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

Both parties are trying to tackle sea of red ink

All over Washington, like cherry blossoms in spring, proposals are blooming to confront the nation's federal budget deficit.

Two deficit panels have reported and another weighs in on Dec. 1. Their ideas include sweeping remakes of the nation's tax system and major changes in spending priorities that would affect several programs, including Social Security and Medicare.

But whether the proposals will be carefully cultivated or mowed down by political realities remains to be seen.

"We are at a very important crossroads in our federal fiscal policy," said Alison Acosta Fraser, director of economic policy studies at the Heritage Foundation. "We are on a highly unsustainable path — it's economically reckless and morally irresponsible. The path we are on is going to put unconscionable debt on our younger generation."

President Barack Obama signs an executive order creating the bipartisan National Commission on Fiscal Responsibility and Reform.

President Barack Obama signs an executive order creating the bipartisan National Commission on Fiscal Responsibility and Reform. Getty Images

'The path we are on is going to put unconscionable debt on our younger generation.'

Recession, war costs and stimulus funding have conspired to drive the nation's deficit and debt up. An aging population and fast-growing health care costs mean even more trouble in the future — by 2020 about half of all income tax revenue will be needed just to pay interest on the debt. The country's debt will hit dangerously high levels as a percentage of the nation's economic output, economists warn.

Former Sen. Pete Domenici, co-chair of the Bipartisan Policy Center's Debt Reduction Task Force, said the tide of red ink is the nation's gravest threat. "This silent killer is about to get us," he said at a news conference announcing a package that would cut $6 trillion in federal spending between 2012 and 2020.

While economists have been sounding their policy-paper alarms for years, a growing public backlash against the deficit has moved the issue onto the nation's political agenda. Republicans, backed by a Tea Party movement demanding smaller government, will take over control of the House in January.

And now, the deficit panels are getting the conversation started. The Peterson-Pew Commission on Budget Reform weighed in first, proposing changes to the federal budget process, including annual caps on spending and limiting the size of the debt as a percentage of the economy.

Next, on Nov. 17, Domenici's group proposed a national sales tax of 6.5 percent. The panel also would freeze spending, shift more of the responsibility for Medicare onto seniors and raise more money from Social Security taxes. But in the short term, workers would get a one-year reprieve from the 12.4 percent Social Security payroll tax that is borne by both employers and employees. That tax holiday is designed to stimulate the economy by putting $650 billion in taxpayers' pockets.

On Dec. 1, the National Commission on Fiscal Responsibility and Reform — appointed by President Obama and including elected officials of both parties — will issue its recommendations. Already the chairmen, Democrat Erskine Bowles and Republican former Sen. Alan Simpson, have put out a comprehensive proposal. Most budget experts don't expect them to win the 14 out of 18 votes needed to send it directly to Congress. But the plan already has generated strong reactions — everything from applause to boos.

They would cap spending on discretionary programs, saving $200 billion by 2015, and simplify the tax code and lower income tax rates in exchange for cutting pet deductions. They would raise the Social Security retirement age and increase the wages subject to the payroll tax, and trim health costs.

Both the presidential and bipartisan panels are looking at revenue increases and spending cuts — setting up bitter partisan battles in Congress. Isabel Sawhill, a senior fellow at the Brookings Institution, said it's hard to be optimistic when Republicans won't raise taxes and Democrats won't touch Social Security.

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