Fiscal Commission Votes On 'The Moment of Truth'

Fiscal Commission Votes on ‘The Moment of Truth’

December 3, 2010
FEI Summary

The much-anticipated vote by President Barack Obama’s National Commission on Fiscal Responsibility and Reform finally occurred today, Dec. 3. The commission was created by Obama in February and tasked with taming the mounting debt and fiscal challenges facing the United States.

The commission members voted on the report released Dec. 1 by its co-chairs, Erskine Bowles and Alan Simpson, which was fittingly titled “The Moment of Truth.” But, the vote of 11-7 was three votes short of the 14 votes needed to send a recommendation to Congress. Opposition came from both parties, including three Republicans and three Democrats. Specifically, the report recommended the following:

·         A fast-track process to enact by 2012 fundamental tax reform that lowers tax rates, broadens the tax base and simplifies the tax code.

·         Elimination of all tax expenditures, dedicating a portion of the revenue to deficit reduction and using the remaining revenue to lower rates and add back certain tax expenditures and credits.

·         A single corporate tax rate between 23 percent and 29 percent (28 percent under an "illustrative" corporate tax reform plan), eliminating all business tax expenditures (e.g., domestic manufacturing deduction, LIFO, general business credits) and adopting a territorial tax system (the taxation of passive foreign-source income would not change).

·         A reduction of the top individual income tax rate to between 23 and 29 percent (28 percent under an "illustrative" individual tax reform plan), taxing capital gains and dividends at ordinary income tax rates, capping the exclusion for employer-provided health care insurance and reducing the excise tax on so-called "Cadillac" health care plans to 12 percent.

In addition, two “shadow” commissions released reports of their own last month. Fiscal commission member, Alice Rivlin and former GOP Senator Pete Domenici, co-chairs of the Bipartisan Policy Center's Debt Reduction Task Force, released recommendations that would cut the deficit by $5.8 trillion through 2020. Similarly, Bill Galston and May MacGuineas, from the Committee for a Responsible Federal Government, released a report aiming at reducing the deficit by a sizeable $6.7 trillion.

While the final report failed to get enough approval to garner Congress’ immediate consideration, the bipartisan support demonstrated that the effort to remedy the nation’s fiscal challenges has taken a step in the right direction. However, it is certain that the commission’s work – and the efforts of the shadow commissions – will be referenced in policy initiatives that are likely to be championed in the coming months and years.

Prepared Dec. 3, 2010 by Katy Williams (kwilliams@financialexecutives.org) legislative aide, Financial Executives International (FEI). This summary does not represent FEI opinion unless specifically noted above.