* 1-year Social Security tax "holiday" proposed for 2011
* Cut, simplify income and corporate tax rates-group
* Seeks 6.5 pct sales tax, Medicare, Medicaid changes
* Calls for excise tax on sugary, high-fructose drinks
(Adds plan details, reaction, Durbin comments, byline)
By Kevin Drawbaugh and Donna Smith
WASHINGTON, Nov 17 Warning of a spiraling of
debt unless the U.S. government takes action soon to balance
the budget, a group of experts on Wednesday called for a
one-year holiday in 2011 from the Social Security tax, a new
tax on soft drinks and a new 6.5-percent national sales tax.
In an ambitious plan to slash the federal deficit and
national debt, the group also called for freezes on government
spending, lower and simpler income and corporate tax rates as
well as major changes to the Medicare and Medicaid programs.
The plan put forward by the group, led by former Federal
Reserve Vice Chairman Alice Rivlin and former Republican
Senator Pete Domenici -- both veterans of Washington's
long-running deficit wars -- immediately drew fire.
The American Beverage Association, an industry group which
represents Coca-Cola Co (KO.N) and other nonalcoholic drinks
makers, said the soda tax proposal was "misguided," while the
AFL-CIO labor federation said the plan would "destroy American
It was unveiled as a presidential commission on cutting the
deficit again met on Capitol Hill behind closed doors. Its
leaders emerged after adjourning saying that no decisions were
The commission must issue its final report by Dec. 1.
A senior congressional Democrat left the commission meeting
expressing concern that it was moving too slowly. "We're
running out of time," Senator Richard Durbin told reporters.
He noted that scrubbing the tax code of deductions and
other breaks dear to special interests would mean lower tax
rates for all. He said there "will be a lot of angry dogs on K
Street barking at us as we go after these tax deductions."
The U.S. budget deficit is presently $1.3 trillion and the
national debt is more than $13.6 trillion -- the highest levels
seen in decades, but still below the levels of some other
advanced nations as compared to the sizes of their economies.
BAIR SEES NO SHORT-TERM RISK
Federal Deposit Insurance Corp Chairman Sheila Bair said at
a conference in New York on Wednesday that she did not see
short-term risk from the deficit.
But she added: "There is a systemic risk to the financial
system if structural deficits are not credibly addressed over
the next few years."
Several private-sector groups are pushing for sharp
spending cuts and tax hikes to address the situation. Among
them is the 19-member Rivlin-Domenici panel organized by the
Bipartisan Policy Center, a think-tank.
Like others, both Rivlin and Domenici cautioned that fiscal
austerity should not be too quickly embraced for fear that it
would undermine the economy's fragile recovery -- a concern
also shared widely within the presidential commission.
Dramatic proposals unveiled last week by the leaders of the
commission were widely dismissed as unworkable taken as a
whole. But they did succeed in grabbing the spotlight for an
issue that voters earlier this month in the midterm elections
made clear is a top concern.
Bowles said the 18-member commission, appointed earlier
this year by President Barack Obama, on Wednesday discussed the
"It is another good, solid sign that people are serious
about reducing this deficit," he said.
One of the Rivlin-Domenici proposals is "an excise tax on
the manufacture and importation of beverages sweetened with
sugar or high-fructose corn syrup." Others are cutting farm
payments and tinkering with Social Security.
Their plan would kill the mortgage interest and charitable
contribution tax deductions and replace them with 15 percent
refundable tax credits anyone could claim. The group said the
plan would boost the economy, create jobs and balance the
budget -- excluding debt interest -- by 2014.
"Rising debt and rising interest costs could evolve into a
'death spiral' ... Even without a crisis, rising debt will
increase our reliance on foreign lenders," said the
Rivlin-Domenici group, which has no official government role.
One proposal presented to the commission on Wednesday would
convert Medicare and Medicaid to voucher programs in 2021. It
is co-sponsored by Rivlin, a Democrat, and Republican
Representative Paul Ryan, both commission members.