Soda pop, sales tax targeted to cut deficit

WASHINGTON (Reuters) - Warning of a “death spiral” without drastic changes, a group of experts on the U.S. federal budget deficit on Wednesday called for a 2011 Social Security tax holiday, a soft drink tax and government spending freezes.

In an ambitious plan to slash the deficit and the fast-mounting national debt, the group also called for a new 6.5 percent national sales tax, as well as lower and simpler individual income and corporate tax rates.

Former Federal Reserve Vice Chairman Alice Rivlin and former Republican Senator Pete Domenici -- both veterans of Washington’s long-running deficit wars -- headed the 19-member group organized by the Bipartisan Policy Center, a think tank.

Domenici called the deficit “a quiet killer” undermining the economy and compared the effort required to vanquish it to the sacrifices made by Americans during World War II.

At an event to unveil the center’s plan, Rivlin said its twin goals were to boost the economy and “drastic tax reform.”

It comes as a presidential commission targeting the same problem reconvenes on Wednesday for another closed-door session with just over two weeks before its final report is due.

Americans are worried about the deficit and want action, polls show, but politicians cannot agree on tax hikes and spending cuts, even though experts say both are needed.

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 said, “There is a systemic risk to the financial system if structural deficits are not credibly addressed over the next few years.”

Dramatic proposals unveiled last week by the leaders of the presidential commission were widely dismissed as unworkable taken as a whole. But they did succeed at grabbing the spotlight for an issue that U.S. voters earlier this month in the midterm elections made clear is a top concern.


“What’s clear to me is that the era of debt denial is over,” Erskine Bowles, co-chairman of the presidential commission, told reporters on Tuesday evening. The other co-chairman is former Senator Alan Simpson.

Bowles said the 18-member commission, appointed earlier this year by President Barack Obama, has agreed on the need for caps on discretionary spending and that defense spending is on the table. The panel will meet again on Wednesday, when it will discuss taxes and Social Security, and on Thursday.

Rivlin said that Bowles and Simpson have been briefed on the Rivlin-Domenici plan. She is a member of the Bowles-Simpson commission, as well.

Underscoring discord on the presidential panel, one of its Democratic members, Representative Jan Schakowsky, unveiled her own alternatives to the Bowles-Simpson proposals.

“I am releasing my own plan today because I believe that there is a better way to achieve our goal -- one that protects the poor and the middle-class,” Schakowsky said on Tuesday.

Schakowsky’s plan does not contain any cuts to Social Security, which she said “has nothing to do with the deficit.”


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.

The U.S. budget deficit is presently $1.3 trillion and the national debt is more than $13.6 trillion.

Additional reporting by Kim Dixon and Donna Smith; Editing by Andrea Ricci