Video: Got cuts? Deficit busters release bold plans

  1. Transcript of: Got cuts? Deficit busters release bold plans

    BRIAN WILLIAMS, anchor: It's got to come from somewhere. Millions of people just days ago turned out at the polls telling us they were fed up with government spending . Most of the candidates who won on election night said they were heading to Washington to cut government spending . So what would you cut? That's the question the president asked a special commission to consider, and tonight they are out with their list. It's not going to be popular, but again, it's got to come from somewhere. And the question again is, where would you cut? We begin our reporting tonight with NBC 's Lisa Myers in Washington .

    LISA MYERS reporting: The dramatic proposal would touch every American and alter two economic

    cornerstones: the mortgage interest deduction and Social Security . The plan would reduce future cost of living adjustments for Social Security and gradually raise the retirement age to 68, reign in health care spending and make Medicare recipients pay more, and cut $200 billion from a broad array of government programs, half from defense. The co-chairs of the commission who drafted the recommendation acknowledged they are highly controversial. Former Senator Alan Simpson .

    Former Senator ALAN SIMPSON: It's all there. We have harpooned every whale in the ocean and some of the minnows, and no one has ever done that before.

    MYERS: On the tax side, the plan calls for eliminating or scaling back the home mortgage deduction and most other popular write-offs. Those tax increases would be party offset by lower, simplified tax rates . Also proposed, a 15 cents gallon increase in the gasoline tax to fund highway spending. Almost all of the proposals would be phased in gradually, beginning in the next few years. But they were immediately denounced by the right as an excuse to raise net taxes on the American people , and by the left as an attack on the middle class.

    Mr. RICHARD TRUMKA (AFL-CIO President): Well, the chairman of the deficit commission just told working people to drop dead, that they're the losers and Wall Street and the rich are very -- the winners.

    MYERS: Co -chairman Erskine Bowles argues that something has to be done, and soon.

    Mr. ERSKINE BOWLES: This debt is like a cancer that will truly destroy this country from within if we don't fix it.

    MYERS: These men are Washington veterans and acknowledge that some of these proposals won't fly. But they believe the proposals are in part shock therapy to drive home the magnitude of what's required to bring deficits under control before they cause another economic crisis. Lisa Myers ,

updated 11/10/2010 7:48:33 PM ET 2010-11-11T00:48:33

The leaders of President Barack Obama's bipartisan deficit commission launched a daring assault on mushrooming federal deficits on Wednesday, proposing reducing annual cost-of-living increases for Social Security, gradually raising the retirement age to 69 and taking aim at popular tax breaks such as the mortgage interest deduction.

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As part of a proposal to wrestle $1-trillion-plus deficits under control, their plan would also curb the growth of Medicare. It came a week after voters put Republicans back in charge of the House and told Washington that the government is too big.

Read the full proposal by Bowles and Simpson (PDF)

However, the plan by Chairman Erskine Bowles and former Sen. Alan Simpson, the co-chairman, doesn't look like it can win the support from 14 commission members that is needed to force a debate in Congress. Bowles is a Democrat and was former President Bill Clinton's White House chief of staff. Simpson is a Wyoming Republican.

The two were among the first to acknowledge their plan's unpopularity — and to suggest it would be a nonstarter in Congress.

"We'll both be in a witness protection program when this is all over, so look us up," Simpson told reporters. Bowles said: "We're not asking anybody to vote for this plan. This is a starting point."

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The White House released a statement Wednesday afternoon saying Obama would not comment on the proposal until the fiscal commission finishes its work.

"These ideas ... are only a step in the process towards coming up with a set of recommendations and the President looks forward to reviewing their final product early next month," said White House spokesperson Bill Burton.

Simpson and Bowles weighed in as the Treasury Department reported that the federal government began the new budget year with a deficit in October that totaled $140.4 billion — down 20 percent from a year ago but still the third highest October shortfall on record. Even with the improvement, last month's red ink set the stage for what is expected to be a third consecutive year of $1 trillion-plus deficits.

The Social Security proposal would change the inflation measurement used to calculate cost-of-living adjustments for program benefits, reducing annual increases. It will almost certainly draw opposition from advocates for seniors, who are already upset that there will be no increase for 2011, the second straight year without a raise.

The plan would also raise the regular Social Security retirement age to 68 in about 2050 and to 69 in 2075. The full retirement age for those retiring now is 66. For those born in 1960 or after, the full retirement age is now 67.

Image: Erskine Bowles, Alan Simpson
Alex Brandon  /  AP
Erskine Bowles, left, accompanied by former Wyoming Sen. Alan Simpson, co-chairmen of President Barack Obama's bipartisan deficit commission, gestures while speaking on Capitol Hill in Washington on Wednesday.

Better-off beneficiaries would receive smaller Social Security payments than those in lower earning brackets under the proposal.

The commission is supposed to report a deficit-cutting plan on Dec. 1, but panel members are unsure at best whether they'll be able to agree on anything approaching Obama's goal of cutting the deficit to about 3 percent of the size of the gross domestic product.

'Not a proposal I could support'
Building the needed support of 14 of its 18 members will be difficult. Cuts to Social Security and Medicare are making some liberals on the panel recoil. And conservative Republicans are having difficulty with the options suggested for raising taxes. The plan also calls for cuts in farm subsidies, foreign aid and the Pentagon's budget.

"This is not a proposal I could support," said panel member Rep. Jan Schakowsky, D-Ill. "On Medicare and Social Security in particular, there are proposals that I could not support."

The plan released by Bowles is only a proposal put forth by him and Simpson. Members of the commission will resume debate on it later Wednesday and next week in a long-shot bid to reach a compromise.

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The release of the proposal comes just a week after midterm elections that gave Republicans the House majority and increased their numbers in the Senate. During the campaign, neither political party talked of spending cuts of the magnitude proposed by Bowles, with Republicans simply proposing $100 million in cuts to domestic programs passed each year by Congress.

"It's a very provocative proposal," said a Republican panel member, Rep. Jeb Hensarling of Texas. "Some of it I like. Some of it disturbs me. And some of it I've got to study."

But member Sen. Judd Gregg, R-N.H., called the proposal "an aggressive and comprehensive plan for getting federal spending, deficits and the debt under control. ... This will not be the final proposal, but it is a significant step down the path of establishing fiscal responsibility."

Other proposals by Bowles and Simpson include:

—Increasing the gas tax by 15 cents a gallon to fund transportation programs.

—A three-year freeze in the pay of most federal employees and a 10 percent cut in the federal work force.

—Eliminating all congressional pet projects, known as earmarks.

Bowles and Simpson also are proposing a fundamental rewrite of the tax code, though they didn't offer a specific plan.

But the goal is to lower overall tax rates, simplify the code and broaden the taxpayer base. One option proposed is to completely eliminate so-called tax expenditures — including popular deductions like the mortgage interest tax break and a deduction taken by companies that provide health insurance to their employees.

They didn't specifically call for doing away with these popular tax breaks, instead listing that among a series of possible options.

While it may not survive, the Bowles-Simpson proposal illustrates the painful choices involved in tackling a deficit that presently requires the government to borrow 37 cents out of every dollar it spends.

Even with the dramatic proposals, the Bowles-Simpson plan would leave deficits of about $300 billion in 2015, the year by which Obama tasked the group with balancing the federal budget, except for interest payments on a national debt that now stands at $13.7 trillion. If the changes to Social Security are dropped, the deficit would be about $400 billion in 2015.

But the plan is an aggressive assault on the longer-term deficit crisis, which is fueled by spiraling costs for retirement programs.

Copyright 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

Explainer: What they're saying about deficit reduction

  • Image: Speaker of the House Nancy Pelosi, D-Calif.
    Michael Reynolds  /  EPA
    Speaker of the House Nancy Pelosi, D-Calif., as among those Wednesday calling the deficit-reduction commission proposals unacceptable.

    After the leaders of a presidential commission proposed raising taxes and the retirement age as ways to slash the U.S. budget deficit, reaction was swift. The White House responded coolly, some leading lawmakers less so to proposals that target government programs long considered all but sacred. Proposed cuts to Social Security and Medicare are making liberals recoil. And conservative Republicans are having difficulty with options suggested for raising taxes.

  • House Speaker Nancy Pelosi, D-Calif

    Image: Speaker of the House Nancy Pelosi, D-Calif.
    Michael Reynolds  /  EPA
    Speaker of the House Nancy Pelosi, D-Calif.

    "This proposal is simply unacceptable. Any final proposal from the Commission should do what is right for our children and grandchildren's economic security as well as for our nation's fiscal security, and it must do what is right for our seniors, who are counting on the bedrock promises of Social Security and Medicare. And it must strengthen America's middle class families — under siege for the last decade, and unable to withstand further encroachment on their economic security."

  • Dave Camp, R-Mich; Paul Ryan, Wis.; and Jeb Hensarling, R-Texas in a joint statement

    Image: Rep. Dave Camp
    Mandel Ngan  /  AFP - Getty Images
    Rep. Dave Camp

    "This is a provocative proposal, and while we have concerns with some of their specifics, we commend the co-chairs for advancing the debate. We will continue to work toward solutions that help spur economic growth and restrain the explosive growth of government spending."

    Hensarling: "Some of it I like. Some of it disturbs me. And some of it I've got to study."

  • Bill Burton, White House spokesman

    "The president will wait until the bipartisan fiscal commission finishes its work before commenting. He respects the challenging task that the Co-Chairs and the Commissioners are undertaking and wants to give them space to work on it. These ideas, however, are only a step in the process towards coming up with a set of recommendations and the President looks forward to reviewing their final product early next month."

  • Richard Trumka, president, AFL-CIO

    Image: AFL-CIO President Richard Trumka
    Charles Dharapak  /  AP
    AFL-CIO President Richard Trumka

    "The chairmen of the Deficit Commission just told working Americans to 'Drop Dead.' Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare.

    Some people are saying this plan is just a "starting point." Let me be clear, it is not.

    This deficit talk reeks of rank hypocrisy: The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires.

    What we need to be focusing on now is the jobs deficit. Working families already paid for Wall Street's party that tanked our economy. If we actually want to address our economic problems, we need to end tax breaks that send American jobs overseas and invest in creating jobs by rebuilding our crumbling infrastructure and green technologies."

  • Rep. Raúl M. Grijalva, D-Ariz., co-chair of the Congressional Progressive Caucus

    Image: U.S. Rep. Raul Grijalva, D-Ariz.
    John Moore  /  Getty Images file
    U.S. Rep. Raul Grijalva, D-Ariz.

    "If the co-chairs of the deficit commission were dead set on gutting Social Security and Medicare from the beginning, they could have saved time and effort by releasing this proposal the day after the commission was formed. Instead, we have waited through nine months of backroom negotiations only to be told that the American people will have to tighten their belts another notch while defense spending continues to grow and corporate bonuses continue to expand.

    "The path this plan would set is not good for the public. Congress should be having a realistic, productive conversation right now about how to reduce our budget deficit and maintain a secure retirement system for those who have earned it. Instead, we're debating a proposal from a commission dedicated to cutting crucial social programs and reducing corporate and upper-income taxes at the same time. This is not a recipe for a healthier American economy. ... The middle class has already been hit extremely hard by the ongoing economic downturn and the housing crisis. The last thing we should do is take more money out of their pockets in the name of a conservative tax cut agenda that favors the wealthy over the rest of us."

  • Sen. Bernie Sanders, I-Vt.

    Image: Sen. Bernie Sanders, I-Vt.
    Chris Usher  /  AP
    Sen. Bernie Sanders, I-Vt.

    "The Simpson-Bowles deficit reduction plan is extremely disappointing and something that should be vigorously opposed by the American people. The huge increase in the national debt in recent years was caused by two unpaid wars, tax breaks for the wealthy, a Medicare prescription drug bill written by the pharmaceutical industry, and the Wall Street bailout. Unlike Social Security, none of these proposals were paid for. Not only has Social Security not contributed a dime to the deficit, it has a $2.6 trillion surplus.

    "It is reprehensible to ask working people, including many who do physically-demanding labor, to work until they are 69 years of age. It also is totally impractical. As they compete for jobs with 25-year-olds, many older workers will go unemployed and have virtually no income. Frankly, there will not be too much demand within the construction industry for 69-year-old bricklayers."

  • Rep. Jan Schakowsky, D-Ill, debt-reduction commission member

    Image: Rep. Janice Schakowsky, D-Ill.
    Alex Brandon  /  AP
    Rep. Janice Schakowsky, D-Ill.

    "What we want to make sure is that we are cutting people and programs that aren't going to affect middle-class and low-income people. ... Who's actually going to pay for reducing the deficit? In my view, it should not be ordinary Americans, and certainly not low-income Americans. ... It is absolutely not a plan that I could support, and frankly I don't think it's a plan that any one of the commission members — Republicans, Democrats, presidential appointees — would support without changes. And I suspect that there's going to be fairly dramatic changes."


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