WASHINGTON — The
The report also calls for Congress to dedicate a 15-cent-per-gallon increase in the gasoline tax to fully fund the Transportation Trust Fund, and to limit spending if necessary to match the revenues collected for the fund each year.
The nearly 60-page report, called “The Moment of Truth” is the culmination of eight months of work by the National Commission on Fiscal Responsibility and Reform led by Democrat Erskine Bowles and Republican Alan Simpson. The 18 commission members are scheduled to vote on it Friday.
The report paints a dark picture of the nation’s fiscal situation, warning the country faces staggering and unsustainable deficits without major reforms. In 2010, federal spending was nearly 24% of gross domestic product. Tax revenues are 15% of GDP and the gap between spending and revenue — the budget deficit — is just under 9% of GDP, the report warned.
Since the budget was last balanced in 2001, federal debt has grown dramatically, rising to 62% from 33% of GDP. Two wars, a slew of fiscally irresponsible policies, and the recession, have driven the growth, according to the commission.
The proposals in the report are designed to reduce the deficit by nearly $4 trillion through 2020, more than any effort in the nation’s history. They would reduce the deficit to 2.3% of GDP. They would stabilize debt by 2014, reducing it to 60% of GDP by 2023 and 40% by 2035. Revenue would be capped at 21% of GDP, and spending would be forced down to 22% and eventually 21%.
The report’s tax-reform proposals would sharply reduce tax rates, abolish the alternative minimum tax, and broaden the tax base while cutting “backdoor spending” in the tax code.
The report recommends taxing the interest earnings from all new municipal bonds, but provides no further details.
“America’s tax code is broken and must be reformed,” said the report said. “In the quarter century since the last comprehensive tax reform, Washington has riddled the system with countless tax expenditures, which are simply spending by another name. These tax earmarks — amounting to $1.1 trillion a year of spending in the tax code — not only increase the deficit, but cause tax rates to be too high. Instead of promoting economic growth and competitiveness, our current code drives up health care costs and provides special treatment to special interests. The code presents individuals and businesses with perverse economic incentives instead of a level playing field.”
Municipal market participants were unhappy about the proposal to eliminate tax-exempt status of new bonds.
“This would increase capital costs for governments, in particular small governments, and would dramatically reduce state and local government investment in needed infrastructure,” said Susan Gaffney, director of the Government Finance Officers Association’s federal liaison center. “Additionally, the proposal clearly violates the tenets of federalism, and similar to what occurred in 1986, would mobilize the state and local government community as well as other market participants to maintain the tax-exempt status of municipal securities.”
In the transportation area, the commission recommends that the gas tax gradually be increased to 15 cents per gallon between 2013 and 2015 and dedicated to infrastructure.
“Congress should limit trust-fund spending to the most pressing infrastructure needs rather than forcing states to fund low-priority projects,” the report said. “It should also end the practice of highway authorization earmarks such as the infamous Bridge to Nowhere.”
