Panel Proposes Radical Tax, Budget Changes

WASHINGTON — A bipartisan commission on Wednesday proposed balancing the federal budget in 10 years and called for radical changes in the federal tax system to shift the nation’s economy from consumption to savings and investment.

The panel, headed by Sens. Sam Nunn (D-Ga.) and Pete V. Domenici (R-N. M.), recommended reducing deficit spending by $2 trillion by the year 2002 through a combination of stiff budget cuts, caps on entitlement programs other than Social Security and $376 billion in tax increases.

The additional tax revenue would be generated by replacing the federal income tax system with a consumption-oriented tax system that essentially would tax that portion of an individual’s personal income or a corporation’s cash flow that does not go for savings, investment or capital formation.

Although the proposed system would retain several features of the Internal Revenue Code, including exemptions and certain deductions, it would be designed so those who save and invest will pay less in taxes than those with the same income who do not save.

Wages would be treated the same as interest or dividends; there would be no tax on capital gains, and middle- and upper-income taxpayers would carry the burden of the tax increases.

“We’re all in the same hole together, and we’re going to have to dig out of it together,” Nunn said. “The deficit eats up our savings and saps our country’s strength.”

The recommendations by the panel, which included politicians, corporate CEOs and scholars, go far beyond any of the deficit-reduction proposals advanced by President Bush, Democratic presidential nominee Bill Clinton or Texas billionaire Ross Perot.

Bush has pledged to never “ever” again support a tax increase. Clinton has proposed a $220-billion, four-year package to rebuild the economy, but has not endorsed a cap on entitlement programs, like Medicare and Medicaid, and has scaled back his goals for deficit reduction.