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Preoccupied With Debt, Washington's Suddenly Facing the Federal Deficit

Both parties are trying to tackle sea of red ink

"You absolutely need to have everything on the table. It's going to take spending cuts and revenue increases. It's way too big to do on just one side of the budget," she said.

Prominent conservative Grover Norquist, head of Americans for Tax Reform, has already sent a warning shot to Republicans that supporting the package would violate promises not to raise taxes. And liberals, including outgoing House Speaker Nancy Pelosi, have complained about the benefit and spending cuts.

John Rother, AARP executive vice president for political strategy and international affairs, said he is concerned about the combined effect of proposals like raising the Social Security retirement age, reining in cost-of-living increases, eliminating tax breaks for charitable donations and for 401(k) saving, and requiring seniors to shoulder more of their Medicare costs.

"You have a real weakening of incentives to save for the future or contribute to charity," Rother said. "At the same time you have lower Social Security benefits and higher costs for Medicare. It's a quadruple whammy."

Here are some of the major proposals that affect older Americans:

Tax rates

The panel led by Republican Domenici and Clinton budget director Alice Rivlin would impose a new national "deficit sales tax," a 6.5 percent levy on many goods and services. Both the president's commission and the Rivlin-Domenici panel would lower income tax rates for corporations and for individuals.

Spending programs

Both of these groups would also like to rein in discretionary spending — which is federal programs outside of Social Security and Medicare and Medicaid. The Rivlin-Domenici panel opted to freeze spending on defense and other programs at 2011 levels.

Fraser said the new Republican majority is likely to get right to work on spending cuts because they feel that's why they were sent to Washington.

Social Security

Both the Bowles-Simpson proposal and the bipartisan group would take more Social Security taxes from wealthier taxpayers — currently the tax is levied on only the first $106,800 in income. Both would change the way cost-of-living adjustments are made so they would not increase as much.

Medicare and health care costs

The Domenici-Rivlin panel would raise Part B Medicare premiums. They also would charge higher premiums as costs go up.

Bowles-Simpson would limit the growth of health care costs to just a little more than inflation.

Dean Baker, codirector of the Center for Economic and Policy Research, said that's draconian and could lead to cuts in services because it won't cover the combination of health-care-cost increases and a burgeoning elderly population.

Baker said the Medicare and Social Security changes would hit vulnerable older Americans hard, just as the economy has left them approaching retirement with nest eggs diminished by the housing crash and recession.

William D. Novelli, a former head of AARP who sat on the Domenici-Rivlin panel, said the package was a way to stabilize Social Security and tackle the deficit. "Older people really understand the importance of their children and grandchildren having a secure future," he said after the proposal was released.

Skeptics like Baker see the concern over the deficit as "hugely overblown."

But Fraser said all the deficit panels are sparking a crucial debate in Washington and in the country as a whole. "We need to have a robust conversation about what we want government to look like."

Tamara Lytle is a veteran Washington-based political correspondent.

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