CODY — An ambitious deficit-reduction plan released Friday by the 18-member National Commission on Fiscal Responsibility and Reform failed to receive the 14 votes required to force a vote by Congress on its recommendations.

But with 11 commission members backing the plan, including key congressional leaders and Budget Committee members, elements of the proposal are likely to show up in next year’s budget package, said commission co-chair Alan Simpson.

Simpson and others on the commission have made no effort to downplay the hardship that will result from implementing elements of the proposal, titled “The Moment of Truth,” aimed at reducing federal budget deficits by nearly $3.9 trillion over the next 10 years.

How those recommendations, if adopted, would effect Wyoming remains to be seen. But the loss of key income tax deductions are likely to hit oil and gas producers as well as the coal industry.

The elimination of 175 or more tax expenditures would require that some of America’s wealthiest pay more, Simpson said. That would mean much higher income taxes in Teton County, where the average per capita income is $132,728, the highest in the nation.

But the plan could also have “serious consequences” for middle-class residents everywhere, including in Wyoming, according to Rep. Jan Schakowsky (D-Ill.), a commission member, who voted against the proposal.

Former Sen. Alan Simpson is co-chair of President Obama's deficit reduction commission, which released its final report Dec 1. Simpson is seen speaking at the September 24, 2010 Buffalo Bill Art Show & Sale in Cody. (Ruffin Prevost/WyoFile — click to enlarge)

The plan calls for a combination of spending cuts, tax hikes and fundamental tax reforms to trim $3.89 trillion from federal budget deficits over the next decade. Many measures would not kick in until 2012 or 2013, to allow the economy more time for a growing recovery.

The tax code would be vastly simplified, and individual and corporate rates would be lowered, with many deductions eliminated or limited. That includes converting the popular home mortgage interest deduction into a 12 percent tax credit on primary-residence mortgages capped at $500,000.

Employer-paid health insurance plans would be taxed, and capital gains and dividends would be taxed at normal income tax rates. More than $1 trillion in revenues would be raised every year for 10 years by eliminating 175-200 tax exemptions, credits and deductions — or “tax earmarks,” as Simpson calls them.

The federal gasoline tax would be raised by 15 cents per gallon.

Medicare recipients would pay a new $550 annual deductible and 20 percent co-pay. Starting in 2020, all federal health care spending would increase by no more than 1 percent above the economic growth rate.

The retirement age for Social Security would be raised incrementally to 69 over the next 65 years, and high-earning seniors would get reduced benefits, while a larger portion of payroll income would be subject to taxes. Benefits would eventually be cut by 25 percent for people earning at least $43,000 annually, and by 40 percent for people earning more than $100,000.

In Wyoming, 95,541 people received Social Security benefits in December 2009, according to program data, or almost 1 out of every 5 residents. About two-thirds of those recipients are age 65 or older.

The state’s poverty rate of 9.5 percent is below the national level of 13.2 percent, according to U.S. Census data, and it ranks 19th in the nation in median household income.

Wyoming also has a broad middle class, ranking near the top on income equality. The state trails only Alaska and Utah in how evenly income is distributed among residents.

Simpson said the plan’s recommendations for Social Security are set up as a separate proposal, and are not tied to overall deficit reduction.

Cuts in defense contracting sought under Defense Secretary Robert Gates would be doubled, and overseas military bases would be reduced by one-third. There would be a three-year freeze on non-combat military pay and Pentagon salaries.

The White House and Congress would trim their budgets by 15 percent, and non-military federal worker pay would be frozen for three years. The overall federal workforce would be reduced by 10 percent.

Funding for public radio and commercial space flight would be eliminated, and aviation security spending would be reduced for medium and large airports.

TAX REFORM

Critics at both ends of the political spectrum have taken issue with parts of the plan. But some pundits have said the proposal has made it possible for elected officials to discuss and consider a few radical ideas, including fundamental tax reform that would sweep away a dizzying array of loopholes that benefit the rich and special interests.

One of those eliminated deductions would raise the cost of doing business for Wyoming’s oil, gas and mining industries. Tax deductions for accelerated depreciation and for domestic production — widely claimed by companies in mining and oil and gas production — would be ruled out.

Simpson said those are mature and stable industries that could adapt to the changes in the tax code, and that because the changes would come at the federal level, all states would see the same effects equally.

He said that proposed tax reforms would broaden the nation’s tax base and make America a more competitive place to do business compared to other countries with lower corporate tax rates.

But eliminating scores of tax deductions doesn’t sit well with some groups, including Americans for Tax Reform, an advocacy group founded by conservative Grover Norquist.

The group, which “opposes all tax increases as a matter of principle,” has said the deficit reduction plan amounts to a trillion-dollar tax hike. Simpson said the plan lowers tax rates and simplifies the tax code, but generates more than $1 trillion per year by doing away with tax expenditures — special exemptions, credits and deductions.

“All of them are really spending in disguise,” Simpson said. “They suck money away from the federal government. So we started calling them tax earmarks.”

Eliminating tax expenditures — the numerous popular income tax deductions, exemptions and credits — was “embraced by everyone” during creation of the plan, he said.

“The bulk of those things are used by only 1 percent of the top-income people in the U.S. Of the 400 richest people in America, they pay a 16-percent average income tax rate,” Simpson said. Many middle-class Americans pay an effective tax rate that is much higher, in some cases twice as much.

Simpson, Bowles and Obama

President Barack Obama meets with National Commission on Fiscal Responsibility and Reform co-chairs Erskine Bowles, left, and Alan Simpson in the Oval Office, Feb. 18, 2010. (Pete Souza/White House— click to enlarge)

“Grover Norquist, in another couple of years, is going to be irrelevant. You can’t save America without some kind of revenue. You can’t fight two wars and not have something to support it. You can’t run a country that way,” he said.

Simpson called Norquist “the boy who cried wolf,” and said he enjoys sparring with the conservative advocate who cites Ronald Reagan as his hero.

“I remind him that Ronald Reagan raised taxes 11 times,” Simpson said.

“A zealot is one who, having forgotten his purpose, redoubles his efforts,” he said.

Gov. Dave Freudenthal said last week that he had not had a chance to carefully review the final plan, but admired members of the panel for their efforts.

“What they’re arguing for is shared sacrifice as a theory of how to get out of this, and all they’ve gotten is a shared beating,” he said.

“At the end of the day, we’re all going to have to accept reduced services, we’re all going to have to pay more. It’s no different than the family budget,” Freudenthal said.

Based on comments from pundits and advocates he has seen on the news, Freudenthal said much of the debate over the plan appeared to “go back to the old deal of everybody being in favor of cutting the other guy or in favor of someone else paying taxes.”

He said it was “incredibly important” that Congress address the deficit issue.

AMERICA SPEAKS

Most of the rest of the state’s residents agree with Freudenthal’s sense of urgency, if a June deficit reduction workshop in Casper is a good indicator.

During that event, about 50 people from the Casper area joined 3,500 others at 57 locations across the country in a series of town hall meetings sponsored by America Speaks, a nonpartisan, nonprofit public-interest group that promotes large-scale civic discussions on key policy issues.

Attendees were recruited to the gatherings in numbers that reflected local and national demographic and political distributions, and were paired in teams that included a diverse range of ideologies and backgrounds.

“People were able to really share some differing points of view, as well as some potential solutions,” said Tim Monroe, a former Casper mayor and city council member who has also worked as a broadcast reporter.

Monroe helped organize and host the event, where participants working in small groups and spent six hours using government data to debate and discuss how to lower the deficit.

“Not everybody agreed with everybody else,” Monroe said. “But at the end of the day, we really had some people who felt very satisfied in that they made a contribution to the national discussion on the issue.”

Barb Rea, development director for the Equality State Policy Center, said she was skeptical when first asked to help recruit low-income participants and others to the America Speaks event.

“But I think the process worked really well, and I do think it’s important to have poor people at the table when you’re having these discussions. Most people really don’t know what it’s like” to live in poverty, she said.

Rea (whose husband is an occasional contributor to WyoFile) said that most participants at the America Speaks event agreed on a central message for Congress after completing the workshops.

“The top message in almost every site across the country was to stop trying to get re-elected and do your job. Represent us, and consider us as the important constituents,” she said. “Do what’s good for the people instead of what’s good for the paid lobbyists that always get your ear.”

The workshops showed that when people understand the complexities of the deficit dilemma and realize there are no simple or painless fixes, they are willing to sacrifice, as long as those with opposing views do the same, said Joe Goldman, vice president of citizen engagement for America Speaks.

“More often than not, people agree on 80 percent of the issues and disagree on 20 percent. But the media and political advocates focus all on that 20 percent, so we’re not able to get anything done,” Goldman said

“The message we heard was, ‘Put away the partisan politics and start funding compromises. We can do this. Why can’t Congress?’” he said.

Contact Ruffin Prevost at 307-213-9321 or ruffin@wyofile.com.

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Published on December 6, 2010

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