Dec. 1 (Bloomberg) -- A new plan by the co-chairmen of President Barack Obama’s deficit-reduction commission will keep their recommendation to cut Social Security and is likely to include a payroll tax holiday, according to a person knowledgeable about the panel’s work.
The proposal, to be released today, will aim to cut at least $3.8 trillion from the deficit, the target set in a Nov. 10 draft proposal, co-chairman Erskine Bowles said at a news conference yesterday. A panel vote on whether to approve a plan, which had been set for today, was delayed until Dec. 3 and Bowles said he didn’t know if members will reach agreement.
Representative Paul Ryan of Wisconsin, a Republican member of the commission, said he probably won’t support the proposal. Ryan said in an interview, “I don’t think there’s 14” votes -- the number needed among the panel’s 18 members for a plan to be sent to Congress. “And I don’t think I’ll be one of those 14,” he said.
The revised proposal may include a payroll tax holiday to win support from Democrats pressing for measures to create jobs, said the person knowledgeable about the plan. A tax holiday was proposed by an outside group led by commission member Alice Rivlin, a Democrat and former director of the nonpartisan Congressional Budget Office.
Social Security Ages
Under the earlier proposal by Bowles and panel co-chairman Alan Simpson, a Republican former senator from Wyoming, the Social Security retirement age would rise to 68 in about 2050 and 69 in about 2075.
The new plan will retain various options for eliminating tax breaks, such as the home-mortgage interest deduction, while lowering income-tax rates, the person said. The co-chairmen still were working yesterday on how deeply to cut defense spending and Medicare, the person said.
Bowles, the White House chief of staff under President Bill Clinton, said the revised plan won’t be a “watered-down” version of the Nov. 10 draft that drew criticism from Democrats and Republicans.
“The era of deficit denial in Washington is over,” Bowles said. “I don’t think there’s a soul left in American who doesn’t understand this deficit and this debt is like a cancer and it’s going to destroy our country from within.”
Ryan said the revised plan didn’t include “huge” changes from the panel leaders’ earlier draft.
Representative Jan Schakowsky of Illinois and Senate Budget Committee Chairman Kent Conrad of North Dakota, both Democrats on the panel, agreed with Ryan’s assessment that the outlook for agreement was dim.
“It appears to be true given my experience in the commission meetings thus far,” said Schakowsky. “Trying to accommodate the Democrats means that a number of things would have to be changed that would further alienate the Republicans.” Conrad said it will be “extremely difficult” to get 14 votes.
Senator Judd Gregg, a New Hampshire Republican on the panel, suggested he may support the plan. “I haven’t formally announced what I’m going to do, but I’m very impressed with the product,” Gregg said. “Obviously there are warts on everything, but anything that is bipartisan is going to have warts and this has to be bipartisan.”
He said of the panel’s leaders: “I think they’ve done an excellent job.”
The panel’s vote was delayed to give members more time to consider the revised proposal. “It’s tough to ask anybody to support something that they just got that’s this big,” said Ryan.
Bowles and Simpson spent much of yesterday meeting privately with individual lawmakers and also had lunch with Vice President Joe Biden. Bowles said they briefed him on the revised plan.
On Nov. 10, Simpson and Bowles proposed a $3.8 trillion deficit-cutting plan that would trim Social Security and Medicare, reduce income-tax rates and eliminate tax breaks including the mortgage-interest deduction. It would reduce the annual federal deficit from $1.3 trillion this year to about $400 billion by 2015 and start reducing the $13.7 trillion national debt.
The plan would raise the gas tax, slash defense spending and farm subsidies and bring down health-care costs by clamping down on medical malpractice suits.
Its release sparked instant opposition from Democrats, some Republicans and groups such as the Mortgage Bankers Association and the Aerospace Industries Association. Democratic House Speaker Nancy Pelosi of California called the targeting of Social Security and Medicare “simply unacceptable.”
Even if the panel is unable to agree on a plan, Bowles and Simpson have “made a great contribution to the debate, they’ve advanced it, they’ve sobered up Congress and the country,” Ryan said. “This was not a wasted exercise.”
The current deficit figure was 9 percent of gross domestic product, according to the CBO. Economists such as former White House budget director Peter Orszag say policy makers should aim to reduce the deficit to no more than 3 percent of GDP.
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