SEPARATING THE SERIOUS FROM THE POPULIST:

Deficit-Panel Chiefs Urge Tax, Spending Changes (DAMIAN PALETTA , 12/01/10, WSJ)

The proposal would achieve nearly $4 trillion in deficit reduction through 2020, reduce the deficit to 2.3% of gross domestic product by 2015, overhaul the tax code, cap government revenue at 21% of GDP and reduce debt to 40% of GDP by 2035, the co-chairmen said.

The 18-member commission is set to discuss the proposal Wednesday morning and plans to hold a vote on it Friday. The chairmen are expected to come up short of the 14 votes needed to issue a formal recommendation to Congress and the White House, but the proposal is nevertheless expected to frame the debate in the next year over which budget changes are necessary to cut into the country's growing debt.

Messrs. Bowles and Simpson have taken particular aim at the country's tax code, especially the $1.1 trillion in tax breaks that many use to lower their taxable income, such as deductions for interest on mortgages. The proposal would cap or gut many of the tax expenditures as a way to boost revenue.

The new proposal would offer a 12% nonrefundable tax credit to all taxpayers and cap the mortgage-interest deduction to loans less than $500,000, with homeowners receiving no credit from mortgages on a second home.

Capital gains and dividends would be taxed at normal income rates. They would also limit the ability of people to deduct their health-insurance payments pretax.

To offset taking away or limiting tax expenditures, the co-chairmen proposed several scenarios for lower income-tax rates, which the group is expected to discuss at the meeting on Wednesday.

The co-chairmen also take aim at Social Security, Medicaid and Medicare costs. For Social Security, they recommend raising the normal retirement age to 68 by 2050 and 69 by 2075. They recommend creating a hardship exemption for people who can't work beyond 62 and other exemptions for low-income earners. For Medicaid and Medicare, the co-chairmen recommend cuts across both programs that they say would save billions of dollars and contain the long-term costs of these programs.