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US deficit panel calls for deep cuts and tax rises


1 December 2010 Last updated at 15:03 ET

Alan Simpson and Erskine Bowles Panel co-chairmen Alan Simpson and Erskine Bowles devised the recommendations

A presidential panel set up to help trim the US budget deficit has called for steep spending cuts and tax rises.

The proposal would cut defence, social security and other spending, slashing a total of $4.1tn (£2.62tn) from the budget deficit by 2020.

But analysts say the panel is unlikely to ratify the plan with a vote, calling into question whether the US Congress will act on its recommendations.

“The solution will be painful,” the plan reads. “There is no easy way out.”

The US had a budget deficit of $1.3tn in the year to September, and critics have said the government should do more to narrow the gap.

The BBC’s Paul Adams, in Washington, says members of the commission were unanimous in the view that America’s prosperity and its very place in the world are gravely threatened by the country’s massive problems with debt.

One of the commission’s civilian members, businessman David Cote, brought the scale of the problem vividly to light, our correspondent says.

“If you had spent a million dollars a day since Jesus Christ was born 2010 years ago, you would still not have spent a trillion dollars. And that will be our annual interest bill,” the businessman said.

However there are still broad divisions on how to move forward.

Republicans do not like the prospect of overall tax increases, while Democrats think that cutting social security and other benefits is asking too much of America’s less well off.

Earlier this week, President Barack Obama proposed a two-year pay freeze for federal government workers as part of efforts to reduce the budget deficit.

His handling of the economy was seen as a key factor in the Democratic losses in the recent mid-term elections.

The US president established the bipartisan commission in February. Its members include current and former members of Congress, and labour and business leaders.

The latest version of the report was drawn up by panel co-chairmen Alan Simpson, a former Republican senator from Wyoming, and Erskine Bowles, a former White House aide to President Bill Clinton.

Among its recommendations:

  • Reduce social security retirement payments to wealthier Americans, while gradually increasing the retirement age and the amount of wage income subject to the social security tax
  • Reduce the budgets of the White House and Congress by 15%
  • Increase the petrol tax by 15 cents a gallon, dedicating the new revenue to spending on transport
  • Limit annual cost increases for Medicare and Medicaid, the federal healthcare programmes, to 1% of economic growth rate
  • Trim government payrolls by replacing fewer who leave
  • Eliminate corporate subsidies in the US tax system
  • Limit medical malpractice lawsuits, a long time Republican goal

The deficit has been driven largely by the wars in Iraq and Afghanistan, massive outlays for Medicare, the financial crisis and two large tax cuts pushed through by President George W Bush and the Republicans in 2001 and 2003.

The commission’s report comes as Mr Obama and Republicans in Congress debate whether and how to extend those tax cuts, one of the top issues facing the current Congress as it nears its end.

With the Bush tax cuts set to expire at the end of the year, Mr Obama and the Democrats favour extending them for middle class Americans while letting them lapse for households making more than $250,000.

But the Republicans want them extended for all Americans.

The commission members are set to vote on the report on Friday. If they ratify it, analysts say Congress will be under pressure to vote on the recommendations – but they add that ratification is unlikely.

The panel’s chairman, Mr Bowles, said the panel’s work had – at the very least – made America engage in substantive debate on the deficit issue.

“The era of debt denial and the denial of its consequences is over,” he said. “We have started an adult conversation that will dominate the debate until the elected leadership in Washington does something real.”

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