Social Security Benefit Cuts, Tax Overhaul Mulled by Bipartisan Panel

VIDEO: Jonathan Karl on plan to raise taxes and change Social Security rules.
WATCH Digging Deeper into Proposal to Cut National Debt

Raising the Social Security retirement age, simplifying the tax code so more Americans pay a lower tax rate, ending tax deductions for mortgages, and cuts to discretionary spending are the cornerstone recommendations being mulled by a special commission set up by President Obama to chart a path for dealing with the national debt which is nearly $13.8 trillion and growing.

Taken together, the cuts in spending and Social Security and requiring more low-income Americans to pay taxes would fix the debt problem, according to the commission.

Read the proposal HERE.

It has long been known that dealing with the twin problems of the looming insolvency of social welfare programs like Social Security and Medicare, and paying down the national debt, will require real sacrifice by Americans.

According to the commission's first draft report, future generations should get fewer benefits from Social Security in order to stretch solvency of that program for the next 75 years. The draft was released Wednesday by the commission's bipartisan co-chairmen, Democrat and former Clinton White House Chief of Staff Erskine Bowles and former Wyoming Republican Senator Alan Simpson.

But taking into account the currently fragility of the U.S. economy, the draft suggests delaying any cuts until 2012.

Many of the proposals, like doing away with the mortgage interest deduction and raising the retirement age for Social Security will be extremely difficult to pass through Congress. Outgoing House Speaker Nancy Pelosi called the proposal "simply unacceptable."

But Bowles said the payoff - or pay down of the debt would be worth it.

"We're clearly on an unsustainable path," Bowles emphasized at a press conference in Washington. "We can't grow our way out of this problem, we can't tax our way out of it, we can't cut our way out of it. We've tried to put a balanced approach out there that takes $4 trillion out of the budget, so we cut the budget by $4 trillion over the next 10 years. We have specific cuts in this proposal."

A New, Simpler Tax System, Deep Spending Cuts

In order to deal with the debt crisis, in addition to cuts in spending, the commission suggests simplifying the tax code, so that most Americans pay a lower percentage of their income to the government each year. The top personal rate would drop from 35 percent to 23 percent. But the decrease in income taxes would be offset by doing away with popular deductions that tens of millions of people take off their taxes for interest paid on mortgages. More low-income Americans would pay taxes under the proposal.

The spending cuts being proposed would be deep and across the board.

The federal workforce would be cut by ten percent and federal salaries would be frozen.

In defending the proposals, Bowles said: "As an example, in 2015 we have $163 billion worth of discretionary budget cuts. We give you $200 billion to select from. So again we've tried to be specific. We've dealt with discretionary spending, defense and non-defense. We've dealt with health care. We've dealt with Social Security and we've put forward a proposal that reforms the tax code. We get rid of most of the tax expenditures. We broaden the base. We lower the rates. We take rates down to 8, 14 and 23. We take the corporate rate down to 26 which makes America the best place to start and own a business. We're excited that this is a good base. I want to stress this is not the president's proposal. We don't purport to represent the president. This isn't the commission's proposal. This is simply Sen. Simpson's and my first attempt to put a real plan on the table to bring this deficit down by $4 trillion."

Bowles today touted the panel's new plan as "strong", "balanced", and "a good first start", warning that the nation is headed for "disaster" if the soaring amount of red ink is not brought under control.

"We've laid a predicate down here that will I hope be enormously useful in addressing what I think is the most predictable economic crisis in history. Every single member of Congress knows that the path that we're on today is not sustainable and if we don't bring these deficits down and eventually get the balance, you know, we are headed for disaster," Bowles said.

Reaction Ranged From "Drop Dead" to No Comment

The proposal drew a "no comment" from the White House.

"The President will wait until the bipartisan fiscal commission finishes its work before commenting. He respects the challenging task that the co-chairs and the commissioners are undertaking and wants to give them space to work on it. These ideas, however, are only a step in the process towards coming up with a set of recommendations and the president looks forward to reviewing their final product early next month," said White House spokesperson, Bill Burton.

The proposals immediately came under fire from liberal groups.

"The chairmen of the deficit commission just told working Americans to 'drop dead,'" said AFL-CIO President Richard Trumka in a statement. "Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare."

"The very people who want to slash Social Security and Medicare spent this week clamoring for more unpaid Bush tax cuts for millionaires," he said.

And there was an early indication of how difficult it will be for 14 of the panel's 18 members to all get behind a plan. A few of them wasted no time today in voicing their opposition to the proposal.

"I have some concerns about it and I cannot support it – that is, this version right now at this time," said Sen. Max Baucus, D-Mont. "It's massive. It begs more questions at this point that have yet to be answered."

Rep. Jan Schakowsky, D-Ill, said she disagreed "vehemently" with the proposal.

"I agree that the debt and the deficits are unsustainable, but this is not the way to do it," she said.

"We can make Social Security solvent for another 75 years with modest increases in revenue and that is not the direction in this chairman's proposal, so I am very vehemently against that proposal," she stated.

No Consensus on Panel

Sen. Kent Conrad, D-ND, praised the effort of the chairmen, but preached patience, saying that it would take time before any conclusions could be reached.

"I give them very high marks for being bold and producing a plan that does get us back on a sustainable course. They get very high grades for that," Conrad said. "We're going to have to take some time to evaluate the economic effect, the equities here, before we reach a conclusion. And obviously we're going to have alternatives offered, but in terms of constructing a plan that really gets us back on track, they've clearly done that."

"It's very hard to get 14 of 18 around here to agree on anything. I mean, it's very hard to get 14 of 18 to agree on a time of day to meet," he joked.

"To get a package is clearly going to take more work. It's going to take compromise. It's going to take evaluation of alternatives," he concluded.

A more optimistic outlook about gaining a consensus on the panel was voiced by another member, Sen. Mike Crapo, R-Idaho.

"Maybe I'm just being more hopeful right now, but I believe that the threat that our country faces from our fiscal problems right now is sufficiently real that we have to come together," he said. "A decision is going to be made either by the bond market or by Congress and the president…"

"I think that clearly Erskine Bowles and Alan Simpson have put together a plan that has a lot of controversial things in it, but I doubt that you can put together a plan to deal with the fiscal issues that we face in our country right now without creating a plan that has controversy in it. So now what the commission is going to do is dig into it, evaluate it and I think other ideas are going to be put on the table and we're going to sift through it."