Deficit Reduction: The Great Distraction

Tuesday, May 15, 2012 by Common Dreams

by Dean Baker

 

 

This is the week of the third annual Deficit Fest, the event sponsored by Wall Street billionaire Peter G. Peterson. At this event, many of the people most responsible for the current downturn come together to tell us why we should be worried about the deficit at a time when 45 million people are unemployed, underemployed or have given up looking for work altogether and millions face the prospect of losing their homes.

Past deficit fests included exchanges where Peter Peterson and former Treasury Secretary and Citigroup honcho Robert Rubin mused about their comparative net worth. We also got to witness President Clinton bemoan the fact that the Democratic and Republican leadership in Congress teamed up to prevent him from cutting Social Security. Had Clinton gotten his way, millions of seniors would be getting by on Social Security checks that are more than 10 percent smaller than what they now receive.

Peterson is also known for his sponsorship of the "Economic Sleepwalk" tour, which was officially billed as the "Fiscal Wakeup" tour. This involved sending a group of policy wonks around the country to complain about the budget deficit at a time when the housing bubble was growing to ever more dangerous levels. While some of us were doing our best to warn of the imminent disaster, Peterson was using his money and political connections to dominate media space at a time when the country's debt-to-GDP ratio was actually falling.

But why harp on the past? We should be focused on the future.

And one of the items that this group would like to see in our future is a deficit deal like the one proposed by Erskine Bowles and former Senator Alan Simpson, the co-chairs of President Obama's deficit commission. (The Bowles-Simpson plan is inaccurately referred to on the commission's website as a report of the commission, ironically on a page titled "Moment of Truth." In fact, it is only the report of the co-chairs since it did not receive the 14 votes needed to be approved as an official report of the commission.)

This plan includes a wide range of budget cuts, including cuts to Social Security and Medicare. It would reduce the annual Social Security cost-of-living adjustment by 0.3 percent, which would lower lifetime benefits by an average of more than 3 percent. It would also raise the retirement age for Social Security. To balance these cuts to programs that benefit tens of millions of ordinary workers, Bowles and Simpson would cut the corporate tax rate from 35 to 28 percent and would lower the tax rate paid by the very wealthy from 40 percent to 28 percent. While these reductions in tax rates are supposed to be offset by the elimination of loopholes that benefit the wealthy, people have good cause for skepticism.

If these policies seem out of step with the interests of ordinary workers, it should not be surprising given their parentage. Erskine Bowles in particular could be the poster boy for everything that is wrong in national politics today. Bowles rose to become chief of staff in the Clinton White House in the 90s. He then twice competed unsuccessfully for Senate seats in North Carolina. As a consolation prize he became the President of the University of North Carolina.

Since it is hard to make ends meet on a university president's salary these days, Mr. Bowles also did a little bowling for dollars. He moonlighted as a director on corporate boards, serving stints at Morgan Stanley, the huge Wall Street investment bank, General Motors (until it went bankrupt), and most recently Facebook.

Being a director on a corporate board typically involves attending 4-8 meetings a year. For this, directors receive several hundred thousands of dollars in compensation. For example, in 2008 Erskine Bowles received $335,000 in compensation for his work on Morgan Stanley's board.

This year is noteworthy because Morgan Stanley's dealings in mortgage-backed securities brought it to the edge of bankruptcy in the fall of 2008. It was only saved from disaster by the generous intervention of Ben Bernanke. He allowed the bank to change its status in the middle of the post-Lehman crisis, and become a bank holding company. This gave it the protection of the Fed and the FDIC.

Given this near brush with death, shareholders might ask what Mr. Bowles did for the $335,000 that we paid him. "We" is appropriate in this sentence, since much of the public has a stake in Morgan Stanley either through an index fund in a 401(k) that likely holds some of the company's stock or the defined benefit pensions that most state and local governments still have for their workers.

In fact, we should be asking this question of directors more generally. When shareholders voted "no" last month on the pay package of Citigroup's CEO, Vikram Pandit, they were saying that the company's well-paid board was not doing its job. These directors were getting paid $250,000 each year for just a few days' work. Their job is precisely to prevent such outlandish pay packaged for top management.

The failure of these highly paid directors is a major national problem. Their compensation looks more like payoffs than paychecks. After their palms get greased, they look the other way when the CEOs walk away with tens or even hundreds of millions of dollars of the shareholders' money. And the outsized pay of the CEOs corrupts pay scales throughout the economy. Even heads of charities can now command pay packages in excess of $1 million a year.

Anyhow, when we hear Erskine Bowles and his friends rant about the deficit this week, we should remember that once again they are distracting the public from the country's real problems. And this crew is at the center of those problems; it is not the solution.

The Truth About Capital Gains

How the Rich Game the System
By GERALD SCORSE

When it comes to taxes on capital gains, the emperor suddenly has no clothes. He’s been stripped bare, in bipartisan fashion, by the co-chairs of President Obama’s fiscal commission.

The chairs are Republican Alan K. Simpson and Erskine Bowles, a Democrat. Their initial report included a call for equal taxes on capital gains, dividends and ordinary income such as wages. This upends the current tax code, and it contradicts almost the entire history of capital gains taxes in America.

Implicitly, it also rejects the K Street claim that tax breaks for capital gains grow jobs, grow businesses and grow the economy. If the claim had any truth, Messrs. Simpson and Bowles would never support equal taxes on all income as a way to help cut the national deficit.

Liberals instinctively attacked the right-leaning aspects of the report. House Speaker Nancy Pelosi, in full "no" mode, labeled its recommendations “simply unacceptable”. Not quite, Madam Speaker; apropos investment income, Simpson/Bowles is a Democratic dream come true.

Income from wealth and income from work were taxed at the same rate in only two widely-separated times in America—from 1916-21, and after Ronald Reagan’s Tax Reform Act of 1986. President Clinton restored the tax break on capital gains in 1997, cutting the rate on long-term gains from Reagan’s 28 percent to 20 percent. Six years later, President Bush lowered the levy to 15 percent and did likewise for dividends. The Bush cuts were written to expire in 2010, but it’s not certain they will. Even if they did, the capital gains rate would still be less than the rate on middle-class wages.

The Simpson/Bowles recommendations could die a quick death: a unified final report needs the votes of 14 out of the commission’s 18 members, comprised of nine from each party. If a super-majority of 14 can agree, their report arrives at the White House on December 1.

But the proposals are now on the table, so the genie is out of the bottle. President Obama and Congress were already facing a showdown on extending the Bush tax cuts. Now, in addition, Congress and the Administration have a rare opportunity to set a new course for the nation’s fiscal future.

They could start by revisiting the tax code and creating capital gains tax breaks that really would grow jobs and stimulate the economy. Small companies with big dreams raise seed money through initial public offerings (IPOs) and secondary offerings; larger companies sometimes do the same (e.g., the resurgent GM). In a move that would give a built-in boost to the market for new issues, capital gains on these investments could accrue tax-free. Interest on corporate bonds, now taxed as ordinary income, also deserves a tax break. Corporate bonds raise the money to build corporate infrastructure, much like municipal bonds raise money to build local infrastructure. Interest from municipal bonds gets tax breaks; why not corporate interest?

How to pay for these new tax breaks? Easy: the money would come from ending the unproductive tax break on stock market gains, along with the 2003 tax break on dividends.

In 1986, President Reagan essentially traded tax breaks on capital gains for another round of cuts in the marginal rates. A generation later, the initial draft from Obama’s fiscal commission holds the makings of a similar endgame.

One major milestone has already been reached. The notion that investments deserve a lower tax than wages has been vaporized. The emperor has no clothes, and really never did.

What Planet Are Deficit Hawks Living on?

Monday, November 15, 2010 by Huffington Post
by Robert Kuttner

To read the papers and watch TV news during the past week, you would think that the most dire problem afflicting Americans was the federal deficit in 2020 or 2030.

But for most people, the crisis right now is lost income, lost jobs, lost homes.

And the recommendations of the two co-chairs of the fiscal commission would make the prolonged stagnation worse, by commencing belt-tightening less than a year from now, at the beginning is fiscal year 2012 (October 2011) when most economic forecasts say unemployment will still be around ten percent.

The economy is on the brink of a period of prolonged deflation. With the Obama stimulus of February 2009 already starting to peter out, state budgets in free fall, home foreclosures proceeding at the rate of several hundred thousand a month, and job creation too low to cut the unemployment rate, the outlook is for endless slump -- unless we get more public investment, not less.

The Fed's policy of resorting to the printing press and buying up Treasury bonds to keep interest rates low is having only limited effect. Housing prices, after rebounding very slightly, are falling again.

Yet even the mainstream liberal press buys this nonsense. The New York Times, which had been somewhat skeptical, ran an editorial on November 10 mostly buying the deficit hawk story. The report of the commission chairs, according to the Times:

frankly acknowledges what most politicians are too cowardly to admit -- that deficit reduction will require shared sacrifice.

It lays out sensible principles, prominent among them that deficit reduction should start gradually, beginning in 2012, to avoid disrupting the fragile economic recovery. It also affirms the need to protect the most vulnerable Americans and to invest in education, infrastructure and research and development.

Then it does what any successful deficit reduction plan must do: It puts everything on the table, including tax reform to raise revenue and cuts in spending on health care and defense. It even dares to mention the need to find significant savings in Social Security, Medicare and other mandatory programs.

This is mostly nonsense. The sacrifices in the proposed list of measures are not shared. More than two-thirds of the proposed savings are on the spending side. Repealing the Bush tax cuts, costing $4 trillion over a decade, are not on the list at all. And there is no mention of taxing financial speculation, hedge funds, or anything else that would hit the very well to do. Politicians who resist this economic perversity are not cowards. They are heroes.

While the panel may affirm rhetorically the need for social investment, it is domestic spending that takes the biggest hit. Social Security, which is in surplus for the next 27 years, is on the chopping block and does not belong here at all. America needs more retirement security, not less.

Sunday's Times compounded the sin, in front page piece of the News in Review section by economics writer David Leonhardt, inviting the reader to fix the deficit projected in the year 2030!

Why 2030? "That's the year when boomers start to weigh heavily on the budget, and it's the latest year for which experts have estimated budget costs," according to Leonhardt.

Huh? The oldest boomers turn 65 next year -- not in two decades. And the projected budget deficit in 2030 will be far more influenced by whether the economy recovers any time soon than by what cuts are imagined for 20 years in the future.

What's insidious about articles like this is that they take the premise of the deficit hawks for granted -- that the projected deficit rather than the prolonged slump is the top economic challenge.

Instead of that exercise, how about one where readers explore choices on how to get a recovery going. How to resolve the foreclosure mess? What kind of social investment to put into 21st century infrastructure? How to create jobs and get wages growing again?

If you want to get Social Security well into the black for the indefinite future, the easiest way is to restore wage growth -- since Social Security is financed by taxes on wages (which are capped so that the wealthy pay a pittance.)

What pushed Social Security (very slightly) into the red is the fact that all the income gains have gone to the top. The chairmen's draft report, with its rhetoric of equal sacrifice, gets 92% of proposed Social Security savings from cutting benefits, and just 8 percent from increasing the income ceiling on payroll taxes. Some sharing.

These people do live on another planet -- Planet Wall Street. Erskine Bowles, the Democratic co-chair, has spent most of his life as an investment banker. He began at Morgan Stanley, and now serves on its board, where he collects a fee of $335,000 a year for attending a few annual meetings. That's more than 99 percent of Americans earn for working full time.

No wonder the man is so glib about tightening other people's belts. And that's the Democratic chair.

I recently debated David Walker on CNN.

Walker, who headed Pete Peterson's billion dollar foundation that was created to promote austerity, and is now a Peterson grantee, is very coy about professing concern for the poor. His strategy is to combine devastating cuts in social outlays generally with token increases for the poorest. As I told Walker, just because a policy inflicts pain and is politically unpopular, it isn't necessarily good policy.

In the segment before mine, commentators agreed with each other that the deficit was large because politicians didn't have the courage to set aside partisan differences. But the deficit is large because of the recession itself, the Bush tax cuts, and the costs of two wars. The entire Bowles-Simpson exercise would cut less money from the projected ten-year deficit than the cost of the Bush tax cuts.

The whole austerity crusade is the work of Wall Street and of politicians who want a high-minded excuse to bash government, or who mistakenly think that the Democrats got their clocks cleaned because voters fretted about deficits. The American Prospect recently published a definitive article by two eminent political scientists, Chris Howard and Richard Valelly, titled "Deficit-Attention Disorder," demonstrating that voters are not mainly upset about deficits, but about the continuing economic calamity. The voters are way ahead of the kind of elites that populate this commission.

If the deficit-hawks get their way, that economic calamity will only deepen, and produce a deeper political setback for the Obama administration.

President Obama, who bequeathed this commission, has been encouraging its members to "set aside their partisan differences" and agree on a plan -- as if reducing the deficit had anything to do with the real challenge, namely getting a recovery going.

The best hope, in truth, is that divisions will cripple the commission, that other leaders will start turning to the real issues of economic recovery, and that President Obama will stop listening to the austerity mongers. For more detailed rebuttal to the deficit hawks, see the new website, ourfiscalsecurity.org.

Pillage and Plunder Alert

Deficit Commission Gets Underway
by Mary Bottari
Friday, November 12, 2010 by BanksterUSA.org

Watch out, they're coming. After an election cycle in which Republicans worked themselves into a lather in an attempt to convince voters that the deficit was the source of all their economic woes, the political elites and their Bankster backers are coming for the middle class. What better time to start a new publication - "Pillage and Plunder Alert"? And what better inaugural event than the release of the draft report prepared by the co-chairs of the Presidential Deficit Commission?

First, Go After the Sick and the Elderly

The two chairmen of the deficit commission, former Clinton Chief of Staff Erskine Bowles and former Republican Senator Alan Simpson, surprised Washington Wednesday with the release of their own draft recommendations on federal debt reduction. They were supposed to issue a report December 1, after the full 18-member panel had been given a chance to vote on each item. Knowing that it would be next to impossible to achieve a high level of support on the commission for their recommendations, the raiders decided to go it alone. Their package appears to be about ¾ cuts and ¼ revenue raisers.

High on the list of people who have "feel the pain" are the sick and the elderly. The co-chairs want to "increase cost-sharing for Medicare." In other words, they want seniors' copays and deductibles to increase. Plus, they want a cap on catastrophic medical costs, tossing the severely ill over the cliff. But in what many found to be the most ominous development, the co-chairs navigated far outside the boundaries of their mandate to launch a frontal assault on Social Security.

"The commission's mandate was to deal with the country's fiscal problems. Since Social Security is legally prohibited from ever spending more than it has collected in taxes, it cannot under the law contribute to the deficit. Their proposal would cut benefits for tens of millions of middle class workers who are overwhelmingly dependent on Social Security for their retirement income," said economist Dean Baker.

The commission co-chairs also recommend raising the retirement age for Social Security. "They're talking about raising the retirement age, because people live longer - except that the people who really depend on Social Security, those in the bottom half of the distribution, aren't living much longer. So you're going to tell janitors to work until they're 70 because lawyers are living longer than ever," says Nobel Prize-winning economist Paul Krugman.

When millions of seniors have just seen their retirement savings go up in smoke, is it really the time to be talking about slashing Social Security? AFL-CIO President Richard Trumka was blunt: "The chairmen of the Deficit Commission just told working Americans to ‘Drop Dead.' Especially in these tough economic times, it is unconscionable to be proposing cuts to the critical economic lifelines for working people, Social Security and Medicare."

Spare the Whales, Harpoon the Minnows

Most economists agree that focusing on the deficit during a major economic downturn is counterproductive. But if you are sincerely concerned about the deficit caused by endless war and a massive financial crisis, the best way to solve the problem is to put America back to work. Working people pay taxes. The unemployed do not.

Economist Jamie Galbraith puts it best: "The only way to reduce a deficit caused by unemployment is to reduce unemployment. And this must be done with a substantial component of private financing, which is to say by bank credit, if the public deficit is going to be reduced. This is a fact of accounting. It is not a matter of theory or ideology; it is merely a fact. The only way to grow out of our deficit is to cure the financial crisis."

At Wednesday's press conference Alan Simpson said, "we have harpooned every whale and some minnows" in order to come up with their recommendations. But it is notable that while the minnows are drowning, those blubbery whales on Wall Street have dodged the harpoon. Galbraith recommends that the big banks be forced - once and for all - to clear their books of the toxic assets that are preventing them from lending. Private lending is critical to getting the economy moving again. But it may not be enough.

With a recession this steep, more revenue is needed to put Americans back to work. Dean Baker notes that the "glaring omission" of the Deficit Commission draft is that while it includes taxes on the middle class, it does not include plans for any type of tax on the financial sector, an idea supported by commission members. He notes that a tiny tax on destructive Wall Street speculation alone could raise $1.5 trillion over 10 years, a hefty chunk of change that can be used to put Americans back to work and reduce the deficit.

Despite the deficit hype, polling shows the American public is clear that the deficit didn't crash the economy, Wall Street did. Moreover, Americans know that the big bailed-out banks are doing nothing to improve the situation. Nomi Prins nailed it when she wrote in her book "It Takes a Pillage," that to stop the rampage we need to restructure the financial system to help the many and not the few. We can start by making Wall Street pay to put America back to work.

The Perverse Priorities and Fatal Flaws of the Deficit Commission Report

Plan From a Parallel Universe
By DEAN BAKER

The country in which most people live is experiencing an economic disaster. More than 25 million people are unemployed, underemployed, or have given up looking for work altogether. Tens of millions are now underwater on their mortgages, with millions facing the imminent loss of their homes. Furthermore, there is little prospect that the situation will improve anytime soon.

Many fewer live in the other America, the world of Wall Street and Washington lobbyists. This is where you’ll find former Wyoming Republican Senator Alan Simpson and investment banker-turned-Clinton Chief of Staff Erskine Bowles, the co-chairs of President Obama’s deficit commission, which on Wednesday outlined its plans for what it calls “fiscal responsibility.” In their world the key fact is that, today, corporate profits are back to their pre-recession peaks. As long as the bonuses on Wall Street are again hitting record highs, the economy must be just fine, so what else is there to do but worry about deficits?

It would be hard to understand how ostensibly serious people could be concerned about the deficit right now, unless we realize that they stand apart from the economic calamity that has engulfed most of the country. The suffering caused by this recession simply does not register on their radar screens.

This is not just a moral complaint, although it is troubling that the people most responsible for the economic wreckage are doing just fine. More important is that there is no evidence that Simpson, Bowles, and the rest of the deficit cutters have the slightest understanding of the economy. If they did they would be looking at the deficit in a completely different way.

First, the current deficit should not even be viewed as a problem. Yes, a deficit of $1.4 trillion is big, but this is a direct result of the loss of demand stemming from the collapse of an $8 trillion housing bubble. This bubble was driving the economy until its collapse. There were two channels through which the bubble generated demand in the economy: bubble-inflated house prices led to a boom in construction, bubble-inflated wealth led consumers to increase their spending, pushing saving rates to almost zero.

This demand has disappeared now that the bubble has deflated. The economy has lost more than $600 billion in annual construction demand as builders cut back in response to an enormous over-supply of both residential and non-residential property. Similarly, consumption has plummeted. This left an enormous gap in demand that, at least in the near-term, can only be filled by the government. If the government were to spend less—say it instantly balanced its budget—the primary result would be a further decline in demand and more job loss.

We are in a peculiar situation where the main problem for the economy is a lack of demand. More demand will mean more growth and more jobs. Government must supply demand because there is no other entity that can step forward to do it—unless someone gets very good at counterfeiting hundred dollar bills.

The failure to understand current deficits also leads to a misunderstanding of the debt burden. Simpson and Bowles raise fears of an exploding debt reaching 90 percent of GDP by the end of the decade. They have raised the prospect of a crushing interest burden facing future generations of taxpayers.

Simpson and Bowles decided to include cuts to Social Security in the mix, even though Social Security has not contributed to the deficit.

But there is no real basis for this concern. There is no reason that the Fed can’t just buy this debt (as it is largely doing) and hold it indefinitely. If the Fed holds the debt, there is no interest burden for future taxpayers. The Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country’s net interest burden. And the Fed has other tools to ensure that the expansion of the monetary base required to purchase the debt does not lead to inflation.

This means that the country really has no near-term or even mid-term deficit problem. The current deficit is a positive. In fact, if it were larger we would have more jobs and growth. Furthermore, there is no reason that the debt being accumulated at present should pose any interest burden on future generations. In this vein, it is worth noting that Japan’s central bank holds debt amounting to almost 100 percent of that country’s GDP. As a result, Japan’s interest burden is considerably smaller than the United States’s, even though Japan’s debt is almost four times as large relative to the size of its economy.

Over the longer term the United States is projected to face a deficit problem, but this is almost entirely attributable to the explosive rate at which private-sector health-care costs are likely to grow. More than half of health-care costs are paid by the government, hence the public budgetary impact of our private system.

Of course, those increasing costs will lead to enormous problems for the private sector, too. Rapidly rising health-care costs were a big part of the GM and Chrysler bankruptcies. If per-person health-care costs in the United States were the same as in Canada, then General Motors’ profits would have been $20 billion higher over the last decade. If, on the other hand, health-care costs follow the projected path, we will have many more General Motors and Chryslers.

Simpson and Bowles’s report seeks saving in public-sector health programs, primarily by making patients pay more for care. But there is no discussion of the private health-care system that is the root of the problem.

To no one’s surprise the co-chairs decided to include cuts to Social Security in the mix, even though Social Security has not contributed to the deficit. The program has a designated payroll tax and is prohibited from spending beyond the money provided by the tax. It is structurally impossible for the program to affect the deficit.

The Simpson-Bowles approach involves raising the retirement age, cutting benefits for middle- and higher-income workers, and reducing the annual cost-of-living adjustment so that retirees would no longer see their benefits rise in step with the consumer price index (CPI). Raising the retirement age seems more than a bit unfair, since most of the gains in life expectancy have been going to workers in the top half of the income distribution. Workers in the bottom half have seen minimal gains in life expectancy over the last three decades.

The cuts in the benefit formula will hit anyone who has average wage earnings over their lifetime of more than $36,000. This is not most people’s definition of affluent.

Simpson and Bowles do not seem interested in accuracy; they want to cut benefits.

Finally, the co-chairs want to peg the cost-of-living adjustment to a new CPI that regularly shows a lower rate of inflation than the current measure. The gap is about 0.3 percent, which means that benefits will rise by about 0.3 percent less rapidly than would otherwise be the case.

This effect seems small, but it adds up over time. A retiree who collecting benefits for ten years would have a benefit in their tenth years that was 3.0 percent lower than would otherwise be the case. After 20 years the gap would be 6.0 percent and after thirty years the gap would be 9.0 percent. This policy has the effect of hitting the oldest hardest. These are precisely the people (mostly women) with the least resources.

It is often argued that the new CPI would be a better measure of inflation, but if we are concerned about actually measuring the cost of living for retirees, Simpson and Bowles could have recommended that Congress use a measure constructed by the Bureau of Labor Statistics explicitly to measure the increase in the cost of living for the elderly. This CPI for the elderly consistently shows a rate of inflation that is 0.2-0.4 above the standard CPI that is used now. But Simpson and Bowles do not seem interested in accuracy; they want to cut benefits.

There is one item worth noting for its absence. Simpson and Bowles apparently never considered a Wall Street financial-speculation tax. This is an obvious source of revenue that even the International Monetary Fund is now advocating in recognition of the enormous amount of waste and rents in the financial sector. It is possible to raise large amounts of revenue from such a tax.

University of Massachusetts professor Robert Pollin and I calculated the potential revenue at more than $100 billion a year, with little impact on productive economic activity. The main impact would be to reduce the shuffling of financial assets. The refusal to consider this source of revenue is striking since at least one member of the commission has been a vocal advocate of financial-speculation taxes. Bowles is a director of Morgan Stanley, one of the Wall Street banks that would be seriously affected by such a tax.

There are some positive items in the report. It would limit the mortgage interest-rate deduction and get rid of the deduction for “cafeteria” benefit plans. But the report is fatally flawed because its authors, principally Simpson and Bowles, never seriously reflected on their basic economic assumptions. It would be best if this is yet another one of those Washington commissions that is quickly forgotten.

Deficit Panel Targets Social Security and Taxes

by Jeff Mason and Donna Smith
Wednesday, November 10, 2010 by Reuters

WASHINGTON - The co-chairmen of a presidential commission to cut the budget deficit on Wednesday proposed reducing benefits and raising the U.S. pension retirement age among an array of tax and spending changes.

Taking aim at some of Washington's most politically explosive fiscal issues, the draft proposals were portrayed as achieving $4 trillion in deficit reduction through 2020, but they got a mixed reception from other commission members.

With a final report due from the panel on December 1, Democratic Representative Jan Schakowsky, a commission member, told reporters: "It's not a proposal I could support."

Republican Representative Paul Ryan, also a commission member, said: "There are things in here I like, things I don't like. This is a serious, impressive effort. It's a good start ... We've got a long way to go."

Co-chairmen Erskine Bowles and Alan Simpson also called for changes to the mortgage interest tax deduction, cuts in defense spending, and a reduced base rate for corporate taxes, according to the draft proposal distributed to reporters.

The proposal suggests raising the Social Security retirement age to 68 by 2050 and 69 by 2075 with a "hardship exception" for certain occupations where that would be unrealistic, the draft said.

Bowles, a Democrat, was chief of staff for President Bill Clinton. Simpson is a retired Republican senator. The two were named to head the commission this year by President Barack Obama in a move meant to show the White House is serious about tackling the deficit.

The two also proposed phasing in budget cuts beginning in fiscal 2012 and bringing down federal spending eventually to 21 percent of gross domestic product.

Fourteen of the panel's 18 members are supposed to approve a final report for Obama containing recommendations to balance the budget. But analysts expect it to be difficult to reach that kind of consensus and predict the commission may end up issuing a less conclusive report.

DEFICIT REDUCTION TARGETS

The commission's proposal came as a separate, private-sector panel called for a shake-up of the budget process that would set clear targets for reducing red ink and impose spending cuts and tax increases if targets were missed.

The recommendation by the Peterson-Pew Commission on Budget Reform, a balanced-budget advocacy group that has no official government role, recommended that the president and Congress be required to respect deficit-reduction targets and that serious consequences be levied for falling short.

If a budget enacted by Congress missed a target, the president could propose cuts to bring it in line, the Peterson-Pew Commission recommended.

"If the target were still missed, spending reductions and tax increases would be imposed through automatic trigger mechanisms," the Peterson-Pew Commission said.

The report from Peterson-Pew -- one of a handful of panels studying the deficit problem -- comes days after an election that swept Republicans to power in the House of Representatives partly on a wave of voter outrage over the $1.3 trillion deficit and the national debt of more than $13.6 trillion.

The presidential commission has held five public meetings this year. Closed-door meetings have occurred regularly.

Democrats are resisting spending cuts, while Republicans, emboldened by the election results, are likely to keep refusing to consider tax hikes, according to commission members.

Most budget analysts agree that some mix of both is needed to tackle the huge problem, but aides said it seemed unlikely that the presidential commission would reach a consensus by the time their final report is due on December 1.