On Nov. 16, Congresswoman Jan Schakowsky (D., Ill.), a member of the bipartisan National Commission on Fiscal Responsibility and Reform, offered her own proposal to reduce the federal deficit. Rep. Schakowsky’s plan is an alternative to the Simpson-Bowles plan unveiled on Nov. 11. She says her plan would reduce the deficit by $441 billion in 2015, surpassing President Obama’s $250 billion target.
“I presented a proposal because I did not want to leave the impression that progressives do not want to acknowledge that we need to address the deficit and debt,” she told the RoundTable. “The only question is how we go about doing it.”
Former Senator Alan K. Simpson (R., Wyo.) and former Clinton White House chief of staff Erskine Bowles are chairmen of the 18-member bipartisan Commission charged with devising a way to reduce the deficit and to present their plan by Dec. 1.
The Simpson-Bowles proposal would begin making spending cuts in 2012 and increasing tax revenues in 2013. Over the next 10 years, their plan would cut a total of about $2.2 trillion in defense and domestic spending, raise $733 million through tax reform, raise $210 million in other revenue, and reduce interest costs by $673 million, for a total of about $3.8 trillion.
They presented a series of alternative options that would revamp the tax code. Some of the options include taxing capital gains and dividends at ordinary income tax rates, taxing employer provided health insurance, eliminating or reducing the mortgage interest tax deduction and other deductions and exemptions, and changing both individual and corporate tax rates.
While not counted in the deficit reductions, Simpson-Bowles also proposed raising the retirement age for social security to 69 by 2075, curbing some benefits, and adjusting the inflation escalator. They also proposed increased social security taxes for taxpayers with higher incomes.
In unveiling her proposal in Washington, Rep. Schakowsky said the Simpson-Bowles plan “would have serious consequences for lower- and middle-class Americans, and that is why I cannot support it. I am releasing my own plan today because I believe that there is a better way to achieve our goal – one that protects the poor and the middle-class.
“Over the last decade the incomes of middle-class Americans have actually shrunk, while those of the wealthiest 2 percent of the population have exploded,” she continued. “Sustained, long-term economic growth requires that we end the trend of concentrating more and more wealth in the hands of the rich and less and less in the hands of a middle class that can then afford to buy the products and services that will sustain economic growth.”
A $200 Billion Stimulus
The Simpson-Bowles plan proposes spending cuts totaling $422 billion in the period 2012-14.
Rep. Schakowsky told the RoundTable she would not make any spending cuts up through 2014 because she does “not want to disrupt a fragile economy that is beginning to show some growth. … One of the biggest orders of business is to put people on the job.”
Rather than cutting expenses, she proposes a $200 billion economic stimulus in 2011-12 to preserve and create jobs and to spur growth in the economy. She said an important way to reduce the deficit is to create jobs and to spur growth.
Deficit Reductions in 2015
Rep. Schakowsky’s plan contains a combination of spending cuts and increased tax revenues for 2015. She proposes $110.7 billion in cuts from the defense budget; spending cuts totaling $7.55 billion in discretionary non-defense spending; implementing health care reforms saving $31.2 billion (including by creating a public option); and reducing farm subsidies by $7.5 billion. (In 2015 Simpson-Bowles propose $100 billion in defense cuts and $100 billion in non-defense cuts.)
She proposes to increase tax revenues as follows:
• Raise $132.2 billion by limiting or eliminating certain deductions for corporations and closing a loophole for income earned by corporations in foreign countries;
• Raise $88.1 billion by taxing capital gains and dividends at ordinary income tax rates;
• Raise $4.5 billion by imposing a graduated tax on estates over $3.5 million per individual or $7 million per couple;
• Raise $52 billion by enacting a cap and trade bill in which emission allowances are allocated through an auction process.
She told the RoundTable that many of her proposals for 2015 would carry forward to subsequent years. Her proposal also assumes that the Bush-era tax cuts would not be extended for persons earning more than $250,000, which is estimated to generate $700 million in revenues over the next 10 years, she said.
When asked what some of the major differences are between her proposal and that of Simpson-Bowles, she said, “We start with a major difference philosophically.” She said many of the spending cuts they propose, such as wage freezes on federal employees and non-combat military personnel, “take it out of the hides of middle-class Americans.
“Their plan asks those who are suffering the most from the current economic downturn to sacrifice even further. My plan shows we can achieve sound fiscal policy without doing it on the backs of poor and middle-class Americans.”
Social Security Benefits
One Simpson-Bowles proposal would increase the standard retirement age to 69 by 2075. Another option being floated would reduce benefits for some retirees by up to 22% over time.
Rep. Schakowsky said the average benefit for social security is $14,000 per year for men and $12,000 for women. She added that two-thirds of retirees rely on Social Security for more than one-half their income, and one-fourth rely on it for all their income.
She says Social Security benefits can be adequately funded without reducing benefits or increasing the retirement age. One way she proposed that would close 74% of the projected shortfall would be to eliminate the payroll tax cap on the employers’ side and to adjust it on the employee side so that on an aggregated basis 90% of all wages are subject to the Social Security tax. Currently employees pay 6.2% on wages up to a cap of $106,000. At that cap, 83% of all wages are taxed for Social Security, she said.
Commission’s Report Due on Dec. 1
The Commission has been meeting on a regular basis and gathering information since February, Rep. Shakowsky told the RoundTable. Last week, the Commission met on three days using the Simpson-Bowles’ proposal as a basis for discussion. No votes were taken, and the process to move toward a decision – which requires 14 votes – was not laid out, she said.
The next meeting of the Commission is scheduled for Nov. 30. She told the RoundTable she was not sure if members of the Commission would be asked to vote on an aggregated proposal, or if they would be presented with a list of proposals to vote upon separately.
The Commission is scheduled to issue its report on Dec. 1.