Your Guide to the Debt Commission

BY Carolyn O'Hara and Quinn Bowman  April 27, 2010 at 11:37 AM EST

President Barack Obama with Erskine Bowles, left, and Alan Simpson; AFP/Getty photo

Why do we need a debt commission?

President Obama established the 18-member bipartisan commission by executive order in February and handed it a weighty task: come up with ways to slash the country’s skyrocketing debt.

The commission has been asked to propose recommendations that would reduce the U.S. deficit to within 3 percent of gross domestic product by 2015. Last year, the annual budget deficit hit a whopping $1.4 trillion, or just over 10 percent of GDP, the highest rate since World War II. Future deficits are forecast to balloon as more baby boomers retire and spending for Medicare and Social Security swell.

Commission members must not only tackle the herculean task of figuring out how to better balance spending and revenue, they must do it across party lines. Their final report of recommendations is due to Congress on Dec. 1, and 14 of the commission’s 18 members must support the findings.

A congressional effort to form a similar commission was defeated in January after Republicans charged that it would result in tax hikes. Proponents of the commission suggest that’s exactly why an independent panel is necessary: to consider all options, however politically unpalatable, to get the deficit under control. But this independent commission also has considerably less power than the one designed under the congressional plan. The earlier plan would have required Congress to vote on the commission’s proposals. Congress is not required to do anything with the current commission’s recommendations.

Who is on the commission?

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The commission is composed of 10 Democrats and eight Republicans.

Six members were chosen by the president. He appointed co-chairs Erskine Bowles, a Democrat who was White House chief of staff for President Clinton, and Alan Simpson, a former Republican senator from Wyoming (watch their interview on the NewsHour). He also named three Democrats: Alice Rivlin, a former vice chair of the Federal Reserve who also served as director of the Congressional Budget Office and the White House budget office; Andrew Stern, retiring president of the 2.2 million-member Service Employees International Union; and Ann Fudge, former head of Young & Rubicam Brands, a global marketing and communications company. He also named one Republican: David Cote, the CEO and chairman of Honeywell, a technology and manufacturing company.

Senate majority leader Harry Reid and House Speaker Nancy Pelosi each picked three congressional Democrats: Sen. Max Baucus, D-Mont., who chairs the Senate Finance Committee; and Sen. Kent Conrad, D-N.D., who chairs the Senate Budget Committee; Sen. Dick Durbin, D-Ill., the No. 2 Democrat in the Senate; Rep. Xavier Becerra, D-Calif., a member of the Budget and Ways and Means committees; and Rep. Jan Schakowsky, D-Ill., a member of the Energy and Commerce Committee; and

Rep. John M. Spratt Jr., D-S.C., chairman of the House Budget Committee.

Congressional Republican leaders Mitch McConnell and John Boehner also appointed three members each. They are Sen. Tom Coburn, R-Okla., who has sponsored legislation aimed at spending cuts; Sen. Michael Crapo, R-Idaho, a member of the Senate Budget Committee; Sen. Judd Gregg, R-N.H., the top Republican on the Senate Budget Committee; Rep. Dave Camp, R-Mich., senior Republican on the House Ways and Means Committee; Rep. Jeb Hensarling, R-Texas, an outspoken proponent of deficit reduction; and Rep. Paul Ryan, R-Wis., the top Republican on the House Budget Committee.

Bruce Reed, the CEO of the Democratic Leadership Council and a former Clinton White House official, serves as executive director for the commission.

What might the commission recommend?

President Obama has said that he wants the commission to consider all options. “Everything is on the table. That’s how this thing is going to work,” Mr. Obama said when he issued the executive order establishing the panel.

“Everything on the table” could include:

Raising taxes. The nonpartisan Tax Policy Center recently estimated in a study that taxes would have to increase by almost 40 percent to reduce the deficit to 3 percent of GDP by 2015. Talk about politically unpalatable.

Imposing a value added tax, or VAT, similar to a national sales tax that many countries have. Signals from the White House have been mixed on the politically controversial idea. Last week, in an interview with CNBC, President Obama seemed open to the possibility, saying, “Before, you know, I start saying ‘this makes sense or that makes sense,’ I want to get a better picture of what our options are,” Mr. Obama said. But on Thursday, White House press secretary Robert Gibbs told reporters, “Just to be clear, no VAT tax.”

Spending cuts. President Obama announced in January a three-year freeze on discretionary spending. But the freeze exclusives spending on Medicare, Medicaid, Social Security, national security, and veterans’ benefits. Since those programs already take up a majority of federal spending, critics says the freeze wouldn’t go far enough to make any impact on the deficit. Certainly deeper cuts would require a political fight.