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Presidential Debt Commission Unveils Early Proposals

posted on November 11, 2010

Hello, I'm Mark Pearson. America's cavernous trade deficit narrowed slightly in September, but it's still running well above last year's shortfall.

According to the Commerce Department, the U.S. trade deficit narrowed to $44 billion in September, down $2.5 billion from the previous month. Strong foreign demand for aircraft and industrial equipment boosted U.S. exports to their highest level in two years, while imports declined 1 percent to $198 billion.

Analysts say the trade deficit has weighed heavily on the economy over the past six months, subtracting 3.5 percentage points from overall growth, as measured by gross domestic product, in the second quarter and 2 percentage points in the third quarter.

America's politically sensitive trade deficit with China, tightened to $27.8 billion in September from a record monthly high of $28 billion racked-up in August. So far this year, the trade gap with China is up 21 percent from the same period in 2009.

Speaking at the "Group of 20" meetings in Seoul South Korea this week, President Obama called China's decision to manipulate its currency an "irritant" for the United States and many other trading partners.

But the President's argument was weakened by the Federal Reserve's decision to pump an additional $600 billion into the banking system in hopes of jump-starting the sluggish U.S. economy.

Back home, the President finds himself defending trillions of dollars in deficit spending racked up during the "Great Recession." The impact of all the "red ink" was readily apparent in the American electorate. This week though, a blue-ribbon panel unveiled it's plans to stop the bleeding...

Presidential Debt Commission Unveils Early Proposals

With mounting national debt, President Obama commissioned a blue-ribbon, bipartisan panel of experts nearly one year ago. Only days after Republicans were swept to power in the U.S. House, Obama's debt commission unveiled the first draft of its proposals.

Erskine Bowles, National Commission on Fiscal Responsibility And Reform: "Senator Simpson and I put what I think is a strong, balanced proposal out there to deal with what I think is the most predictable economic crisis that this country has ever faced.

Every single member of Congress knows that the path we're on today is not sustainable and that, if we don't bring these deficits down and eventually get to balance, you know, we are headed for disaster."

The multi-faceted plan calls for $200 billion in cuts to discretionary federal spending and tax increases of nearly $100 billion between now and 2015. The commission targets the reduction or elimination of "sacred cows" like the popular mortgage interest deduction for homeowners and child tax credits. Income tax rates, however, would drop significantly under the plan as the top tax rate descends from 35 percent to 23 percent.

Another suggestion is to raise the federal gasoline tax by 15 cents beginning in 2013 - a move that could bolster the federal highway trust fund. The revenue-generating impact of gas taxes is expected to deteriorate in the years ahead as more fuel efficient vehicles take to the roads.

Spending for a litany of federal programs also came under fire. The commission would cut federal expenditures for everything from the Pentagon, to foreign aid…to farm subsidies.

According to the 14-member commission, federal lawmakers should reduce farm subsidies by $3 billion per year by reducing direct payments and by cutting the Conservation Security and Market Access Programs.

Despite the plan's central theme of two-thirds spending cuts and one-third tax increases, Republicans blasted the proposal on the grounds that spending cuts alone should bear the total burden of reigning in the national debt. But, key Democrats are uneasy about substantial spending cuts and any changes to entitlement programs like Social Security and Medicare.

The lack of consensus on the bipartisan commission or amongst legislative officials in Washington is even more troubling by this fact: Even If all the commission's proposals were adopted, the federal deficit would still not be balanced.

The commission will bring its final proposal to the President next month, but a congressional decision on any of the deficit reduction plans could be years away.


Tags: debt deficit economy government news presidents