $250,000 a year. Republicans say any lapse would harm the economy.

(Additional reporting by Andy Sullivan; Editing by Peter Cooney)

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Comments (17)
ProjCoord wrote:
Would seem like all the “Spending Chopping” Hoopla ws all false pretense to get elected a few weeks ago. Now here comes the bipartisin commission “tough pills to swallow” and everyone is heading for the hills. Who is trying to pull something on us?

Dec 02, 2010 12:00pm EST  --  Report as abuse
HemiHead66 wrote:
Of coarse they support it, anything that robs money from people living off 12 thousand a year to support their one trillion plus a year Military Industrial Complex / war profiteering adventures, they’ll gladly support. And they’ll even make us pay for the billionaires upcoming tax cut. Life is hard now that some of their tax-loopholes have taken a hit. With a little luck, I might be able to retire at 70. Then I’ll die at 71. A lifetime of paying into something I’ll never see. I’m only 46, and I’m already falling apart because of all the poison in our food. Who’s bright idea was it to put high fructose corn syrup in everything we eat? Corporate profits first, people second! May all of you rot in Hells Hell.

Dec 02, 2010 12:25pm EST  --  Report as abuse
jimbee wrote:
“Something” has to happen and soon! Look at the EU countries who have sliced and diced their social welfare programs and even raised taxes. Or are we, as a typical super power, destined to slowly self-distruct and go the way of our predecessors? In any event it will be a fast ride ride we as a nation are in for. IMHO, I think it will be more of the same slippery slope business as usual because the politicans and their backers can’t stop their lusting for more power and more of the gold pouring into their fat coffers. The country be darned.

Dec 02, 2010 12:26pm EST  --  Report as abuse
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