–Analysts Are Heartened By Broadening Interest In Fiscal Issues
–Budget Experts Hope Coherent Plans Emerge, Are Voted On
–Fiscal Debate To Be Shaped By Bowles-Simpson Report, Obama FY12 Budget

By John Shaw

WASHINGTON (MNI) – Here is one indication that the debate about
America’s fiscal future has gone mainstream.

This month’s Esquire magazine, the one featuring the “Sexiest Woman
Alive, 2010,” includes a major article about cutting the U.S.’s federal
budget deficit.

In the article, two former Republican senators, Bob Packwood and
John Danforth, and two former Democratic senators, Bill Bradley and Gary
Hart, spend three days in New York negotiating a plan to balance the
federal budget by 2020.

Embracing a mix of spending cuts and tax increases, the four former
senators agreed on a plan that would bring government spending and
revenues to 20% of gross domestic product and stabilize debt to GDP at
about 60% by 2020.

Among other things, their plan gradually raised the Social Security
retirement age to 70, revised Social Security’s cost-of-living
adjustment formula, increased the gas tax by $1 per gallon, overhauled
the Pentagon and cut back defense spending, instituted medical
malpractice reform, cut the federal workforce by 5% and terminated a
number of tax expenditures.

In an article in the New York Times of Nov. 14, the author, Dave
Leonhardt, challenged readers to cut at least $1.345 trillion from the
2030 budget deficit, using a menu of spending and revenue options.

According to Leonhardt in yesterday’s Times, the challenge
attracted more than one million page views and more than 11,000 Twitter
messages as readers tried their hand at cutting the budget deficit.

In addition to these journalistic endeavors that focus on how to
fix the nation’s deficit problems, three high level task forces have
been working for about a year and have issued provocative ideas.

There is the National Commission on Fiscal Responsibility and
Reform that was created by President Obama and is chaired by former
senator Alan Simpson and former White House chief of staff, Erskine
Bowles.

The Bowles-Simpson panel is trying to reach an agreement on a
fiscal plan by Dec. 1 that is supported by 14 of the 18 panel members.

Bowles and Simpson released a discussion draft about two weeks ago
that they are now reworking in an attempt to come to an agreement next
week.

Their initial draft calls for more than $4 trillion in budget
savings over a decade. It 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.

Last 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.

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.

And several weeks ago, the Peterson-Pew Commission on Budget Reform
issued a report in which they outlined a host of budget process reforms
to bring the budget closer to balance–and keep it there.

Bill Frenzel, a former Republican congressman who is now a guest
scholar at the Brookings Institution, said he is encouraged by the
proliferation of deficit cutting ideas, but adds that at some point
early next year it will be critical for policymakers to write specific
plans.

“There are lots of ideas floating around and not a lot of focus. I
think that is ok for now because it may be creating an environment in
which the parties can move beyond their talking points. Until now,
Republicans have stomped on any idea that involved tax increases and
Democrats have stomped on any ideas having to do with restraints on
entitlements. Maybe we can break out of that impasse,” he said.

Frenzel said that in an ideal world the Bowles-Simpson panel will
come up with a credible plan that wins the support of 14 panel members,
sending it to Congress for its consideration.

But he said this scenario remains unlikely and probably the best
case scenario is that Bowles and Simpson issue a strong “chairman’s
report” that helps shape the fiscal agenda of Obama and the 112th
Congress.

“It’s going to be very important to see what Bowles and Simpson can
come up with. Then it’s going to be very important to see what kind of
budget remarks the president makes in his State of the Union speech in
January and what is in his new budget in February,” he added.

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

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