Deficit-cutting plan stumbles in uphill climb

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

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

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.

Assistant Senate Democratic leader Dick Durbin became the 10th member of the panel to embrace the plan, announcing his support in an opinion piece for Friday’s Chicago Tribune.

“I will be voting yes,” Durbin declared. “It was not an easy decision, and I know my vote will be criticized, but I believe it is the right thing to do.”

Four commission members 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.

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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 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, Thomas Ferraro and Kim Dixon; Editing by Peter Cooney