Social Security, Medicare, Pentagon slashed by deficit commission

Under the proposal, Medicare spending, Social Security, the Pentagon's budget, and earmarks would be curtailed in a plan that cuts $3 in spending for every $1 in tax increases.

Alex Brandon / AP
Co-chairs Erskine Bowles (left) and former Wyoming Sen. Alan Simpson, co-chairmen of President Obama's bipartisan deficit commission, take part in a news conference on Capitol Hill in Washington, Nov. 10.

Voters who last week sent Washington a message to wrestle the spiraling debt under control have gotten a message back from the leaders of a White House budget commission: It will hurt.

A proposal released Wednesday by the bipartisan leaders of President Barack Obama's deficit commission suggested cuts to federal Social Security pension benefits, deep reductions in federal spending and higher taxes for millions of Americans to stem a flood of red ink that they said threatens the country's very future.

Interest groups on the right and the left squealed, predictably, about the plan, which would cut total deficits by as much as $4 trillion over the next decade — much of it from programs long considered all but sacred.

Besides Social Security, the Medicare health care program for the poor would be curtailed. Tax breaks for many health care plans, too. And the Pentagon's budget as well in a plan that couples $3 in spending cuts for every $1 in tax increases.

The full commission has yet to make recommendations, and the chairmen acknowledged their plan was dead on arrival — but said it would prompt a more realistic national debate about what it'll take to solve the nation's fiscal woes.

Obama, in Seoul, South Korea, declined to comment on the commission's work but said, "We're going to have to take actions that are difficult and we're going to have to tell the truth the American people." He said there was a lot of rhetoric about the country's debt and deficits but that "a lot of the talk didn't match up with reality."

"We need to be straight with the American people," the president said. "We can't just engage in political rhetoric."

Sen. Kent Conrad, the Democratic chairman of the Budget Committee and a member of the White House commission, said the U.S. faces the real possibility of becoming a "second-tier economic power" if it fails to address the trillion-dollar-plus deficit.

Conrad said simply cutting waste and fraud will not solve the problem, and insisted changes to Medicare and Social Security were needed because both programs are headed toward insolvency.

"People can say we want to keep 'what is.' 'What is' is not affordable," Conrad said Thursday on ABC television.

For all the pain, the deficit still would approach $400 billion in 2015 under the proposal, released by deficit panel's co-chairmen, Democrat Erskine Bowles, a former Clinton White House chief of staff, and Republican Alan Simpson, a former U.S. senator.

The plan arrived a week after congressional elections in which voters demanded action on the $1 trillion-plus budget deficit.

"This debt is like a cancer that will truly destroy this country from within if we don't fix it," Bowles warned.

Current deficits require the government to borrow 37 cents out of every dollar it spends.

The entire 18-member commission is supposed to report a deficit-cutting plan on Dec. 1, but panel members are unsure whether they'll be able to agree on anything approaching deficit cuts of the size proposed. And even if they could, any vote in Congress this year would be nonbinding, Simpson said.

During the campaign, neither political party talked of spending cuts of the magnitude offered Wednesday, with Republicans proposing $100 billion in cuts to domestic programs passed each year by Congress — but with no specifics.

The plan would gradually increase the retirement age for full Social Security benefits — to 69 by 2075 — and current recipients would receive smaller-than-anticipated annual increases.

Equally controversial, it would eliminate the current tax deduction that homeowners receive for the interest they pay on their mortgages and impose a 15 cent-a-gallon tax on gasoline.

It would impose a three-year freeze in the pay of most federal employees and a 10 percent cut in the federal work force. Congressional pet spending projects, known as "earmarks," would be eliminated.

No one is expecting quick action on any of the pieces of the plan. Proposed cuts to Social Security and Medicare are making liberals recoil. And conservative Republicans are having difficulty with options suggested for raising taxes. The plan also calls for cuts in farm subsidies, foreign aid and the Pentagon's budget.

It was rejected as "simply unacceptable" by House of Representatives Speaker Nancy Pelosi, a top Obama ally.

The Social Security proposal would change the inflation measurement used to calculate cost-of-living adjustments for benefits, reducing annual increases. It immediately drew a withering assault from advocates for seniors, who already are upset that there will be no inflation increase for 2011, the second consecutive year.

The plan also would raise the regular Social Security retirement age to 68 by 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.

From the right, anti-tax activist Grover Norquist, whose opinions carry great weight among Republicans, blasted the plan for its $1 trillion in tax increases over the coming decade. But Bowles and Simpson say eliminating costly tax deductions could allow income tax rates to be brought way down.

The proposal would leave Obama's new health care overhaul in place while greatly strengthening its cost-control provisions.

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