Feb. 19 (Bloomberg) -- The leaders of President Barack Obama’s 2010 deficit commission offered a $2.4 trillion plan to reduce the debt as Congress approaches a March 1 deadline for averting across-the-board federal spending cuts.

The proposal by Democrat Erskine Bowles, President Bill Clinton’s former chief of staff, and Republican Alan Simpson, a former senator from Wyoming, would accomplish debt savings over 10 years in steps, rather than through one major piece of legislation.

“What we are calling for is by no means perfect,” the two said in a summary of the plan. “But it could serve as a mark for real bipartisan negotiations on a plan to reduce the deficit and grow the economy.”

They issued their proposal today as Democrats and Republicans are feuding over how to halt $1.2 trillion in automatic spending cuts set to begin March 1.

Congress agreed to the cuts as part of a deal to increase the debt limit in 2011. The reductions are to be split almost evenly between defense and non-defense spending, and both parties agree they may damage the U.S. economy.

At a news conference today in Washington, Bowles and Simpson said the fiscal talks have left them discouraged, and Bowles predicted that the budget cuts, also known as the sequester, will take effect. The mandated reduction in spending was designed to force lawmakers to reach a broader agreement to replace the cuts.

‘Magic Moment’

Congressional and White House negotiators lost their “magic moment” last year to strike a debt compromise, said Bowles. “The idea of a grand bargain is at best on life support,” he said.

Both sides seem more interested in “making the other side lose” than in working together, said Simpson. “It’s disgusting to watch,” he said.

Under the new Bowles-Simpson proposal, one quarter of the deficit reduction would come from health-care changes, including lower payments to Medicare and Medicaid providers and higher Medicare premiums for top earners. Another quarter would come from a rewrite of tax laws that would scale back most exemptions and deductions. Part of the savings would be used for deficit reduction and the rest to reduce income tax rates.

Additional savings would come from using a revised inflation gauge to slow the growth in Social Security cost-of- living payments. Farm subsidies also would be reduced and federal pensions -- including those for the military -- would be cut back.

$1.5 Trillion

The plan is more than the $1.5 trillion over 10 years the president has said is necessary to stabilize the debt. That amount wouldn’t reduce the debt as a percentage of the gross domestic product to less than 70 percent over 10 years, they said. Their plan identifies $600 billion in health-care spending reductions, $200 billion more than the White House has said it’s willing to accept.

It also proposes new tax revenue, something Republican leaders ruled out after last month’s enactment of legislation to let George W. Bush-era tax cuts expire for high earners.

Even with those cuts and revenue increases, “this deficit reduction is far from sufficient to put the debt on a downward path as a share of the economy this decade,” Bowles and Simpson said in the summary of their plan.

A further step would make additional changes to Social Security and health-care spending and revamp transportation spending, the two said, without giving details.

Debt Ceiling

In the past two years, Congress and Obama enacted two major pieces of fiscal legislation accounting for as much as $2.7 trillion in deficit reduction -- the 2011 Budget Control Act, which made the spending cuts in exchange for raising the debt ceiling, and the plan Congress passed Jan. 1 to raise taxes on households making more than $450,000 a year.

An earlier plan proposed by Bowles and Simpson in 2010 would have reduced the deficit by $3.9 trillion over nine years, with 26 percent coming from revenue increases, 57 percent from spending cuts and 17 percent from interest savings. The plan didn’t get enough support from deficit commission members to be submitted to Congress for a vote.

The 2010 plan called for clamping down scores of tax breaks that allow taxpayers to write off items such as mortgage interest and retirement savings. The savings would have been used to cut income tax rates and to reduce the deficit.

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