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UPDATE 2-Soda pop, sales tax targeted to cut U.S. deficit
November 18, 2010 / 12:09 AM / 7 years ago

UPDATE 2-Soda pop, sales tax targeted to cut U.S. deficit

* 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 (Reuters) - 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 jobs.”

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 reached.

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 Rivlin-Domenici plan.

“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.

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