Government Executive - Authors - Jim Tankersley

Few signs of progress toward a fiscal cliff deal

Jim Tankersley, National Journal — Mon, 03 Dec 2012 08:06:05 -0500

But nothing else from either the House speaker or the Treasury secretary -- not body language, not rhetoric -- suggested Washington lawmakers are anywhere close to a breakthrough on solving the so-called fiscal cliff before its tax hikes and spending cuts begin to kick in next month.

Geithner, who has played point man for President Obama’s negotiating team with Republicans over the last week, told NBC’s David Gregory that “I think we’re going to get there” and reach a deal. His follow-up suggested that’s less optimism and more a public pressure tactic. “The only thing that would keep us from getting there,” he said, “is a refusal from Republicans to let rates go up on the wealthiest Americans, and I don’t think they’re going to do that.”

That’s exactly how the White House would like the public to view these negotiations: as eminently solvable, and stuck only on pesky upper-income tax rates. Republicans see them very differently, with a heavy emphasis on a need to reduce future government spending to bring down the budget deficit, as Boehner made clear.

“What we don’t know,” he told Fox’s Chris Wallace, “is what’s the president is willing to do” to reduce safety-net spending on programs such as Medicare and Social Security, as part of a debt-reduction package.

Neither Boehner not Geithner hinted at any real policy breakthroughs in the discussions. The interviews were more revealing about negotiating tactics -- specifically, which parts of their hands both men consider to be strongest, and worth pressing.

Geithner and Obama clearly see public support for raising taxes on the rich as their best card. “There's no surprise in this,” Geithner told ABC’s George Stephanopoulos. “We've been proposing this for a very long time. The president campaigned on it. And I think that's where we're gonna end up.”

Boehner clearly sees the need to raise the federal borrowing limit early next year -- or risk default on debt or non-payment of major government obligations -- as the GOP’s best tool in forcing more spending cuts. “It’s the only way to leverage the political process to produce more change than what it would if left alone,” he said.

Perhaps the most important clues about the state of the negotiations came from what neither Boehner nor Geithner expressed in the interviews. Optimists would note the decided lack of rancor. Pessimists would note the complete lack of new concessions. All of which probably adds up to very little progress, thus far.]]>

Analysis: Romney’s ‘47 percent' talk explains his struggles with swing voters

Jim Tankersley — Tue, 18 Sep 2012 08:46:45 -0400

On pure philosophy alone, Mitt Romney’s Mother Jones moment offers two revealing glimpses into why he’s trailing President Obama even in a listless economy. Both revolve around how swing voters view economic policy.

In a now-infamous video posted Monday at MotherJones.com, Romney tells the audience at a private fundraiser that “47 percent” of voters, for reasons of government dependency, are destined to vote for Obama this fall.

“All right,” the Republican nominee says, “there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it… my job is not to worry about those people. I'll never convince them they should take personal responsibility and care for their lives."

Romney also explains that those 47 percent don’t pay any federal income taxes, “So our message of low taxes doesn’t work.”

The danger of growing dependence on government - and the economic healing power of low taxes – are both themes that play very well with Republicans, presumably including the donors at the event on the tape. More than three in five Republicans disagree with the notion that “the government should guarantee every citizen enough to eat and a place to sleep,” the Pew Research Center Values Study found earlier this year. An April CBS News/New York Times poll found seven in 10 Republicans said lowering taxes was the best way to improve economic growth.

The problem for Romney is, independent voters – the middle “5 to 10 percent” of the electorate he talks about winning over in the fundraiser video – don’t share those views.

The Pew poll found about three in five independents endorse the idea of government guaranteeing citizens food and a bed. Roughly the same number agree that government “should take care of people who can’t take care of themselves.”

Perhaps even more critically, the CBS News/New York Times poll found fewer than two in five independents believe lower taxes are the route to faster growth, compared to more than half who favor increased government spending and higher taxes.

If Romney wanted to argue that the poor have grown a little too fond of government help, or that America can’t afford to keep borrowing to fund a safety net, the Pew polls suggest large swaths of independent voters would be receptive. But that wasn’t the argument he made at the fundraiser. He was contending that his low-tax message works with independents, but not the government-dependent, which appears not to be true.

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The quick economic case for V.P. Paul Ryan

Jim Tankersley, National Journal — Fri, 10 Aug 2012 17:04:00 -0400

Paul Ryan may be the only vice presidential short-lister who can save Mitt Romney from an economic crisis within the first month of his presidency. If that's not a good reason to put him on the ticket, what is?

The quick argument here: Assume Romney wins in November, and that the lame-duck Congress doesn't vote to raise the federal debt limit. (Both reasonable assumptions.) Now assume, as the Treasury Department estimates, that America hits the debt limit around the end of the year.

Treasury will start deploying "extraordinary measures" to buy time, probably a couple of months, before the government either defaults on some loans or misses scheduled payments to contractors or benefit recipients.

In that scenario, President Romney would take office with a ticking clock - maybe a month to raise the debt limit or impose the dramatic budget cuts and/or tax increases necessary to balance the budget immediately. The latter isn't likely - Romney's plan wouldn't balance the budget for eight years - so assume he needs to raise the limit.

Who will help him do it?

Ryan is his best hope.

Here's why: The math for another debt-limit increase is tough for a Republican president.

Democrats won't be in any mood to help out - especially since the increase would likely be tied to more budget cuts, and because Romney will be pushing for more tax cuts on top of it. So, with a few centrist Democratic exceptions, it's likely Romney will need to build a largely Republican coalition to raise the ceiling.

There's a not-small chunk of the House and Senate Republican caucuses who didn't vote for the last debt-limit deal. They're not likely to raise the ceiling just because Romney asked them to. To get their votes, he's going to need to link a debt-limit increase to a big batch of spending cuts - much bigger, probably, than the ones Romney has campaigned on. He'll need a credible salesman for those cuts. Enter Ryan.

The architect of the Ryan Budget is probably the only potential veep pick with the gravitas to walk into a room of skeptical House fiscal conservatives and say, trust us, these cuts are the real deal. Hold your nose and lift the ceiling.

If the Romney administration can't make that sale to its own party, then it will need to throw itself - and the economy, because a default would be a ticket to another recession - on the mercy of a just-vanquished opposition party. Recent history suggests that's not a great plan.

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Romney adviser: Cut entitlements to spare Defense, save jobs

Jim Tankersley, National Journal — Wed, 25 Jul 2012 08:27:23 -0400

President Obama and Congress should spare Defense from planned budget cuts by reducing entitlement spending instead, a campaign adviser to Gov. Mitt Romney said on Tuesday, arguing that Defense has a greater impact on jobs than spending on social programs.

“If you want to reduce the impact of government cuts on creating jobs, you should be looking more at entitlements” than military spending, John Lehman – an investment banker, a former secretary of the Navy under President Reagan, and a special adviser and co-chair of Romney’s Defense Working Group – said in an interview.

Romney has called for the planned Defense cuts to be postponed, but has not suggested where he would cut spending instead.

Lehman’s comments come as Romney’s presidential campaign has begun to join the growing Republican chorus in warning that the nearly $500 billion in defense spending reductions triggered by last year’s Budget Control Act could shatter the already fragile job market. The reductions are scheduled to take effect next year and will be spread over a decade. A wide swath of economists has warned that the cuts, combined with a variety of expiring tax breaks, could tip the economy back into recession.

Romney and GOP leaders have tried to pin the Defense cuts on Obama, who negotiated them in a package passed by bipartisan majorities in the Democratic-held Senate and the Republican-held House. In a press release Tuesday, Romney spokesman Andrea Saul said Obama was “pushing defense cuts that will jeopardize millions of jobs,” citing comments from the Defense Department and research commissioned by the Aerospace Industries Association, a trade group.

Lehman said job losses were already happening in the defense industry due to fears over the coming cuts, known as sequestration, and that to stop it, lawmakers and the president should reverse the ratio of defense and entitlement cuts in the package.

Defense cuts particularly hurt the economy, Lehman said in an interview, because defense spending creates more jobs and growth per dollar than entitlements, such as Medicare, Medicaid, and Social Security.

Economists call that bang-for-the-buck figure a “fiscal multiplier.” Lehman pegged the multiplier for defense spending at five times higher than for entitlement spending, meaning a dollar cut from defense hurts the economy five times more than a dollar cut from entitlements.

“Common sense would be, if you have to take cuts of this type with the Budget Act, it should be proportionate across all the budget types. But he’s protecting entitlements,” Lehman said. Some entitlements could be put more “into proportion” with the rest of the cuts, he said.

The Budget Control Act split its $1.2 trillion in reductions among defense spending and other spending, including about $350 billion from non-defense discretionary spending and about $100 billion from Medicare.

“If your objective was to maximize jobs, you’d cut entitlements five times more than defense,” Lehman said, citing the fiscal multiplier and advocating the opposite distribution of spending reductions than agreed under the current package.

Conservative economists have made similar arguments in recent weeks. Writing on the New York Times web site, University of Chicago economist Casey Mulligan said the government gets very different economic results when it purchases something, such as a fighter jet or a new highway, than when it transfers money to, say, an unemployment benefits recipient.

“When it pays people to produce, a number of people accept that offer, and the economy is larger as a result,” he wrote. “When government pays people for not producing, a number of people, in effect, accept that offer by working or earning less, and the result is a smaller economy.”

Several Congressional Budget Office studies, in contrast, find only a slightly larger fiscal multiplier associated with government purchases than with transfer payments, such as entitlements.

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Commerce chief resigns, citing effects of seizure

Jim Tankersley, National Journal — Thu, 21 Jun 2012 11:53:04 -0400

Bryson went on medical leave after the traffic incident in San Diego after which officials said he had suffered a seizure.

In a resignation letter late Wednesday to Obama, Bryson said, “I have concluded that the seizure I suffered on June 9th could be a distraction from my performance as secretary and that our country would be better served by a change in leadership of the department."

Obama said: "As secretary, John fought tirelessly for our nation’s businesses and workers, helping to bolster our exports and promote American manufacturing and products at home and abroad. John has proven himself an effective and distinguished leader throughout his career in both the public and private sectors, from his success in the business world to his work leading on issues in the renewable energy industry."

Deputy Secretary Rebecca Blank is serving as acting secretary. Obama said he was confident Blank "will serve the American people well as acting secretary."]]>

Commerce secretary takes leave of absence

Major Garrett and Jim Tankersley, National Journal — Tue, 12 Jun 2012 08:11:18 -0400

Commerce Secretary John Bryson, involved in separate traffic accidents in California over the weekend, informed President Obama on Monday evening that he is taking medical leave to cope with an unspecified illness. Deputy Secretary Rebecca Blank will serve as acting secretary in his absence.

Bryson had a seizure, according to a spokeswoman earlier in the day.

"Secretary Bryson informed the White House tonight that he will be taking a medical leave of absence from his position as Commerce secretary as he undergoes tests and evaluations," White House spokesman Jay Carney said in a statement.

"The president’s thoughts are with Secretary Bryson and his family during this time. Secretary Bryson assured the White House that the Commerce Department staff will not miss a beat in their work helping America’s businesses compete,” Carney said.

Earlier Monday, the Commerce Department announced in a statement that Bryson suffered a seizure that may have caused the erratic driving that led to the traffic mishaps and the authorities subsequent discovery of an unconscious Bryson behind the wheel. Law enforcement officials said there was no evidence of drug or alcohol as a contributing factor in the accidents, though Bryson was cited in one case for fleeing the scene of an accident.

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Obama’s jobs plan: timely, targeted, but incomplete

Jim Tankersley — Fri, 09 Sep 2011 00:00:00 -0400

The stimulus proposals Obama announced on Thursday, in contrast, are tightly focused on one thing: job creation. They are, to borrow an Obamaland phrase, more targeted and more timely jolts for economic activity than the Recovery Act was in the depths of the Great Recession.

If you believe that the biggest reason America sits today on the brink of a double-dip recession is a nosedive in aggregate demand -- a vacuum of consumer spending that the federal government can and should fill in order to prop up recovery -- then the best news from Obama's speech was that the president appears to have learned from his past Keynesian mistakes.

For sheer stimulative purposes, the "American Jobs Act" Obama announced before a joint session of Congress appears much better designed than the Recovery Act.

It features creative attempts to encourage hiring through tax cuts, promote job-sharing through unemployment-insurance reform, prevent layoffs of teachers and police officers through aid to states, and provide direct assistance to groups of workers hurt most by the current economic situation -- such as young people and the long-term unemployed.

The largest boost from the proposals -- and probably the one most likely to garner Republican support and pass Congress -- figures to come from halving the employer-side payroll tax for the first $5 million in a company's payroll, and from a related plan to eliminate payroll taxes for added workers or increased wages. The Congressional Budget Office estimates every dollar of such cuts will spur up to $1.30 in economic activity.

But there are three glaring deficiencies in Obama's plan that should concern economists, lawmakers, and unemployed workers from across the political spectrum.

Obama told America on Thursday that the economic recovery "has stalled." But he didn't specify why it has stalled, or how the $447 billion, to-be-paid-for-later jobs plan he proposed would fix the country's core economic problems. The closest he came was saying that his proposed American Jobs Act would "put more people back to work and more money in the pockets of those who are working ... and give companies confidence that if they invest and hire, there will be customers for their products and services."

Obama chose a price tag for his proposals that is both large enough to antagonize Republicans and open himself to more "big spender" critiques, but not large enough to fill completely the yawning gap in global demand that Keynesian economists say is depressing the U.S. recovery.

Perhaps most importantly, the president offered next to nothing to help the still-sliding housing market, arguably the biggest drag on the recovery. The only mention of housing in the speech was a flick at pushing federal housing agencies to refinance more mortgages -- a drop in the bucket, at best.

Still, Republican leaders indicated Obama's plan would not be dead on arrival in Congress. "The proposals the president outlined tonight merit consideration," House Speaker John Boehner, R-Ohio, said in a statement. "We hope he gives serious consideration to our ideas as well."

Which brings up a final question: How flexible is Obama's plan? How willing is he to mash it up with Boehner's ideas, which go heavy on rolling back federal regulations?

Again, the president offered only clues in his speech, not a doctrine. "What we can't do -- what I won't do -- is let this economic crisis be used as an excuse to wipe out the basic protections that Americans have counted on for decades," he said.

Later, he added, "What's guided us from the start of this crisis hasn't been the search for a silver bullet. It's been a commitment to stay at it -- to be persistent -- to keep trying every new idea that works, and listen to every good proposal, no matter which party comes up with it."

"Listening" and "signing," of course, are very different things. The best designed jobs bill means nothing if the president doesn't get to sign it.

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Stunning jobs report complicates debt deal for both Obama, GOP

Jim Tankersley — Fri, 08 Jul 2011 00:00:00 -0400

Best-case scenario, it's a Michael Bay twist: dramatic, explosive, but it all works out in the end.

Worst case, we're looking at M. Night Shyamalan: quite jarring, and potentially very scary.

The Labor Department's report Friday morning that the economy added just 18,000 net jobs last month, or roughly six figures below the consensus forecast from economic analysts, immediately hardened conservatives' and liberals' beliefs about why the recovery continues to sputter and what it needs to kick into gear. That hardening, and the political pressure that will ratchet up along with it, is the unwelcome twist in the endgame negotiations over raising the federal debt ceiling.

Whether his economic advisers acknowledge it or not, Obama now must confront new and persuasive evidence that he has, once again, overestimated the strength of the recovery. The White House has said for months that the economy was past the point of needing more help from the government, even as gas prices rose and sapped consumer spending, and Japan's earthquake disrupted global trade. The president has mimicked Republicans in calling for government belt-tightening, even as the public sector steadily sheds jobs, including 39,000 more in June.

On Friday, liberals more or less revolted against that philosophy. The June jobs report "demonstrates austerity is killing the recovery," the Campaign for America's Future said in a press release. Economic Policy Institute economist Heidi Schierholz warned that the labor market is in "full retreat" and said Obama and Congress "need to stop talking about deficit reduction and start talking about job creation."

For Obama, that adds up to a lot of pressure to get more money, now, into consumers' hands as part of a debt-ceiling deal, possibly in the form of a deeper cut in payroll taxes. Which is to say, at a time when the president has steadily moved toward Republicans at the bargaining table, he might need to throw down a few new demands of his own.

The twist might be even more dramatic for House Speaker John Boehner, who is spearheading GOP negotiations on the debt ceiling and demanding trillions of dollars in spending cuts along with increased borrowing authority.

Boehner greeted the jobs report with a now-stock response, calling it evidence that "the misguided 'stimulus' spending binge, excessive regulations, and an overwhelming national debt continue to hold back private-sector job creation in our country." Other conservatives were harsher: Bill Wilson, president of Americans for Limited Government, said it was "time for this president to end his love affair with trillion-and-a-half-dollar deficits and higher taxes on those who produce jobs."

The pressure is now certainly rising on Boehner not to cut a deal, any deal, with Obama that gives an inch of ground on federal spending. There are two reasons for that. The first is that weak jobs numbers appear to weaken Obama's hand at the table. If the economy already looks terrible, Republicans might conclude, how much could the president really blame the GOP if negotiations fail, the government defaults, and markets tank?

The second explanation is entirely political. Once Boehner cuts a debt-ceiling deal - unless it's a very short-term one - the Republican Party loses some of its best cudgels for battering the president on the economy. Working together, Republicans and the president will have reduced uncertainty over federal debt levels and cut government spending. What would Republicans' "Where are the Jobs?" press releases say next month, in that case?

A U.S. default, or a drastic and immediate cut in spending to avert one next month, would give this recovery a very unhappy ending. Most analysts say America would risk falling back into recession. Avoiding that scenario just got more difficult. Let's just hope this isn't The Sixth Sense all over again, and we're not dead already.

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Playing with fire: A manmade debt-limit crisis

Jim Tankersley — Tue, 17 May 2011 00:00:00 -0400

The cost of battling bin Laden: $3 trillion

Jim Tankersley and Tim Fernholz — Fri, 06 May 2011 00:00:00 -0400

As we mark Osama bin Laden's death, what's striking is how much he cost our nation-and how little we've gained from our fight against him. By conservative estimates, bin Laden cost the United States at least $3 trillion over the past 15 years, counting the disruptions he wrought on the domestic economy, the wars and heightened security triggered by the terrorist attacks he engineered, and the direct efforts to hunt him down.

What do we have to show for that tab? Two wars that continue to occupy 150,000 troops and tie up a quarter of our defense budget; a bloated homeland-security apparatus that has at times pushed the bounds of civil liberty; soaring oil prices partially attributable to the global war on bin Laden's terrorist network; and a chunk of our mounting national debt, which threatens to hobble the economy unless lawmakers compromise on an unprecedented deficit-reduction deal.

All of that has not given us, at least not yet, anything close to the social or economic advancements produced by the battles against America's costliest past enemies. Defeating the Confederate army brought the end of slavery and a wave of standardization -- in railroad gauges and shoe sizes, for example -- that paved the way for a truly national economy. Vanquishing Adolf Hitler ended the Great Depression and ushered in a period of booming prosperity and hegemony. Even the massive military escalation that marked the Cold War standoff against Joseph Stalin and his Russian successors produced landmark technological breakthroughs that revolutionized the economy.

Perhaps the biggest economic silver lining from our bin Laden spending, if there is one, is the accelerated development of unmanned aircraft. That's our $3 trillion windfall, so far: Predator drones. "We have spent a huge amount of money which has not had much effect on the strengthening of our military, and has had a very weak impact on our economy," says Linda Bilmes, a lecturer at Harvard University's John F. Kennedy School of Government who coauthored a book on the costs of the Iraq and Afghanistan wars with Nobel Prize-winning economist Joseph Stiglitz.

Certainly, in the course of the fight against bin Laden, the United States escaped another truly catastrophic attack on our soil. Al-Qaida, though not destroyed, has been badly hobbled. "We proved that we value our security enough to incur some pretty substantial economic costs en route to protecting it," says Michael O'Hanlon, a national-security analyst at the Brookings Institution.

But that willingness may have given bin Laden exactly what he wanted. While the terrorist leader began his war against the United States believing it to be a "paper tiger" that would not fight, by 2004 he had already shifted his strategic aims, explicitly comparing the U.S. fight to the Afghan incursion that helped bankrupt the Soviet Union during the Cold War.

"We are continuing this policy in bleeding America to the point of bankruptcy," bin Laden said in a taped statement.Only the smallest sign of al-Qaida would "make generals race there to cause America to suffer human, economic, and political losses without their achieving anything of note other than some benefits for their private corporations."

Considering that we've spent one-fifth of a year's gross domestic product -- more than the entire 2008 budget of the United States government -- responding to his 2001 attacks, he may have been onto something.

Read more at NationalJournal.com

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A Japan-reactor repeat in the United States could cost the government dearly

Jim Tankersley — Tue, 15 Mar 2011 00:00:00 -0400

An American nuclear power-plant accident similar to the ongoing disaster in Japan would leave taxpayers on the hook for billions, and perhaps hundreds of billions, of dollars in health and economic damage claims, risk experts estimate.

Federal law puts most nuclear-accident liability on the shoulders of taxpayers, but regulators have not enforced safety standards vigorously enough to fully safeguard against those risks, economists Geoffrey Heal and Howard Kunreuther wrote in a 2009 paper that warned of excessive taxpayer exposure to the risks of nuclear catastrophe.

Heal, a professor at Columbia University, and Kunreuther, of the Risk Management and Decision Processes Center at the University of Pennsylvania's Wharton School of Business, acknowledge that the risks and costs of a nuclear accident in the United States are difficult to quantify. But they say that the upper-end damage estimates of a full core meltdown are almost "unimaginable."

The prospect of such an accident, while low, suddenly seems more imaginable in the wake of the simultaneous failures of three reactors at Japan's Fukushima Daiichi Nuclear Power Station, following the 8.9-scale earthquake and massive tsunami that struck the country on Friday.

Heal and Kunreuther sketch a deadly and expensive example of how bad a U.S. nuclear accident might be: A meltdown at the Indian Point nuclear-power station 25 miles north of New York City, they write, could eventually kill some 64,000 people - damage that they calculate at $384 billion - and inflict $50 billion to $100 billion in economic costs. Nightmare scenarios involving lost nuclear material that ends up in terrorists' hands, or the long-term evacuation of New York City, would dramatically increase the costs.

The Price-Anderson act limits private liability for those costs to $375 million for an individual company, plus $12.6 billion from an industry liability pool, leaving taxpayers on the hook for the rest. That transfer of liability creates conditions for moral hazard - an incentive for an electric utility, in this case, to take on too much risk because the utility would not bear the full costs of a catastrophic event.

The Nuclear Regulatory Commission is supposed to be taxpayers' guard against that risk. But, Heal and Kunreuther write, it's far from clear that regulators have done the job adequately: "There is empirical evidence that the NRC does not aggressively pursue and penalize mismanagement of nuclear-power stations, and that the federal authorities are not sensitive to the increase in potential costs associated with siting near densely populated areas."

In a phone interview on Monday, Heal gave the NRC a "5 out of 10" on a regulatory rating scale and raised concerns over whether the agency had adequately prepared for the possibility of a large American earthquake shaking a nuclear facility. In California, home to two working nuclear plants, Heal said that a massive radiation release would inflict damage "in the billions and billions of dollars."

U.S. regulators must quickly learn the still-unfolding lessons from the Japanese plant failures, he said, including whether plant operators there took any safety shortcuts.

"The priority in this country now is to focus very heavily on reactors that are in a seismic zone," Heal said, adding, "The NRC is supposed to be our guarantee against moral hazard. But if the NRC isn't keeping its game up to scratch, the risk from moral hazard is tremendous."

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Commission sets stage for 2011 budget debate

Jim Tankersley and Humberto Sanchez — Fri, 03 Dec 2010 00:00:00 -0500

The stage is set for next year's budget-resolution debate, as the leadership of President Obama's deficit commission expects that many of the panel's recommendations will make it into the House's spending blueprint.

Even though the 18-member commission's plan failed to win the 14 votes needed for approval and the panel adjourned Friday morning without a formal vote, the commission was able to trumpet that 11 members agreed to ratify the sweeping combination of tax-rate restructuring and social-safety-net cuts. None of the five House members on the commission voted to approve the proposal, but Erskine Bowles, the commission's Democratic co-chairman, expects the House budget to reflect a large portion of the commission's plan.

"Paul Ryan said 85 percent of what we proposed is going to be in his budget; it doesn't get any better than that," Bowles said. Ryan, the Wisconsin Republican who will chair the House Budget Committee next year, did not support the commission's plan.

Bowles also said that commission members have built working relationships that he believes will bear legislative fruit. He was chief of staff in the Clinton White House and worked on a 1997 agreement that helped balance the budget.

"This was a nonpartisan activity. I spent as much time with Tom Coburn as I did Dick Durbin. And they worked together…. That is what made this, unfortunately, unique," Bowles said. "But I think these relationships and this trust has been established. This is exactly what we did in 1997.… We got to a bipartisan conclusion that did balance the federal budget, and I think this is the first step in that effort."

Senate Budget Committee Chairman Kent Conrad, D-N.D., said he hopes that Congress and the White House set up a budget summit similar to the series of negotiations that took place in 1997.

A commission aide said that he expects the plan, or elements of it, will likely play a part in the debate to raise the debt limit, which the nation will hit in the next six months.

"I think that's the primary vehicle," the aide said. "But I think the other thing that keeps it alive in the next few years" are the 2001 and 2003 tax cuts.

Democrats, Republicans, and the White House are negotiating an extension of the cuts, which expire at the end of the month.

President Obama, on a surprise trip to Afghanistan, issued a statement that thanked the commission for its work but did not endorse -- or reject -- its plan. He said he had invited the commission to meet with Treasury Secretary Timothy Geithner and Office of Management and Budget Director Jack Lew.

"The commission's majority report includes a number of specific proposals that I -- along with my economic team -- will study closely in the coming weeks as we develop our budget and our priorities for the coming year," Obama said.

Several commission members, including some who opposed the plan, said they hoped Congress would debate and vote on the proposal this year.

"There is no reason Harry Reid and John Boehner shouldn't schedule a vote" on the plan," Andy Stern, the former head of the Service Employees International Union, who opposed the proposal as a member of the commission, said in an interview. "The time for fiscal wandering is over."

Asked if he believed that the plan would come to a congressional vote, Stern replied, "Well, I didn't think this would ever get 11 votes" on the commission.

Former Sen. Alan Simpson, R-Wyo., Bowles's co-chairman and someone long-famous for his wit and colorful aphorisms, summed up the proceedings in a way only he could: "We took a big banana and threw it into the gorilla cage," he said. "The gorilla has picked it up like they do, peeled it, mashed it, and played with it, and they will eat some. And that's where we are right now. Pieces will be digested and nourish this country."

Katy O'Donnell and Ben Terris contributed to this report.

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Deficit commission's final plan released

Katy O'Donnell, Jim Tankersley, and Clifford Marks — Wed, 01 Dec 2010 00:00:00 -0500

Adding detail - but no fundamental policy shifts - to a draft plan floated last month by its chairmen, President Obama's fiscal commission called this morning for "America's leaders to put up or shut up" and adopt a massive overhaul of taxation, government spending and the social safety net, in order to reduce the nation's mounting national debt.

The commission's final proposal was dubbed The Moment of Truth and officially released at 9:30 a.m., but posted earlier on several websites. It includes cuts to both defense and non-defense discretionary spending; comprehensive tax reform; Social Security reform; and health care cost containment.

Appearing on Capitol Hill following the release, commission co-chairs Alan Simpson, a Republican, and Erskine Bowles, a Democrat, expressed little hope that Congress will act on the plan's recommendations immediately, or even that the plan would gather the 14 votes on the commission required to guarantee the proposal a Senate vote. But the chairmen warned Washington would be forced to deal with the issue in short order.

"Whether we get two votes or 18" on the commission, Simpson said, "this baby ain't going away. Oh sure, it may be buried in an unmarked grave, and soon, but when the votes for the budget and extending the debt limit and debate on that comes up in the spring, this cadaver will rise from the crypt."

Bowles said the commission had "fundamentally changed the debate in America. We've put the debt issue on the map." And he conceded that "I don't like every aspect of this plan. To vote for this plan, each of us will need to tolerate provisions we oppose or previously opposed to reach a compromise."

The report scored an early endorsement from Sen. Kent Conrad , D-N.D., a commission member, who declared that after reading it three times, he concluded "while there are things that I dislike intensely - and I do - there are also things in this plan there are grand slam home runs for the American economy." He said he would support the plan strongly "because I don't see another alternative. I just don't."

Another commission member, Sen. Judd Gregg , R-N.H., also said he would back the plan. Sen. Dick Durbin , D-Ill., said he was studying the proposal and would not commit either way.

The most important reactions will come from congressional leaders and the president. When Simpson and Bowles released a draft document three weeks ago, they were met with indignation and outrage. House Speaker Rep. Nancy Pelosi, D-Calif., called the plan "simply unacceptable."

The final plan offers little real change from that proposal, other than more details and some flexibility in rates.

Perhaps most importantly, the final proposal adds emphasis on the importance of economic growth to deficit reduction. It pledges to delay major spending cuts until 2012 to allow the economy more time to recover, and it floats an idea to further spur growth: asking Congress to consider a temporary payroll tax holiday, originally proposed by the Bipartisan Policy Center's unrelated Domenici-Rivlin commission, to encourage consumer spending.

Still, the basic concept of the plan's attack on the deficit remains the same. It begins with a modest increase in the overall tax burden, softened by a broad tax reform that knocks out most tax breaks and reduces tax rates at every level. It then calls for an increase in the retirement age for Social Security -- which would save tens of billions of dollars over the next decade alone -- and more changes aimed at slowing the growth in health care costs.

The commission goes further than the president's stated goal of reducing the deficit to 3 percent of gross domestic product, instead whittling it down to 2.3 percent of GDP by 2015. It caps revenue and spending, meanwhile, at 21 percent of GDP each.

The plan recommends the immediate implementation of fundamental tax reform and the elimination of nearly all of the 150-plus tax expenditures, with a few exceptions: the earned income tax credit, the child credit, mortgage interest deductions (but only for primary homes), employer-provided health insurance credits, retirement savings and pensions credits, and charitable giving deductions. Itemized deductions would be eliminated, and capital gains and dividends would be taxed at ordinary rates.

The plan cuts tax rates across the board, reducing the top rate to between 23 percent and 29 percent. Originally, the co-chairs recommended establishing three rates -- 15 percent, 25 percent, and 35 percent. Their proposal to implement a 15 cent-per-gallon fuel tax hike within the next five years remains unchanged.

The corporate tax rate would be streamlined, with the rate necessarily falling between 23 percent and 29 percent, down from the current top rate of 35 percent. The plan suggests a 28 percent rate in its illustrative proposal, a 2-point increase over the chairmen's mark proposal. Meanwhile, a territorial system would be established for foreign-owned companies with U.S. subsidiaries, allowing them to keep foreign profits. All tax deductions and expenditures for businesses would be eliminated.

The plan calls for discretionary spending to return to pre-crisis 2008 levels in 2013, while freezing spending in 2012 at 2011 levels and constraining spending growth to half the rate of inflation through 2020. It would cut non-war defense spending at the same rate as non-defense spending, while war spending would fall under the responsibility of the president, who would be required to propose annual limits.

The plan adds details on how to reduce federal health care spending, which were noticeably absent in the initial Simpson-Bowles proposal. They include changing how Medicare pays doctors, scrapping a long-term care insurance plan created by President Obama's signature health care bill, overhauling medical malpractice litigation, and chipping away at Medicare and Medicaid costs through a variety of measures.

But the final proposal still lacks specifics on how to control upward-spiraling health care cost increases throughout the economy - the biggest driver of long-term budget deficits, according to the Congressional Budget Office.

The commission's boldest attempt to control those costs is by eliminating the tax exemption for employer-paid health benefits, which many economists say would help reduce costs by forcing individuals to shoulder more of the burden of their health-care choices.

The retirement age would be raised to 69 from 65 in order to rein in Social Security spending to ensure the program's solvency.

More generally, the plan proposes budget process reforms to encourage accountability in the budgeting process.

The plan faces opposition from both liberals and conservatives. Republicans remain implacably opposed to any increase in the overall tax burden. Rep. Paul Ryan , R-Wis., the author of a long-term fiscal plan that includes no tax increases, signaled earlier this week that he was unlikely to support the co-chairs' plan. Democrats, meanwhile, oppose cuts in domestic programs and are even more militant about imminent cuts in Medicare. Rep. Jan Schakowsky, D-Ill., one of the panel's most outspoken liberals, has served notice that she will vote against cuts to either Medicare or Social Security.

People close to the commission told National Journal that at least 10 of the panel's 18 members support the plan. Under the panel's charter, any recommendation to Congress needs the support of at least 14 members. But that threshold has always been viewed as unrealistic, given the intense party polarization in Congress. Current House and Senate lawmakers make up 12 of the panel's members.

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