Debt Plan Rejected as U.S. Panel Disagrees on Taxes, Social Security Cuts

President Barack Obama’s debt commission rejected a $3.8 trillion budget-cutting plan as members from both parties opposed its mix of tax increases and spending cuts in programs such as Social Security and Medicare.

The seven votes against the plan were enough to sink it, even though 11 of the 18 members voted in favor, because 14 were needed to forward the proposal to Congress for consideration. Five of the six senators on the panel backed the plan, as did five of the six unelected officials. Five of six House members opposed it, with the sole support coming from South Carolina Democrat John Spratt, who was defeated in the Nov. 2 election.

Panel co-chairman Erskine Bowles called the 11 votes a “strong, bipartisan majority” and said “no one on this commission and very few left in America are in denial that this threat pressed upon us by these ever-increasing deficits are something we have to deal with.”

The spotlight now shifts to the White House, where Obama must decide how much of the report to incorporate into his February budget request. “We simply cannot allow our nation to be dragged down by our debt,” he said in a statement issued during a trip to Afghanistan.

Senate Budget Committee Chairman Kent Conrad, a North Dakota Democrat who backed the plan, urged Obama to convene a summit with congressional leaders of both parties to address the deficit.

Need the Administration

Conrad said that five House members opposed the plan was a “big problem.” No administration officials were on the commission, he said, adding, “we need the administration at the table.”

The rejected proposal would have reduced the annual deficit to about $400 billion in 2015, from this year’s $1.3 trillion, and begin reducing the debt.

The plan by Bowles and co-chairman Alan Simpson would have increased taxes by $1 trillion by 2020 by scaling back or eliminating hundreds of tax deductions, exclusions or credits such as those allowing homeowners to write off interest on their mortgage payments. It would also have cut individual and corporate income tax rates.

Social Security benefits would have been cut, the gas tax would have gone up by 15 cents, discretionary spending would have been reduced by $1.6 trillion and Medicare would have been pared by $400 billion.

‘Tectonic Paradigm’

Andy Stern, a former president of the Service Employees International Union who voted against the plan, said the panel focused public attention on the budget challenges facing the government.

“We have changed the issue from whether there should even be a fiscal plan for this country to what is the best fiscal plan for this country,” he said. “This is an enormous, tectonic paradigm shift that I think is enormously important.”

Three House Republicans who opposed the plan -- Representatives Dave Camp of Michigan, Paul Ryan of Wisconsin and Jeb Hensarling of Texas -- cited what they called its failure to rein in health-care costs along with the higher taxes it would have imposed.

The two House Democrats joining them in opposition -- Jan Schakowsky of Illinois and Xavier Becerra of California -- cited spending cuts on domestic programs.

Unfair Burden

“The bulk of the cuts would come disproportionately on the backs of those who require education, environmental cleanup, housing, senior citizen services, health care,” Becerra told the panel.

Yesterday, Senator Max Baucus, a Montana Democrat also on the panel, said he would vote no because the plan painted “a big, red target on rural America.” He cited plans to cut farm subsidies and raise the gas tax, and he said cuts in Social Security and Medicare would disproportionately hurt states like his with large numbers of elderly citizens.

Conrad, from neighboring North Dakota, rejected that today, saying “the rural areas actually came out quite well” and “everybody is going to have to contribute to getting this debt under control -- no part of the country can be exempt.”

David Cote, chairman of Honeywell International Inc. who voted for the plan, chastised his colleagues for what he called “hyperbole.” He said words like “draconian” and “destroyed” are “applied to something like a 5 percent increase over 10 years becoming a 4 percent increase over 10 years.”

Criticizing Congress

“I really have difficulty sometimes seeing how you get your jobs done at all,” Cote said.

Others voting for the proposal were Senators Dick Durbin, a Illinois Democrat; Senator Mike Crapo, an Idaho Republican; Senator Tom Coburn, an Oklahoma Republican; Senator Judd Gregg, a New Hampshire Republican; Ann Fudge, former chief executive officer of Young & Rubicam Inc., former Congressional Budget Office Director Alice Rivlin; along with Bowles and Simpson.

Bowles concluded the meeting by urging lawmakers not to give up on the issue. “I really am pleading with you -- please make the tough choices,” he said. “Reduce spending, reduce it in the defense budget, reduce in the non-defense budget, in the entitlements, in the tax code” and “please in doing it eliminate these dreadful deficits.”

To contact the reporters on this story: Heidi Przybyla in Washington at hprzybyla@bloomberg.net; Brian Faler in Washington at bfaler@bloomberg.net

To contact the editor responsible for this story: Mark Silva at msilva34@bloomberg.net.

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