–Analysts Question Procedures of Bowles-Simpson Deficit Panel
–Experts Wonder About Early Release Of Discussion Draft
–Bowles-Simpson Panel To Meet Again Thursday Afternoon

By John Shaw

WASHINGTON (MNI) – It should be said at the outset that the
challenges confronting the National Commission on Fiscal Responsibility
and Reform have always been immense.

A large, unwieldly panel comprised of some of Congress’s most
outspoken fiscal experts and other veterans of past budget wars was
charged to create a serious deficit reduction plan — and win its
acceptance by 14 of the 18 committee members.

With a small staff, a limited budget and a tight schedule, the two
leaders of the commission, former Sen. Alan Simpson and former White
House Chief of Staff Erskine Bowles have faced long odds since they
began their work earlier this year.

But there are growing questions about the way Bowles and Simpson
have gone about their work. While they conducted careful, organized
hearings throughout the year, the actions of Bowles and Simpson over the
past week or so have surprised, even perplexed, many.

The two chairmen released their discussion draft last week, shortly
after it was circulated to their panel.

Bowles and Simpson have also made their case publicly, including an
appearance earlier this week on the Charlie Rose Show. During that
appearance, Bowles and Simpson defended their report and said they
released it to the press because they feared that its contents would be
leaked and mischaracterized.

Stan Collender, a budget expert at Qorvis Communications, said he
has been “very surprised” by the procedures that Bowles and Simpson have
used and the substance of their report.

“I have to say that I really don’t understand what they are doing.
First, they release a draft without having built any consensus on the
commission for it. That’s an approach I haven’t seen before and frankly
it doesn’t make much sense to me,” Collender said.

“And I’ve been surprised the report doesn’t have any coherence. The
chairmen haven’t offered a plan that reflects a vision of what the
federal government should be doing — or what it should not be doing.
It’s a grab bag of items that seem guided by the need to hit some
numbers,” he added.

Senate Majority Whip Dick Durbin, a member of the panel, left a
session Wednesday saying he was puzzled at the deliberations. The
commission, he said, was debating theories of taxation rather than
considering specific ideas.

“My only advice to them was, look at the calendar. We’re running
out of time here,” Durbin said.

“If we’re going to come to a conclusion, come to a vote, we’ve got
to start narrowing this conversation down … . It’s markup time,” he
said.

Simpson and Bowles are convening their panel again Thursday
afternoon. This and other meetings will determine if there are 14 votes
on the 18 member panel to approve their plan — or some variation of it.

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 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 wring deep savings out of every corner of the
federal budget, including defense and Social Security.

The Bowles-Simpson plan would put in place tough 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.

In their draft, Bowles and Simpson call for fundamental tax reform
in which the marginal rates are reduced, the tax base is broadened, and
revenue is capped at 21% of GDP.

It is unclear if the Bowles-Simpson panel will look for ideas from
other deficit reduction panels that have been at work.

Earlier 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.

Domenici 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 355 to 27%.

They call for a 6.5% debt reduction sales tax.

Domenici and Rivlin call for 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.

Domenici and Rivlin also call for freezing most parts of the
discretionary budget, including defense, for at least four years.

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

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