Deficit Reduction Plan: Solve America’s Debt Problem By Cutting Taxes, Social Security, Medicare and Federal Retirement Benefits


To tackle America’s growing national debt problem, President Obama put together a task force earlier this year to look at options on how to cut government spending, implement tax reform and improve the effectiveness of federal entitlement programs. The deficit reduction commission co-chairs (Erskine Bowles and Alan Simpson) put forward a $3.8 trillion deficit-cutting draft plan that calls for discretionary spending to be cut by $1.4 trillion over 10 years, while mandatory spending – including Social Security, Medicare and Medicaid – would be reduced by $733 billion. Taxes would be raised by $751 billion. More specifically:

Tax Cuts and Changes

  • Consolidate the tax code into three individual rates and one corporate rate. Based on the options the bottom tax rate will be between 8% and 15%, the middle rate would be between 14% and 25%, with the top rate capped at 35%. The Corporate tax rate would be cut to 26%
  • Repeal AMT
  • Triple standard deduction to $30,000 ($15,000 for individuals)
  • Repeal state & local tax deduction, cafeteria plans, and miscellaneous itemized deductions
  • Limit mortgage deduction to exclude 2nd residences, home equity loans, and mortgages over $500,000
  • Treat capital gains and dividends as ordinary income
  • 15-cent increase in the gas tax
  • Gradually increase the taxable maximum to capture 90 percent of wages by 2050 (vs 82% at the end of this decade)

Social Security, Medicare and Health Care Changes

  • The Social Security retirement age would rise to 68 in about 2050 and 69 in 2075, as the retirement age is indexed to increases in longevity
  • Pay doctors and other providers less, improve efficiency, and reward quality by speeding up payment reforms and increasing drug rebates
  • Pay lawyers less and reduce the cost of defensive medicine by adopting comprehensive tort reform
  • Replace existing cost-sharing rules with universal deductible, single coinsurance rate, and catastrophic cap for Medicare Part A and Part B.
  • Add a robust public option and/or all-payer system in the health care exchange system
  • Add a new special minimum benefit to keep full-career minimum wage workers above the poverty threshold
  • Give retirees the choice of collecting half their benefits early and the other half at a later age to support phased retirement options

Federal and Military Changes

  • Use highest 5 years to calculate civil service pensions and ask federal workers to contribute half the cost (not 1/14th)
  • Reform COLA payments for civilian & military early retirees
  • Reform military retirement system to vest after 10 years (not 20); defer collection until age 60
  • Reducing Congressional and White House budgets by 15 percent, freezing federal salaries and cutting the federal workforce by 10 percent.
  • Freeze Defense Department salaries and noncombat military pay at 2011 levels for three years, cutting overseas bases by one-third and doubling proposed cuts in defense contracting.

The savings would come between 2012 and 2020. The result would be a deficit totaling about $400 billion or about 2.2 percent of the nation’s gross domestic product in 2015. That would exceed Obama’s goal for the panel of a reduction to 3 percent, from the current 9 percent of GDP. While most economists say some combination of spending cuts and tax increases is necessary, Republicans are wary of tax hikes and Democrats are reluctant to reduce U.S. government benefits. (Bloomberg)

What do you think about these proposals? For now they are just draft ideas and it will take a long while before Congress actually considers them, even though the commission’s plan calls for having them in effect by 2012 to 2013. Furthermore, given the adverse political consequences of cutting federal entitlement programs, it is unlikely any politician will be too keen to support many of these proposals without much more voter input (for example talk of cutting medicare or social security benefits is akin to political suicide). Still, one thing these proposals do show is how challenging and painful reducing our national debt will be. The question is, will we or future generations be the ones that bear the cost of the ever growing national deficit.

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18 Comments on "Deficit Reduction Plan: Solve America’s Debt Problem By Cutting Taxes, Social Security, Medicare and Federal Retirement Benefits"


You knuckle heads don’t realize that every person that loses a job no longer pays taxes or social security do you? I can’t think of a better way to make things worse.


Stop giving away all of our Social Security money to other programs – especially helping other countries with all their disasters and problems – they sure don’t help us when disasters – like Katrina – hit the US.

[…] ideas to reduce the debt, in fact the bi-partisan debt reduction commission has already proposed a series of initiatives to cut the national debt to manageable levels. However the real challenge is whether our  […]

Allan Whitesel

AW The very first thing that needs to be done is to recoup the trillions of dollars that taxpayer have paid to the Bush-Chaney war machine for 10+years of war, the financial institutions that destrtoyed our economy, and the oil speculators. If this is done on a 5 – 10 year basis it will resolve almost all of our budget issues. Over the last 10 years the neo-cons have systematically transfered wealth to the top 2% at the expense of the remaining 98%. The last 10 years has provide that lower corporate taxes and taxes for the top 2% does not create jobs – we lost over 2 million job under the bush tax cuts – stop this insanity or democracy will be destroyed!!!!!!!!!

[…] debt ceiling, President Obama has revealed his high level plan to tackle America’s growing  national debt challenge. His debt plan is also a response to the Republican’s 2012 budget plans […]

[…] all, there are about 200 tax cuts that are in danger of being repealed as part of America’s debt reduction plan and many of these are the popular tax breaks with the general public. Let’s take a look at a few […]

[…] debt and its reduction at the forefront of political discussion, both parties have pledged to reduce the deficit that is running at more than $1 trillion a year (and adding to the growing national debt). The […]

I just wish “dems and reps”would leave SRS. OUT OF THEIR WAYS TO CUT COST We are at the bottom now . house payments, taxs on homes, ins. on home car ins, never mind food and meds . Some of us are raising grandchildren and that is not cheap. WE HAVE PD. OUR DUES AND THIS FOR SOME IS THE only money coming in. They say we don,t need a cost of living increase I would like for each of them rich dum dums to live and make it on what I get. I should not have called them dum dums they are smart enough to get a raise lame duck dems passed us over and forget reps. giving away money to the poorest of the poor. that will not happen. We only have one weapon VOTE FOR ONES WHO WILL GIVE srs. a fair break and than get it… Read more »

[…] he was pleased Obama instituted only a two-year freeze instead of the three years proposed by the Deficit Commission. But Obama also should have cut pay for some military personnel, Hoyer said in a statement. Obama […]

[…] he was pleased Obama instituted only a two-year freeze instead of the three years proposed by the Deficit Commission. But Obama also should have cut pay for some military personnel, Hoyer said in a statement. Obama […]

I agree that many government jobs should be reduced by as much as 50 % in most cases. They also should look to reduce the retirement benefits, ssi/disabilty payouts for the major white house benefit payouts ( which is on average 6000 to 7000 dollars per month for them) and the rest of the retired ssi/disabled benefit pay out is 98% of the time less that 1000 dollar payout and find themselves doing without many life nessessities to cover the cost of thier uncovered medial and prescription costs. Also, as a military service member in the national guard, it has become almost impossible for many of the local reservist to even obtain employment at all in the Eastern regions of theUS. In this highest unemployment rate era where jobs either move out of the us, or economic downturn causes layoffs and benefit cutbacks, forcing many of us into a vicious… Read more »

—-Members of Congress should take a mandatory 15% “reduction in salary” until the recession is over.
—-Complete the scrutiny of fraud in Medicare/Medicaid. I’m sure billions of savings will be the end result.

—-Overhall the tax system to something more equitable and simple.

—-Consider a VAT (value added tax) instead of a 15% increase on gas.

—-Modify the Health Care Plan to include a public option, thereby allowing competition with “for profit” insurance companies.


Like more specifics but this does not seem as devasting as they made it sound on TV. But
want more clarification, like can I still deduct expenses for my very small business.
Also as noted, they (Congress) never ever touch their own lifetime salaries and benefits, this also must be put on the reduction list. They are so eager to cut everyone else but themselves.

“Reducing Congressional and White House budgets by 15 percent, freezing federal salaries and cutting the federal workforce by 10 percent”
10% is too low. Because all of the people doing make work creating red tape the Government pays way too much for anything it buys. I would say you could cut the government by 50% and no one would notice except the taverns across from the government buildings.


the first thing that needs to be done is trim the government beaurocracy by two thirds. the department of education alone has more beaurocrats than teachers.
eliminate all payments and perks to retired presidents. In Europe and other countries they become regular citizens the day after term expires. limit congressional members expenses.. pur foreign aid on hold. eliminate all czars- big expense. eliminate congressional members pet projects. broke people have to choose between food, gas and utilities, the country is broke. eliminate the president’s salary and the amount allowed to run the white house.
go to a flat tax, eliminate the IRS, just a few ideas to get started.

I believe this document is from the co-chairs only and does not reflect the committees final report.

Please remind us the background of the committee chairs and clarify whose opinion this reflex.

Thank you…it’s a good summary I think other than my first point.


Good point. I did say at the end it was a draft report. But your clarification makes sense and I have updated the article accordingly.


What about state and local government cuts. There is so much waste at these levels that it is probably more than federal waste. Cut all the assistant governor/mayor positions as a start and do we really need to have so may local and state committees, when they have no real power.


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