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Federal Budget

Can Federal Commission Really Close the Budget Deficit?

Public anger may prompt concrete action, but "every decision is going to be painful"

The options for solving the deficit involve some combination of raising more money and spending less. Government critics often complain that cutting waste, fraud and abuse, and foreign aid should solve the problem.

But Bowles said that only amounts to about 5 percent of the issue. Budget cuts alone won’t solve the problem. Neither will tax increases. Even double-digit growth for the next decade wouldn’t do the trick. Obama has consistently told the commission that everything is on the table.

“It’s going to take some of both” higher taxes and budget cuts, Bowles said.

Health care dilemma

One complication is that health care spending is a major culprit of the future spending imbalance.

“Medicare is the whole enchilada,” Miron said.

Miron said health spending is growing at about 8 percent a year while the economy grows just 2 percent. But the bruising battle over Obama’s health care reform bill makes it unlikely the panel will recommend major changes before that program is even fully put into effect, many experts say.

Social Security risks

Cuts to Social Security also are on the table. Barbara Kennelly, head of the National Committee to Preserve Social Security and Medicare, worries that the commission will try to solve the deficit problem by raiding the Social Security program.

“All of a sudden some of these people feel this is a place to go to solve the deficit problem. Not one dime from Social Security caused this problem,” said Kennelly, who was a lawmaker last time Social Security needed major changes to shore up its finances, in 1983. “Americans don’t believe Social Security is responsible for the deficit.”

AARP’s John Rother agrees that Social Security’s funds shouldn’t be used to balance the federal budget. But a more comprehensive look at Social Security’s own imbalance would be welcome, he said. Because of the influx of boomers into the retirement system, Social Security is insolvent after 2037.

“Social Security is going to be all or nothing,” he said. “You have to take enough steps to keep the program solvent or else you have to focus elsewhere [for deficit solutions],” he said.

One option the commission is likely to consider is raising the retirement age to 68 or 70. Kennelly said that will cause hardship for older Americans who can’t find a job in their 60s and have to retire early with smaller Social Security checks.

Rother said the commission also may look at changing the way the consumer price index is figured. The CPI is used to figure Social Security inflation adjustments as well as changes to a wide range of other federal programs. A switch to a “chained” CPI formula would reduce annual CPI increases by about 0.3 percent. So a Social Security recipient with a monthly check of $1,000 who would have gotten a $30 cost-of-living increase would get a $27 bump instead, he said.

Changes to the retirement age likely would be phased in so that anyone near retirement isn’t affected. But Rother said a change to the CPI could affect retirees.

Are taxes an option?

Rother said the commission also may look at tax code changes that might be of interest to older Americans, such as whether to continue deductions for mortgage interest and health care expenses.

Miron said some of the commissioners are interested in a value-added tax, or VAT—a sort of national sales tax on each stage of an item’s creation. But that’s unlikely to get enough support, he said.

The panel is bipartisan—with 10 Democrats and eight Republicans. Any recommendation will need the support of 14 of the 18 commissioners. But the commission lacks the congressional mandate that might help it in pushing through the tough medicine that both sides say is needed to cure the unbalanced books.

The commission’s recommendations are due Dec. 1—less than a month after midterm congressional elections that could move control of the House and or Senate into Republican hands and about as far from the 2012 presidential election as possible.

“At least we can have two weeks of policy discussions before people start throwing spitballs across the partisan aisle,” Sabato said. The challenge for the commission is to propose changes that include a variety of tax increases and spending cuts.

“They have to find a way the pain is felt equally across the population,” he said.

Tamara Lytle is a veteran Washington-based political correspondent.

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