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Commission's final deficit report preserves controversial spending cuts

By Lori Montgomery and Brady Dennis
Washington Post Staff Writers
Wednesday, December 1, 2010; 3:48 PM

The leaders of President Obama's fiscal commission released a final report Wednesday that is full of political dynamite, recommending sharp cuts in military spending, a higher retirement age and reforms that could cost the average taxpayer an extra $1,700 a year.

But as commission co-chairmen Erskine Bowles and Alan K. Simpson unveiled the plan at a Capitol Hill hearing, it was unclear whether they would be able to build a convincing bipartisan consensus before the panel's 18 members - 12 of them sitting lawmakers - are scheduled to vote on the report Friday.

The White House continued Wednesday to reserve judgment on the commission's work, which is intended to help shape the administration's next budget request, due out in February.

"The president looks forward to reviewing their work at the conclusion of their votes ... and evaluating their proposals and their votes as we move forward and put together a budget of our own for next year," said White House press secretary Robert Gibbs. "So let me not get too far out on the commission until they've had a chance to complete their work."

Two panel members - Sen. Kent Conrad (D-N.D.) and Sen. Judd Gregg (R-N.H.) - immediately came out in strong support, saying that although they don't like everything in the package, it charts a responsible path away from the abyss of rising debt and potential fiscal crisis.

"America is in danger. And we can either look the other way, hope somebody else does something, or we can act," Conrad said. "I'm going to support this plan and support it strongly. Because I don't see another alternative. I just don't."

Still, after two days of one-on-one meetings with their members, Bowles, White House chief of staff in the Clinton administration, and Simpson, a former Republican senator from Wyoming, said that it will be difficult to assemble the 14 votes that would allow them to issue official recommendations.

"I don't know if we can agree on a plan. I know we're going to get two votes. Maybe we'll get five. Maybe we'll get 14," Bowles said. "But I know the world is moving in our direction. ... There's no turning back now. The era of debt denial and its consequences are over."

The final blueprint for rebalancing the federal budget hews closely to an earlier plan released before Thanksgiving. Like the original, it offers an aggressive prescription for reducing deficits by nearly $4 trillion by the end of the decade, in large part by slashing domestic and military spending.

In hopes of satisfying the concerns of the panel's Republicans, those cuts would be even deeper than in the original document, slicing more than $1.6 trillion from Obama's proposed budgets by 2020 and reducing overall government spending to just under 22 percent of the nation's gross domestic product.

Among the most painful of those decisions, Bowles said, is a recommendation to reduce the federal workforce by 10 percent by the end of the decade, eliminating 200,000 jobs.

Still, two of the three House Republicans on the commission - Reps. Paul Ryan (Wisc.) and Jeb Hensarling (Tex.) - indicated that they were unlikely to lend their support, primarily because of the plan's embrace of Obama's newly enacted health-care law and what they view as excessively high levels of taxation.

The plan recommends raising taxes by nearly $1 trillion by 2020, primarily through tax reforms that would eliminate or reduce cherished reductions including the deduction for home mortgage interest; the tax-free treatment of employer-paid health insurance; and preferred rates for capital gains and dividends.

It also calls for a 15-cent hike in the federal gas tax. The top income tax rate for both individuals and corporations would be dramatically lowered, however, from 35 percent to 29 percent or less. And the report recommends a legislative trigger that would raise taxes automatically unless a comprehensive overhaul is approved by 2013.

Future retirees would also face significant sacrifices, including higher Medicare premiums and a retirement age that would rise to 69 by 2075. The early retirement age would rise from 62 to 64.

In deference to liberal concerns, however, Bowles and Simpson have strengthened protections for workers in physically demanding jobs who might find it difficult to delay retirement, recommending that the Social Security Administration be directed to develop a hardship exemption for up to 20 percent of new retirees.

The report, titled "The Moment of Truth," makes an array of other changes designed to lure the support of commission members, including $50 billion in immediate spending cuts to improve government efficiency, recommended by Sen. Tom Coburn (R-Okla.), and endorsement of an immediate payroll tax holiday to spur job creation, requested by Sen. Richard Durbin (D-Ill.), among others.

However, the chairmen made good on their pledge not to "water down" the sweeping deficit-reduction package that provoked such an outcry from activists across the political spectrum when it was released last month.

The final package would balance the budget more quickly than the original, wiping out annual deficits by 2035. And although the nation's soaring debt would continue to rise in the short term, the plan would bring it down to a more manageable 41 percent of gross domestic product over the next 25 years.

Since Obama created the commission in February, the report says, "the urgency of our mission has become all the more apparent. The contagion of debt that began in Greece and continues to sweep through Europe shows us clearly that no economy will be immune. If the U.S. does not put its house in order, the reckoning will be sure and the devastation severe."

Durbin, perhaps the most influential liberal lawmaker among the panel's members, signaled that the plan might do too little to protect society's most vulnerable to win his vote.

But in a surprising rebuke to progressive groups and advocates for the elderly, Durbin pronounced the plan to raise the retirement to 69 by 2075 "acceptable to me."

That idea "is not radical," Durbin said. "These things are sensible and we've got to accept sensible alternatives to move forward, on the left and on the right."

Despite a series of very late nights, the commission's exhausted staff has been unable to draft the plan in legislative form, Simpson said, meaning it would be impossible for Congress to stage a vote on the proposals before the end of the year, even if 14 commission members agree to support them.

Bowles has acknowledged that lawmakers are likely to pick the plan apart and tackle it in pieces, if they tackle it at all.

There was no immediate reaction from congressional leaders, including House Speaker Nancy Pelosi (D-Calif.), who had called the original blueprint "simply unacceptable." However, a litany of interest groups lined up to attack the proposal, from the trial lawyers to AARP to the American Hospital Association.

Among the plan's defenders, meanwhile, were business groups such as the Business Roundtable and the National Association of Manufacturers, which applauded a proposal to reduce the corporate tax rate and to reform the tax code to make American businesses more competitive internationally. Transportation groups also hailed the plan to fully finance transportation projects with a new 15-cents a gallon gas tax.

montgomeryl@washpost.com dennisb@washpost.com

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