Deficit reduction hawks Erskine Bowles and Alan Simpson have released a new, modified deficit reduction plan that would cut $5.2 trillion from deficits over the next decade and raise revenues in part by capping the value of tax-exempt muni bond interest, as well as other deductions and exclusions.

The “Bipartisan Path Forward to Securing America’s Future” released on Friday, which also considers repealing tax exemption for private activity bonds, builds on the recommendations made by President Obama’s 18-member 2010 National Fiscal Commission on Fiscal Responsibility and Reform. Bowles, former chief of staff to President Clinton, and Simpson, a former Republican Senator from Wyoming, spearheaded that group.

“There is no perfect solution to our fiscal problems,” Bowles and Simpson wrote. “However, we believe strongly and sincerely that an agreement on a comprehensive plan to bring our debt under control is possible if both sides are able to put their sacred cows on the table in the spirit of principled compromise.”

Specifically, the plan calls for Congress to enact comprehensive tax reform to reduce rates, adopt a territorial tax system, maintain progressivity of the tax code and generate $585 billion in new net revenue.

Bowles and Simpson proposed a top tax rate of 28%, saying tax expenditures would have to be reduced. They estimated that a 27% limit on the value of all itemized deductions, including muni bond interest, would raise $585 billion over 10 years with the revenue coming from families earning more than $150,000 annually and families earning more than $250,000.

It would direct the House and Senate tax committees to produce comprehensive tax reform to bring down individual and corporate tax rates while reducing the federal deficit, using a “zero plan” approach that starts by eliminating all tax expenditures, lowering rates, and requiring restoration of tax expenditures to be offset with higher rates.

If Congress fails to enact specific tax reforms, the plan would employ a failsafe mechanism to enforce the revenue target with an across-the-board limitation of tax expenditures either by limiting the value of itemized deductions and exclusions or a cap on the amount of tax expenditures an individual can claim, the report said.

This fail safe plan could be complemented with specific tax changes such as repealing tax exemption for private activity bonds, eliminating the mortgage interest deduction, and eliminating the state and local tax deduction.

The plan would also replace the $1.2 trillion in automatic, across-the-board budget cuts that went into effect in March with entitlement changes and comprehensive tax reform, It would restore 70% of the budget cuts known as sequestration for both defense and non-defense categories and then establish new caps indexed to inflation through 2025.

Federal debt under the plan would fall from a peak of 78% of gross domestic product in 2014 to nearly 69% in 2023 and would drop as low as 65% if the reforms in the plan produced increases in economic growth and if war spending declined faster than projections.

“The failure to get our debt under control, reform our tax code, and put our entitlement programs on a fiscally sustainable course is robbing us of the ability to invest in our future and will leave us without the resources we need to meet other challenges facing our nation,” the report said.

When Bowles and Simpson first released their 2010 report, it was largely ignored by both Congress and Obama until the summer of 2011, when the debt ceiling crisis began to heat up. It’s unclear how well this newly revised report will be received on Capitol Hill or with the Obama administration. The report comes just one month before the federal government is on track to hit its statutory borrowing limit known as the debt ceiling.

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