–As Lame-Duck Session Opens, Lawmakers Jostle Over Bush Tax Cuts
–Senate Majority Leader Pledges Votes On Different Tax Extension Plans
–Republican Leaders Push For $4 Trillion Tax Cut Extension Plan
–Meanwhile, Deficit Reduction Panels Work To Overhaul Federal Budget

By John Shaw

WASHINGTON (MNI) – On this week, more than most others, Capitol
Hill has been a place of parallel universes.

In one universe, returning lawmakers have been fervently discussing
how many of the Bush era tax cuts should be extended and for how long.

The main debate is if more than $3 trillion should be borrowed over
a decade to renew most of the Bush tax cuts (the Democratic view) or $4
trillion should be borrowed to extend all of them for a decade (the
Republican position.)

In the other universe, a presidentially appointed task force,
working out of the Senate Budget Committee hearing room, has been
meeting almost daily to debate a plan that would secure $4 trillion of
budget savings over a decade to bring the federal budget closer to
balance. Achieving this would require overhauling all major spending
programs and rewriting the federal tax code.

To make the situation even more surreal, a number of lawmakers are
active participants in both sets of discussions.

Senate Majority Leader Harry Reid said Thursday that he expects the
Senate to hold “some votes” on alternative tax cut packages when
Congress reconvenes after Thanksgiving.

Reid said Senate Democrats continue to support extending the Bush
era tax cuts for those individuals making $200,000 or less and couples
making $250,000 or less. He said he is not certain if the Democratic
plan would try to extend these tax cuts permanently or for a shorter
time.

Reid said he would be “happy” to allow a Senate vote on a
Republican alternative that would extend all the Bush era tax cuts,
including those for higher income people. Reid said the Senate
Republican plan would cost $4 trillion over a decade. Analysts have
noted the Senate Democratic plan would cost about $3.2 trillion over the
same period.

Both incoming House Speaker John Boehner and Senate Minority Leader
Mitch McConnell said repeatedly this week that all Bush era tax cuts
should be extended.

In what appeared to be a tactical move to put pressure on President
Obama and congressional Democrats, Boehner and McConnell declined to
attend a Thursday meeting Obama called for with congressional leaders
to discuss tax cuts and other matters. That meeting will not take place
until the week of Nov. 29–just about a month before the tax cuts are
set to expire.

Meanwhile, the National Commission on Fiscal Responsibility and
Reform has spent hours this week in private meetings debating a sweeping
plan to cut the budget deficit that was drafted by the two leaders of
the commission, former senator Alan Simpson and former White House chief
of staff, Erskine Bowles.

“We’ve made enormous progress in the last several weeks,” Bowles
told reporters Thursday. But he added: “Who knows if we will get to the
Promised Land.”

Bowles said that he and Simpson are willing to rework their
chairman’s mark, but added that “you won’t see a weaker plan.”

President Obama created the commission on Feb. 18 by executive
order after an attempt by lawmakers to create a panel by statute failed
in the Senate.

The commission is charged to issue a report by Dec. 1 that would
cut the deficit to about 3% of gross domestic product by fiscal year
2015 and begin slowing the growth of debt over the long term. In order
for the panel to issue recommendations, 14 of the 18 members need to
reach an agreement.

The commission will meet in a public session on Nov. 30.

The draft budget plan Simpson and Bowles released last week calls
for more than $4 trillion in budget savings over a decade.

Their draft plan would bring the federal budget deficit down to
2.2% of gross domestic product by 2015. It would reduce the nation’s
debt to 60% of GDP by 2024 and to 40% of GDP by 2037.

The plan would secure deep savings out of every corner of the
federal budget, including defense and Social Security.

The Bowles-Simpson plan would put in place discretionary spending
caps that would help achieve about $1.4 trillion in savings. It calls
for $733 billion in entitlement savings and $751 billion in savings from
overhauling tax expenditures over a decade.

The plan calls for fiscal changes that would bring federal spending
down to about 21% of GDP and boost revenues to bring them up to 21% of
GDP. The plan would balance the federal budget by 2037.

Also this week, former Senate Budget Committee Chairman Pete
Domenici and former White House budget director Alice Rivlin released a
fiscal overhaul plan that would secure nearly $6 trillion of budget
savings by 2020.

The plan by Domenici and Rivlin would restructure major spending
programs such as Social Security and Medicare, place a multiyear freeze
on many domestic and defense programs and fundamentally overhaul the
U.S. tax system.

Domenici and Rivlin are co-chairs of a budget project sponsored by
the Bipartisan Policy Center. They have been working on this report for
nearly a year.

In their report, Domenici and Rivlin call for a one year payroll
tax holiday in 2011 which would suspend Social Security payroll taxes
for employers and employees. This is an effort to boost the economy in
the short-term. They said it would be effectively a $650 billion tax cut
that would stabilize and strengthen the American economy.

The bulk of their report focuses on driving down the deficit.
Between 2012 and 2020, it outlines $2.7 trillion in spending savings,
$1.9 trillion in tax expenditure savings, $435 billion in new revenues
and $877 billion in debt service savings.

Domenici and Rivlin said their plan would stabilize the federal
debt below 60% of GDP by 2020. It would reduce federal spending from 26%
of GDP to 23% by 2020. Under their plan, revenues would reach 21.4% of
GDP by 2020.

Domenici and Rivlin said one of the centerpieces of their report is
a plan to “dramatically” overhaul the tax system, creating individual
rates of 15% and 27%, down from the current high of 35% and cutting the
corporate tax rate from 35% to 27%.

They call for a 6.5% debt reduction sales tax which would raise
about $3 trillion over a decade.

Domenici and Rivlin back broad Social Security reform, including
raising the amount of wages subject to a payroll tax, reducing benefits
for wealth recipients of Social Security and changing the cost of living
formula.

Domenici and Rivlin call for Medicare reform and capping and then
phasing out the tax exclusion for employer provided health care
insurance.

** Market News International Washington Bureau: 202-371-2121 **

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