US deficit-cut plan falls short, offers framework
* Plan fails to cross 14-vote threshold to go to Congress
* But it wins backing of 11 commissioners, a majority
* Proposals expected to inform Obama budget, debate
WASHINGTON, Dec 3 (Reuters) - A bold plan to slash the U.S. budget deficit fell short on Friday of winning the support needed to trigger legislative action in Congress, shifting the fiscal responsibility issue to the White House and lawmakers.
The outcome was a sour note, coming the same day the government said the U.S. unemployment rate jumped to 9.8 percent and as both Democrats and Republicans battled over expiring tax cuts that, if extended, will only add to the deficit.
President Barack Obama must introduce a new budget early next year, and analysts expected the White House could use portions of the aggressive deficit-cutting plan drawn up by a presidential commission.
But the outcome was a sobering blow to Obama and a reminder of how politically volatile resolving the debt crisis will be.
"I don't doubt our ability to meet this challenge, but our success depends on our willingness to engage in the kind of honest conversation and cooperation that hasn't always happened in Washington," Obama said in a statement released by the White House while the president was in Afghanistan.
Yet the plan found more backing on the commission than many anticipated, notably with some Democrats embracing social program cutbacks and some Republicans backing tax hikes.
A formal vote on the plan did not occur. But 11 members said they supported the plan and seven said they did not. It needed 14 votes to be sent to Congress as a formal recommendation. The commission will now disband.
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While not dead, the recommendations will probably need some high-profile backers from both parties to ever see the light of day.
"We should not let this proposal fall idly by the wayside," said Republican Senator Mike Crapo, a commission member who backed its proposals to cut federal spending deeply, raise taxes and kill or narrow a range of tax breaks.
"I have seen too many proposals, good proposals, simply be shelved. We've shown that we can get the majority ... needed to pass this kind of legislation," Crapo said.
As Europe wrestles with a government debt crisis, the commission's work appeared to have galvanized lawmakers around the need to take firm action soon on reducing a budget deficit that hit $1.3 trillion in the last fiscal year and slowing the rapid growth of what is now a $13.8 trillion national debt.
CONRAD BACKS PLAN
"We've crossed an important hurdle here and laid out a plan that will be resurrected because it must be," said Democrat Kent Conrad, chairman of the Senate Budget Committee, at the commission's last meeting, when he backed the plan.
"Other than the terrorist threat ... this debt threat constitutes the greatest threat to America," Conrad said.
The commission was set up in February by Obama as the annual deficit reached levels not seen since World War Two.
It was co-chaired by Erskine Bowles, chief of staff to Democratic President Bill Clinton, and Alan Simpson, a former Republican senator.
Former labor union leader Andy Stern, also a commission member, said he could not back the plan that resulted from 10 months of work, but urged Congress and Obama to act on it.
"This president needs to make sure that by the State of the Union address (early next year), he has his own plan because this is the issue of the day," Stern said.
Polls show voters are worried about the deficit, as they made clear in this year's 2010 congressional elections, when Republicans won control of the House of Representatives and gained seats in the Senate.
A renewed push to cut the deficit has emerged against the backdrop of a sluggish economy and high unemployment. The government said on Friday that the unemployment rate rose to 9.8 percent in November from 9.6 percent in October.
TAX OVERHAUL PROPOSED
The Bowles-Simpson plan proposed 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 slammed tax hikes the plan called for and said it did too little to fix healthcare. Democrats slammed it as too tough on Medicare and Social Security programs for the elderly.
The plan envisioned reducing the budget deficit to 2.3 percent of gross domestic product by 2015, from 8.9 percent in the last fiscal year that ended Sept. 30 -- 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 urged 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 recommended raising the age for receiving Social Security benefits.
The commission's work was released amid a white-hot debate over Bush-era tax cuts that greatly boosted the deficit in the last decade. 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, Alister Bull and Steve Holland; Editing by Philip Barbara)
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