Bipartisan Policy Center deficit reduction plan offers package of tax reform & budget cuts

By Jon H. Harsch

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Washington, Nov. 17 – Two budget gurus, former White House Budget Director Alice Rivlin and former GOP Senator Pete Domenici, unveiled a comprehensive budget plan Wednesday to cap federal spending, drastically overhaul the federal tax code, and create a 6.5% national sales tax. Rivlin, who presided over generating a budget surplus under President Clinton, called the plan both progressive and pro-growth. Domenici, a long-time Senate Budget Committee Chairman, said the proposal is the long overdue remedy for the “silent killer” of escalating federal debt.

Rivlin and Domenici, joined by 17 public and private sector leaders brought together by the Bipartisan Policy Center, issued the consensus bipartisan report which Domenici said shows that bipartisan agreement on a workable plan is possible. He said the next step is for Congress and President Obama to show the courage and leadership needed to implement the plan.

To inject immediate stimulus to the still struggling U.S. economy, the plan would deliver an estimated $650 billion boost by suspending Social Security payroll taxes for employers and employees for 2011. The plan forecasts that this one-year “payroll tax holiday” would create as many as seven million new jobs.

 

Among its other proposals, following that initial $650 billion economic stimulus, the “Restoring America's Future” plan promises to:

• “Phase in steps to reduce deficits and debt gradually, beginning in 2012.

• “Stabilize the debt at less than 60 percent of GDP (an internationally recognized standard), reduce annual deficits to manageable levels, and balance the “primary budget” (everything other than interest payments) by 2014.

• “Create a simple, pro-growth tax system that lowers tax rates, broadens the tax base, and establishes a new 6.5% national Debt-Reduction Sales tax.

• “Control health care costs for families, businesses, and government.

• “Strengthen Social Security so it can pay benefits for the next 75 years and beyond.

• “Freeze domestic discretionary spending for four years and defense discretionary spending for five.

• “Find savings by cutting other mandatory programs.

• “Enforce the savings and reform the budget process.”

“The two of us share strong beliefs that America must learn to live within its means, that the current budget path endangers the future of our country, and that bipartisan action is urgently needed,” Domenici and Rivlin wrote in “An Open Letter to the American People” that accompanies the plan. “We believe that [the plan] provides a comprehensive, viable path to restore our economy and build a stronger America for future generations and for those around the world who look to the United States for leadership and hope.”

One key set of changes would dramatically simplify the tax system, establishing individual tax rates of 15 and 27 percent (from the current high of 35), cutting the corporate tax rate to 27 percent (from the current 35), ending most deductions and credits while simplifying the rest. The report forecasts that with these changes, nearly 90 million households would no longer have to file tax returns.

The report acknowledges that freezing domestic discretionary spending for four years, freezing defense discretionary spending for five, and cutting mandatory programs will be tough due to factors such as population growth, rising healthcare costs for an aging population and for military veterans, neglected infrastructure needs, and inflation. But it considers cutting spending essential.