More Debits & Credits Posts

Deficit Commission Tries to Close the Gap

December 2, 2010

The bipartisan deficit commission, faced with its December 1 deadline for delivering a final report on how to cut the federal debt and deficit, has revised the draft plan floated last month by its two co-chairs in an effort to get enough votes to approve a final report.

The 18-member National Commission on Fiscal Responsibility and Reform needs 14 members to approve the final report. As a result of some of the protests unleashed by the initial trial balloon floated by the two co-chairs, Erskine Bowles and former Sen. Alan Simpson of Wyoming, the version of the report unveiled on Thursday, entitled “The Moment of Truth,” contains a number of compromises and alternative proposals.

Instead of getting rid of the mortgage interest deduction, for example, the “illustrative proposal” would provide a 12 percent non-refundable tax credit for all taxpayers, mortgage capped at $500,000, and no credit for interest from a second residence and equity.

The panel also added back in the tax breaks for charitable giving (but only as a 12 percent nonrefundable tax credit available to all taxpayers and available above 2 percent of the adjusted gross income floor), the Child Tax Credit, and the Earned Income Tax Credit. And instead of raising the Social Security retirement age for everybody to 68 by 2050 and 69 by 2075, there’s now a hardship exemption for those who can’t work past the age of 62.

The report includes a number of tax-related recommendations, including permanently repealing the alternative minimum tax, as well as repealing the Personal Exemption Phase-out, or PEP, and the Pease phase-out of itemized deductions. The current six tax brackets would be consolidated into three tax brackets of 12, 22 and 28 percent. Itemized deductions would be eliminated, so all individuals would take the standard deduction.

A number of the members of the commission appear to be leaning now toward voting for the final report, including Sen. Richard Durbin, D-Ill., Rep. Jeb Hensarling, R-Texas, and Sen. Tom Coburn, R-Okla., according to the Washington Post. However, it is not yet clear whether the panel’s leaders will manage to get 14 votes on the report on Friday.

Whatever happens, it will be up to Congress and the Obama administration to decide what to do with the report. The increasing clamor for reining in the budget deficit may put enough pressure on them to act, but there will also be plenty of pressure on the other side to preserve the tax breaks and spending priorities favored by the various interests who know all too well how to work the levers of power in Washington.

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