WASHINGTON -- Just in time to dash holiday cheer, recently unveiled debt-reduction plans underscore how huge are the fiscal challenges facing the U.S. They also make clear how tough the tradeoffs must be to tame federal budget deficits and the national debt.
Major overhauls of the entire U.S. tax code are at the heart of all these plans. They'd eliminate popular deductions and radically change taxation across the board.
None of this will happen unless Congress and President Barack Obama enact these proposals into law. However, the gravity of the nation's debt problem and the stature of these commissions add political urgency to grappling with these proposals.
The most influential panel is the National Commission on Fiscal Responsibility and Reform. Earlier this month, the panel's co-chairmen - Democrat Erskine Bowles and Republican Alan Simpson - released their preliminary report on how to bring down deficits and debt. It sent shock waves rumbling nationwide.
"We can't grow ourselves out of this problem. We can't tax our way out of it," Bowles told PBS' Charlie Rose on Tuesday. "People who want to do just taxes, you'd have to raise the maximum marginal rates to 80 percent. You'd have to raise the corporate rate to 70 percent. You'd have to raise the capital gains rate to 50 percent if you're just going to do taxes.
"We can't cut our way out of it. People say, 'Oh, well, let's just cut the budget.' If you just rely on deficit reduction through cutting, and you want to exclude Social Security, Medicare and defense and of course interest, then you'd have to cut everything else by about 60 to 65 percent. You can't do that, either," Bowles said.
"What we've got to do is some combination. Alan and I have come out with a plan that's balanced that takes $4 trillion out of the deficit over the next 10 years. I think that's the kind of thing we have to do. And if we don't, the markets are going to force us to."
Their report drew cautious praise from moderates and conservatives, but many liberals insisted instead that reducing unemployment, not deficits, should be the government's most urgent priority.
Budget experts disagree.
"Some politicians and economists present a false choice: Reduce unemployment or stabilize the debt. Restoring America's future, however, requires that we do both - and begin now," said a second similar report this week from the Bipartisan Policy Center, a think tank featuring former Washington leaders from both parties.
A third similar report was issued jointly this month by the Peter G. Peterson Foundation, which is devoted to reducing the national debt, and the Pew Charitable Trusts.
Driving all the plans is this cruel reality: The federal deficit is projected at $1.3 trillion this year, almost as much as last year - a scale not seen since the end of World War II. Left untamed, experts insist, this monstrous debt threatens the nation's future prosperity and security. Simply paying interest on the nearly $14 trillion national debt will cost more than $1 trillion in 2020 - 17 percent of all federal spending - unless big changes are made.
The biggest change that all three plans emphasize: Overhauling the U.S. tax code. All three plans would restructure income tax brackets. Current tax brackets - set to sunset this year - are 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent. The corporate rate is 35 percent.
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