Social Security Benefit Cuts, Tax Overhaul Mulled by Bipartisan Panel

VIDEO: Jonathan Karl on plan to raise taxes and change Social Security rules.

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.

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