Deficit panel split; package in doubt

WASHINGTON -- A package of spending cuts and tax increases drew challenges from both the left and right on President Barack Obama's deficit commission Wednesday, putting approval in doubt. However, both parties' Senate budget point men embraced the plan, and even opponents called it a starting point for efforts next year to control the nation's ballooning debt.

"It's a template that gives people an opportunity to start discussing what we have to do to get our fiscal house in order," said Rep. Xavier Becerra, a California Democrat on the panel.

The 18-member bipartisan commission scheduled a vote on the plan for Friday. But as Wednesday's meeting demonstrated, the co-chairmen, Democrat Erskine Bowles and Republican Alan Simpson, face a difficult chore in rounding up the 14 votes needed to officially send the plan to Congress for consideration.

Winning over lawmakers who are also panel members appeared to be the biggest remaining challenge, given the politically incendiary nature of many of the proposals. The tax increases it includes are deal-breakers for some Republicans, likewise social program cuts for some Democrats.

The plan calls for sweeping tax changes that would affect millions of Americans, including trimming or doing away with popular tax breaks such as the home mortgage deduction.

It would also make deep cuts in military spending, slash the federal work force, raise the retirement age for full Social Security benefits and make cuts in Medicare. It aims to reduce federal red ink by nearly $4 trillion within a decade.

Although prospects for the plan are unclear, the attention it has received has helped awaken the nation to the depth of the economic hole the country is in and the need for bold action to dig out, suggested Bowles, who was former President Bill Clinton's White House chief of staff. Simpson is a former Republican senator from Wyoming.

"The American people get it now. People want this to happen," Bowles said.

While the deficit commission grappled with longer-term economic woes, congressional Democrats and Republicans worked separately to strike a deal with the White House on a more immediate financial issue: extending Bush-era tax cuts that expire Dec. 31. And despite talk of finding common ground, neither side seemed willing to yield much as negotiations began with Treasury Secretary Timothy Geithner and Budget Director Jacob Lew.

Both Democrats and Republicans seem willing to extend most of the tax cuts. But Democrats want to let cuts for the wealthiest Americans expire, citing damage to the federal deficit from lost revenue as a main argument.

Meanwhile, as the deficit commission -- formally the president's National Commission on Fiscal Responsibility and Reform -- began moving toward a final decision, Sens. Kent Conrad and Judd Gregg, the Democratic chairman and top Republican on the Senate Budget Committee, threw their high-voltage support behind the plan. Still, both expressed some misgivings.

Gregg, the New Hampshire Republican who is retiring from the Senate, took issue with some proposed tax hikes in the plan, sounding a familiar GOP theme that taxes should be lower, not higher, to promote growth. Still, he said, the overall plan was "moving dramatically in the right direction."

Conrad, D-N.D., said there were "things in this plan that I dislike intensely." Yet, he said he was prepared to support it "and support it strongly. I don't see another alternative."

They were joined in supporting the package by panel members Alice Rivlin, White House budget director in the Clinton administration, David Cote, CEO of Honeywell International, and Ann Fudge, a former chief executive of Young & Rubicam.

"This is the framework for us to move forward," Fudge said.

Counting Simpson and Bowles, that put seven of the panel's 18 members on the record in support for the proposal. House Budget Committee Chairman John Spratt Jr., D-S.C., who lost a re-election race last month, said he's leaning toward supporting it, and Sen. Tom Coburn, R-Okla., seemed to lean in favor as well.

But Rep. Jan Schakowsky, a liberal Democrat from Illinois, told the panel she could not support the plan, contending it proposed disproportionate cuts in social programs, particularly federal help for seniors. She said it should have paved the way toward "a more robust Social Security."

Rep. Paul Ryan, R-Wis., a sponsor of a competing deficit-reduction plan, signaled that he would likely oppose the proposal, saying it "doesn't sufficiently fix the health care problem." Ryan, who is expected to chair the House Budget Committee next year, said the plan envisions going forward with Obama's health care overhaul law and would raise taxes by a total of $1 trillion over the next decade.

Rep. Jeb Hensarling, R-Texas, also seemed to imply he could not support the plan, citing concerns about higher taxes.

Bowles and Simpson have acknowledged it will be hard to assemble the 14 votes needed to give the deficit-reduction plan a direct ticket to congressional consideration, but they and other commission members have noted that Congress can still take up the ideas.

White House spokesman Robert Gibbs said the commission's recommendations would be evaluated as the administration puts together its budget for next year. He declined to comment on the mixed statements at Wednesday's session, saying "let me not get too far out on the commission until they've had a chance to complete their work."

Republicans generally complain about tax increases, and the trimming of popular tax breaks like the home mortgage deduction. Meanwhile, Democrats have cried out the loudest over proposed cuts in social programs, including raising the Social Security retirement age and cuts to Medicare.

Bowles and Simpson, who floated a preliminary version of their plan three weeks ago, put forth a revised, 59-page proposal on Wednesday that they titled "The Moment of Truth."

To attract Democrats, there's now an exemption from the higher Social Security age -- the plan would raise the normal retirement age to 68 by 2050 and 69 by 2075 -- for people who perform physical labor. Spending cuts for agency budgets would be accelerated, in an attempt to win over GOP Sens. Coburn of Oklahoma and Mike Crapo of Idaho.

Also, in a sweetener for some of the tough medicine, Bowles and Simpson said that to help economic recovery Congress should consider a "temporary payroll tax holiday" in 2011 that would allow workers to forgo paying Social Security taxes for a year. The report said that, while this would cost $50 billion to $100 billion in lost revenue, it would result in "significant short-term economic growth and job creation."

Proposed cuts in payments to hospitals that serve more Medicaid patients were dropped, while cuts to agriculture subsidies were scaled back sharply to attract the vote of Conrad. Tax breaks like the earned income tax credit and the deduction for charitable contributions were added back.

The plan includes major health care belt-tightening, biting deeper than the cost-control measures in Obama's overhaul law.

For the first time, the government would set -- and enforce -- an overall budget for federal health care programs that cover more than 100 million people, from Alzheimer's patients in nursing homes to premature babies in hospital intensive care.

Workers with solid coverage on the job, drug companies, trial lawyers, hospitals, seniors, doctors, state governments, federal employees and home health care providers would all face a hit.

The proposal would leave in place Obama's signature health care law expanding coverage to more than 30 million uninsured, but it would repeal a new long-term care program included in the legislation, calling it "financially unsound."

For Medicare recipients the biggest change would be an increase in cost sharing for medical services. Supplemental insurance plans that many seniors purchase to plug gaps in Medicare would no longer be able to offer complete wraparound coverage.

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Associated Press writer Ricardo Alonso-Zaldivar contributed to this report.

Online:

Deficit commission: http://www.fiscalcommission.gov