March 2012

Setting the Record Straight...on War Spending

The Simpson-Bowles alternative budget resolution put forward this week by Representatives Cooper, LaTourette, Schrader, Bass, Quigley, Dold and Costa has come under fire for a number of reasons, but one of the seemingly more confusing points is what it does to war spending.

First, Americans for Tax Reform has made the claim that the budget does not account for war spending at all. Thus, when you add back in about $425 billion of post-drawdown war spending and net it against $625 billion of claimed discretionary savings, it comes out to only $200 billion of discretionary savings. However, this is inaccurate. The $625 billion of savings comes entirely from the lower caps compared to realistic projections that assume a drawdown in war spending, not from omitting war spending.

Second, during the floor debate on the amendment, Rep. Paul Ryan (R-WI) mentioned the "war gimmick" in reference to the plan's spending cuts. The gimmick is claiming savings for drawing down war spending, even though the policy is already being carried out. While Ryan is correct that claiming the drawdown as savings is a gimmick, this budget did not do that. Indeed, in the two-page summary, there is no mention of the war drawdown, and it is not part of the savings claimed. Many budgets have used the war drawdown in a responsible way (including Ryan's) by putting in a fiscal plan and not claiming savings or using it to pay for new spending or tax cuts. The Cooper-LaTourette proposal followed that.

These claims are minor but worth clearing up. On war spending, the alternative resolution was responsible in reflecting the policy that is in place without making it a gimmick.

CRFB's Policy Director Says "Stabilize the Debt"

CRFB's Senior Policy Director Marc Goldwein was the subject of a CNN piece (audio here) on the goal of deficit reduction (and the life of a budget wonk). Marc said that the focus of fiscal policy should be to stabilize the debt as a percent of GDP and get it on a downward path. Even though "Stabilize the Debt" doesn't make for a very good bumper sticker (despite the fact that he has one), it is a reasonable target for deficit reduction.

 

As he says:

We need to have a sustainable budget where our debt is growing slower than the economy...That means we can still run deficits, but those deficits have to be smaller than our economic growth.

Ideally, deficits would not be higher than one to two percent of GDP in the long-run. That would enable the debt to shrink as a share of GDP and keep it at a sustainable level. Of course, getting there with a plan that is able to pass both chambers of Congress and be signed by the President is the difficulty. It require tough choices and, above all, it will require compromise.

You too can make the tough choices using our updated "Stabilize the Debt" simulator to see if you can stabilize the debt. Also, Lisa Desjardins, the author of the piece, can be followed on Twitter at @LisaDCNN.

MY VIEW: Erskine Bowles

Despite all the political gridlock and other developments that have people worried about our fiscal future, Fiscal Commission co-chair Erskine Bowles sees reason to be optimistic. In an op-ed in The Wall Street Journal, he said that the result of last year's debt ceiling brinkmanship and the resulting law (the Budget Control Act), "deficit reduction now has the upper hand."

This Budget Control Act of 2011 called for automatic spending cuts of $1.2 trillion over the next decade if the congressional "super committee" failed to reach an agreement, as it did fail. The automatic spending cuts, together with the looming expiration of the Bush tax cuts on Jan. 1, 2013, will finally force Congress and the administration to put up or shut up on deficit spending.

While letting all $3.9 trillion in the Bush tax cuts expire and implementing mindless across-the-board cuts is surely not the smart way to solve our long-term fiscal problems, that threat should be enough to force across the finish line a grand bargain similar to the one our commission proposed.

He concludes with hopefulness, after meeting with President Obama, that the President and Congressional leaders will be able to find their way by the end of the year.

Click here to read the full op-ed.

"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the committee.

CRFB President on the National Debt Tour and Fiscal Developments

On CNBC's Squawk Box this morning, CRFB president Maya MacGuineas talks about the National Debt Tour and other developments in fiscal policy recently, including the vote on the Simpson-Bowles alternative budget resolution. She also talks about the need for Congress to work on developing a fiscal plan in a year when so many action-forcing events will take place at the end of the year -- something that CRFB fleshed out fully in a paper today. View the full video clip below.

 

Thanks for Your Fiscal Bravery

Yesterday, 38 members of the House cast votes for the bipartisan budget resolution that is modeled after Simpson-Bowles. 22 Democrats and 16 Republicans cast a vote that would buck each of their respective parties' orthodoxy on the budget: significant tax increases for Republicans and significant entitlement cuts for Democrats. We'd like to list each of the members who did vote for it and congratulate them for being open to compromise and putting the nation's fiscal interest above their party's interest. They are:

  • Rep. Robert Andrews (D-NJ)
  • Rep. Charles Bass (R-NH)
  • Rep. Dan Boren (D-OK)
  • Rep. Leonard Boswell (D-IA)
  • Rep. Anne Marie Buerkle (R-NY)
  • Rep. John Carney (D-DE)
  • Rep. James Clyburn (D-SC)
  • Rep. Jim Cooper (D-TN)
  • Rep. Jim Costa (D-CA)
  • Rep. Henry Cuellar (D-TX)
  • Rep. Charles Dent (R-PA)
  • Rep. Robert Dold (R-IL)
  • Rep. Chaka Fattah (D-PA)
  • Rep. Chris Gibson (R-NY)
  • Rep. Jim Himes (D-CT)
  • Rep. Timothy Johnson (R-IL)
  • Rep. Ron Kind (D-WI)
  • Rep. Rick Larsen (D-WA)
  • Rep. Steven LaTourette (R-OH)
  • Rep. Daniel Lipinski (D-IL)
  • Rep. Cynthia Lummis (R-WY)
  • Rep. Pat Meehan (R-PA)
  • Rep. Ed Perlmutter (D-CO)
  • Rep. Collin Peterson (D-MN)
  • Rep. Thomas Petri (R-WI)
  • Rep. Todd Platts (R-PA)
  • Rep. Jared Polis (D-CO)
  • Rep. Mike Quigley (D-IL)
  • Rep. Tom Reed (R-NY)
  • Rep. Kurt Schrader (D-OR)
  • Rep. Allyson Schwartz (D-PA)
  • Rep. John Shimkus (R-IL)
  • Rep. Heath Shuler (D-NC)
  • Rep. Mike Simpson (R-ID)
  • Rep. Peter Visclosky (D-IN)
  • Rep. Mel Watt (D-NC)
  • Rep. Frank Wolf (R-VA)
  • Rep. Don Young (R-AK)

What Congress Should Do With the Fiscal Cliff

With a large number of policies set to expire or kick in at the end of the year, with serious fiscal impacts, CRFB has released a paper laying out the optimal path for policymakers to take to avoid both a short-term economic hit from the fiscal cliff and the long-term economic consequences of not dealing with our rising debt. The solution? You guessed it -- making smart, gradual, and targeted reforms to the key drivers of our debt.

For background, there are a litany of policies that are scheduled to expire or kick in at the end of the year (and some policies that have already expired but could be extended retroactively). The ten-year cost of extending these policies could total about $7.5 trillion. They include:

  • The expiration of the 2001/2003/2010 tax cuts
  • The expiration of AMT patches
  • The expiration of the temporary payroll tax holiday
  • The expiration of expanded unemployment benefits
  • The expiration of the doc fix
  • The activation of the sequester
  • The expiration of other various tax provisions

Obviously, extending these policies would have enormous negative consequences for our fiscal situation. Debt would be about 30 percentage points of GDP higher in 2022 compared to current law if they were all extended. At the same time, all of these policies hitting all at one time when the economy has not fully recovered is not very good short-term policy.

Impact of the Fiscal Cliff
  2013-2014 2013-2022
2010 Tax Cut $340 billion $2.8 trillion
AMT Patches $225 billion $1.7 trillion
Payroll Tax Cut* $120 billion $120 billion
Unemployment Insurance* $30 billion $30 billion
Doc Fix $30 billion $270 billion
BCA Sequester $160 billion $980 billion
Tax Extenders^ $60 billion $455 billion
Interest n/a $1.1 trillion
Total ~$1 trillion $7.5 trillion

*Assumes a one year extension
^Excludes bonus depreciation and expensing rules

Achieving something similar to the savings already scheduled under current law would be great from a fiscal policy perspective, and we would hope to get there. However, as Federal Reserve chairman Ben Bernanke has said, "it is important to achieve sustainability over a longer period...one day is a pretty short time frame." In addition, many of these policies are designed in a way that is not conducive to growth unintended consequences. Still, this should not be an excuse to deficit-finance all of these extensions, which would be the worst scenario possible.

A better path would be one that gets the timing of deficit reduction right while enacting policies that are generally more conducive to growth than current law. In other words, we need a deficit reduction path that looks like current law, but more phased in and with much more thought-out policies. This type of path is embodied in prominent bipartisan fiscal plans, such as the Simpson-Bowles and Domenici-Rivlin recommendations, which generally held off on short-term cuts (Domenici-Rivlin, in fact, included stimulus) and implemented pro-growth policies like comprehensive tax reform. 

Let's hope that policymakers choose the gradual path and avoid the fiscal cliff and mountain of debt. Click here to read more about the opportunity that lawmakers have this year.

The Newest TARP Estimate

CBO has released its newest cost estimate of the Troubled Asset Relief Program (TARP), projecting it to cost $32 billion over its lifetime, which is $2 billion lower than it estimated last December. The change in the cost estimate represents a reduction in the costs of AIG and GM support netted against an increase in the cost estimate of the mortgage programs.

A breakdown of the cost estimate by category is presented below.

Subsidy Cost Estimate (billions)
Area December 2011 March 2012 Maximum Amount Disbursed
Capital Purchase Program -17 -17 205
Citigroup and Bank of America -8 -8 40
Community Development Capital Initiative 0 0 1
Assistance to AIG 25 22 68
Subtotal, Financial Institutions 1 -3 313
       
Auto Company Assistance 20 19 80
Investment Partnerships 0 0 18
Mortgage Programs 13 16 3
       
Total 34 32 414

 

CBO has revised down its estimate of AIG support due to increased AIG stock prices, something we surmised three weeks ago would happen. Similarly, GM support has become less costly due to rising GM stock prices. Finally, the cost of mortgage programs has gone up since December due to Obama Administration initiatives to expand eligibility for mortgage modification programs and thus the amount of money that will be provided in the program.

We'll continue tracking TARP at Stimulus.org.

Setting the Record Straight on Cooper-LaTourette

There have been a lot of claims circulating around about the "Simpson Bowles Alternative Budget Resolution" proposed by Congressmen Cooper, LaTourette, and others (see our initial praise for the proposal here). Some are true, some of misleading, and some are outright false. We wanted to clear up the confusion and separate fact from fiction.

Claim: The Cooper-LaTourette budget is not based on the Simpson-Bowles plan
Al Simpson and Erskine Bowles have expressed strong support for the Cooper-LaTourette budget, which is largely consistent with the Simpson-Bowles plan updated to account for actions taken by Congress and the President since the plan was released. Specifically, the amendment uses an updated baseline that reflects the bipartisan agreement at the end of 2010 to extend all of the 2001 and 2003 tax cuts and the enactment of the Budget Control Act. The amendment requires tax reform to raise $1 trillion in revenues through 2021 relative to a current policy baseline which assumes extension of all 2001 and 2003 tax cuts, instead of the plausible baseline used by the Fiscal Commission which assumed the tax cuts for taxpayers with incomes above $250,000 would expire at the end of 2010. On discretionary spending, the amendment applies the policy in the Simpson-Bowles report of applying limits on spending growth equally to security and non-security spending to the current levels of security and non-security spending set in the Budget Control Act. In both instances, the amendment takes the recommendation outlined in the report and applies them to circumstances that are different than they were in 2010.

Claim: The Simpson-Bowles Budget Resolution Extends the Bush Tax Cuts
The budget resolution makes no mentions of the 2001/03 tax cuts. For scoring purposes, it starts with the “baseline” presumption that these cuts are renewed – as does President Obama in his budget. However the budget itself calls for comprehensive tax reform to generate over $1 trillion in new revenues through 2021 while substantially lowering tax rates and broadening the base. This is the same approach as was taken by the Fiscal Commission, which called for using a “zero plan” with no tax expenditures as a starting point and then allowing the committees to “add back” various tax expenditures on a deficit-neutral basis.

Claim: Cooper-LaTourette will increase corporate tax avoidance
The U.S. corporate tax is a patchwork of overly complex and inefficient provisions that create perverse incentives for investment. Corporations engage in self-help to decrease their tax liability and improve their bottom line. Moreover, corporations are able to minimize their taxes through various tax expenditures inserted into the tax code as a result of successful lobbying.The Cooper-LaTourette bill would attack the primary causes of corporate tax avoidance: it would eliminate the myriad of tax loopholes and expenditures that litter the tax code; it would lower the statutory income tax rate to a level more in line with other economically advanced countries; and would further level the playing field by following the lead of most of our trading partners by transitioning to a territorial system of taxation.

Claim: Cooper-LaTourette raises taxes by nearly $2 trillion and will raise taxes on the middle class
Against realistic projections that assume lawmakers will continue various tax provisions in place right now, the Cooper-LaTourette budget would increase federal revenues by about $1.2 trillion over the next ten years - not $2 trillion. While some may call for more or less savings from revenues in any debt reduction package, it is simply a matter of fact that the budget would not raise another $2 trillion. Additionally, the desire of this tax reform plan is to raise revenues through eliminating or reducing many special tax rules and credits in the code which are closer to spending than tax provisions and which benefit higher income earners far more than the middle class. The Cooper-LaTourette budget requires any tax reform to be more progressive than if the upper income tax cuts were allowed to expire, so while middle income earners would see some reduction in their tax benefits the lion's share of the revenue would come from tax benefits going to higher earners. All earners, regardless of income, will face a simpler code which is less expensive to comply with.

Claim: Cooper-LaTourette will hurt the economic recovery
One of the key principles of the Simpson-Bowles plan was to avoid harming the fragile economic recovery. The Cooper-LaTourette budget reflects that principle by replacing the fiscal cliff at the turn of 2013 with sudden tax cut expirations and deep sequester spending cuts with gradual reductions in spending and pro-growth tax reform. The debt stabilization process called for in the Cooper-LaTourette budget, requiring action if the debt begins to grow as a percentage of GDP, gives Congress and the President flexibility to hold off on additional deficit reduction if economic conditions are weak. By putting in place a credible fiscal consolidation plan large enough to stabilize and begin to reduce the mounting debt as a percentage of GDP, the Cooper-LaTourette proposal will reassure markets and increase business confidence and growth prospects for the long term.

Claim: Repealing the Sequester will increase spending by $1 trillion
The sequester is not a deficit reduction policy, but rather an enforcement mechanism which was meant to force the Super Committee to identify at least $1.2 trillion in deficit reduction. The Cooper-LaTourette budget exceeds that mandate more than threefold, with nearly $4.2 trillion in debt reduction over ten years. The sequester was designed last summer both to pressure Congress to agree on additional savings through more specific, and ideally more substantial, reforms.

Claim: Cooper-LaTourette will disproportionately cut defense
While defense spending would grow more slowly under Cooper-LaTourette than under current law, it will not face a disproportionate amount of the cuts. Both defense and non-defense spending under the budget resolution would grow at about 1% below the rate of inflation each year. This means far less and more gradual reductions to defense than what is called for in the sequester, even as the defense budget will have spend wisely along with every other area of the budget.

Claim: Cooper-LaTourette cuts domestic discretionary more than the sequester
The Cooper-LaTourette budget calls for domestic discretionary spending levels well above those called for by the automatic sequester, both over ten-years and in every year through 2022. The budget calls for additional savings of about $625 billion than called for in the BCA, split proportionally between defense and non-defense programs. Conversely, the sequester would cut defense outlays by more than $500 billion through 2022 and non-defense spending by nearly $340 billion for a total of $845 billion in additional cuts. Moreover, the discretionary savings under Cooper-LaTourette are phased in gradually by limiting the growth of discretionary spending to one percent below inflation instead of the deep and immediate cuts that would be implemented under the sequester. One of the central premises behind the Cooper-LaTourette budget is to replace the blunt across the board spending cuts in the sequester with more targeted savings not only to discretionary programs, but throughout the budget.

Claim: The Cooper-LaTourette Budget Resolution substantially cuts Social Security benefits
Though the budget does not include reconciliation instructions on Social Security (which budget resolutions are not able to do), it does call for reform of the program. Social Security is on an unsustainable path to insolvency, and absent action all beneficiaries are scheduled to receive a 23 percent cut in 2036 – regardless of age or income. The Simpson-Bowles resolution instead calls for a balanced approach – like that proposed by the Fiscal Commission and Domenici-Rivlin – which slows the growth of benefits, mainly for higher earners and asking them to increase their contributions to the system while strengthening protections for low-income workers, the very old and long-term disabled and workers with physically demanding jobs.

Claim: The Cooper-LaTourette Relies on a GDP+1 health care spending growth cap, which will require deep cuts in health programs
The Cooper-LaTourette budget puts forward specific savings requirements for savings from federal health care programs over the next ten years that are based on the policies in the Simpson-Bowles report to help control rising spending on health care – a result of population aging and rising costs that threaten to push federal debt to dangerously high levels. The limit on health care spending growth at the rate of GDP+1 percent after 2020 as in the Fiscal Commission. That cap would not require any changes in the short-term, but would serve as a backstop down the road to ensure lawmakers act to control health care costs. Ideally, the reforms already in place and proposed in reconciliation as a result of the Cooper-LaTourette budget would exceed expectations and prevent costs from growing too quickly to avoid any further reforms. But a backstop is critical.

Additional Alternatives to the House Republican Budget

Update: We have updated the table with outlays, revenue, and debt numbers for the Congressional Black Caucus plan.

Yesterday was a very busy day for budget policy. A bipartisan group in the House introduced a Simpson-Bowles alternative to the House Republican budget, one that would use spending cuts and tax reform to achieve a sustainable debt path. Beyond this bipartisan option, four other plans have been proposed from the Progressive Caucus, the Congressional Black Caucus, Chris Van Hollen (D-MD) and other House Budget Committee Democrats, and the Republican Study Committee.

Fiscal Parameters of Budget Resolutions in 2022 (Percent of GDP)
  Outlays Revenue Deficit Debt
House Republican Budget 19.8% 18.7% 1.2% 62%
House Democratic Budget 22.5% 19.7% 2.7% 74%
Congressional Progressive Caucus 23.3% 22.6% 0.7% 62%
Republican Study Committee 18.2% 18.7% -0.5% 53%
Congressional Black Caucus 22.4% 21.8% 0.6% 59%
Simpson-Bowles Budget 21.4% 19.9% 1.4% 68%

As you can see from the table, these plans have very different ways of reducing deficits and debt. Here are the details of each plan. 

House Democratic Budget

The Democratic Budget builds off of and contains many proposals from President Obama’s budget. Among these are his job proposals, such as additional infrastructure spending, and aid to states. Also, the budget allows the upper-income 2001/2003 tax cuts to expire, eliminates corporate tax preferences, and enacts a form of the Buffett Rule. The budget also eliminates war funding after 2014 (reflecting the scheduled withdrawal from Afghanistan), reduces farm subsidies, and shores up the PBGC's finances. Finally, it removes the sequester that will hit next year. According to the budget's numbers, it succeeds in reducing debt to 74 percent of GDP by 2022, slightly lower than the President's budget.

Congressional Progressive Caucus Budget

The Progressive Caucus plan includes a combination of revenue increases and reprioritization of spending that they claim will result in debt being reduced to 62.3 percent of GDP by 2022, the same as claimed by Paul Ryan (R-WI) in his budget. The CPC budget would raise taxes well above current law (about 1.2 percent of GDP more over ten years) using a number of levers. It creates 5 additional tax brackets for those making over $1 million, ranging from 45 percent to 49 percent. In addition, the 2001/2003 tax cuts for the middle and low incomes would be extended, while the cuts on the top two rates would be allowed to expire (although the middle two rates would expire later in the decade). The budget would also impose a bank tax and financial speculation tax, temporarily re-instate the Making Work Pay tax credit, tax capital gains and dividends as ordinary income, and eliminate the Social Security payroll tax cap, among other things.

On the spending side, this budget would roll back the sequester and the Budget Control Act (BCA) caps for non-defense spending, and increase non-defense discretionary spending by about $1.5 trillion over ten years. Defense would be cut by $750 billion from a baseline without the sequester or the caps (leaving it at roughly post-sequester levels). Spending cuts include allowing Medicare to negotiate prescription drug prices, instituting a public health care option, and reducing farm subsidies.

Republican Study Committee Budget

The Republican Study Committee budget is the polar opposite of the CPC budget, using dramatic reductions in spending to stabilize the debt and deficit. It repeals the Affordable Care Act (ACA), sets discretionary spending at $931 billion for FY 2013 (Ryan budget level minus the full sequester) and freezes it for five years.  It also eliminates many federal programs such as the Corporation for Public Broadcasting and the National Endowment of the Arts. In addition, Medicaid would be block granted and frozen at current levels for ten years. The RSC budget also makes significant changes to Medicare and Social Security, gradually raising the eligibility ages to 67 and 70, respectively. The changes would be slowly phased-in, and would exempt those who are 55 and older.

On the revenue side, this budget would adopt an optional tax system with two brackets of 15 and 25 percent, a generous standard deduction and dependent exemptions, and no tax expenditures. It would maintain preferential rates for capital gains and dividends and eliminate the AMT. The budget assumes these changes would be revenue-neutral. In total, the RSC plan would have revenue and spending as a percentage of GDP at 18.9 percent and 18.3 percent by 2022, respectively, and it would balance the budget in five years, quicker than the Ryan budget does.

Congressional Black Caucus Budget

The Congressional Black Caucus plan is similar in composition to the Progressive Caucus budget, although they claim to be more aggressive in their deficit reduction. According to their numbers, the CBC proposal saves $770 billion more than the Ryan budget in the next decade and $3.3 trillion more than the President's budget. On the spending side, it increases discretionary spending in many areas over the President’s budget and protects some programs that the President proposed cutting such as the Community Development Block Grant and Pell Grants for students. Also, it would introduce a public option in the health insurance exchanges created by the ACA.

Like with the CPC budget, the budget leans heavily on revenue increases. One of the key revenue raisers in the CBC’s budget is a financial speculation tax of 0.25%. It also raises large amounts of revenue from taxing capital gains and dividends as ordinary income, and imposing a 5.4 percent surtax on those making over $1 million. Also, it would make significant changes to the corporate tax system by converting the interest expense deduction into a credit (expected to raise about $840 billion over ten years) and by eliminating deferral for controlled foreign corporations, thus shifting to a fully worldwide system of international taxation.

Simpson-Bowles Budget

As mentioned above, a bipartisan group of lawmakers in the House introduced a budget resolution that adopted the framework of Simpson-Bowles. On the spending side, that budget calls for $625 billion of discretionary spending cuts compared to BCA levels (excluding the sequester), cutting about $500 billion from health spending, and cutting $300 billion from other mandatory spending. In addition, it calls for bipartisan Social Security reform and switching to the chained Consumer Price Index for inflation adjustments.

On the revenue side, it calls for comprehensive tax reform that raises $1.2 trillion in revenue. The tax reform would be required to lower marginal tax rates and broaden the base to hit its target. Overall, the plan would reduce spending and revenues in 2022 to 21 and 20 percent of GDP, respectively. Debt would decline to 68 percent of GDP.

***

It is great to see enthusiastic involvement in the budget process from members of Congress who represent very different parts of the political spectrum. Of  course, none of the budgets above (excluding the Simpson-Bowles one) contain one of the more important elements--political feasibility--that we will need to have to see a major deficit reduction plan passed. Still, each of these groups should be applauded for outlining their own visions in a budget resolution.

CORRECTION: This post has been updated to correct an inaccuracy in the RSC proposal. We originally stated that the Medicaid block granting proposal would cut one-quarter from the FY 2012 level, when it is in fact kept at that level.

 

CRFB Continues the "National Debt Tour"

As part of a continued national discussion on fiscal responsibility, The Wall Street Journal's Viewpoints Executive Breakfast Series will host Fiscal Commission Co-Chairs Erskine Bowles and Alan Simpson along with New York City Mayor Michael Bloomberg in New York City tomorrow.

The event promises to be a serious and informative dialogue on the U.S. fiscal position. CRFB President Maya MacGuineas adds that "as the Mayor of the world’s financial center and Co-Chairs of the Simpson Bowles Commission, they have invaluable insight into how our nation’s debt will impact the economy in the coming years."

We began our nationwide debt tour in Boston last month and will host similar panels including stops in Dallas, Minneapolis, and Seattle among others. As fiscal irresponsibility threatens the future of our country, the conversation of our rising federal debt should not just be limited to those in Washington. We hope that with more dialogue on fiscal issues, citizens can persuade decision makers to put reducing our federal deficit at the top of the agenda and make the tough choices needed for a solution.

Video highlights should be up within two days of the event, which you can view here

Cooper and LaTourette Introduce Bipartisan Budget Resolution

In addition to the House Republican budget, a number of other budget resolutions have come out within the past few days (we will be writing about them, too). However, one budget distinguishes itself from the others: the alternative proposed by Reps. Jim Cooper (D-TN) and Steven LaTourette (R-OH). Why? It's the only budget that has been proposed on a bipartisan basis, and as we said earlier today, it is encouraging to see lawmakers from both parties working together on this issue.

The plan builds off the Simpson-Bowles framework, proposing more than $4 trillion in savings from 2013-2022 and reducing debt as a percent of GDP to 68 percent by 2022. On the discretionary side, the proposal includes more than $600 billion of savings from putting in place stricter discretionary caps than called for in the Budget Control Act. Importantly, the proposal would replace the blunt savings scheduled to go off from the sequester with smart reforms throughout the budget.

The proposal would permanently extended the doc fix by freezing physician payments and more than fully pay for those costs with reconciliation instructions for committees to save just under $600 billion from health care programs. In addition, the resolution would put all health care spending in a budget and limit its growth to GDP+1 percent. The budget also calls for bipartisan Social Security reform along the lines of what was proposed in the Fiscal Commission plan, for total savings of about $230 billion within the ten-year window.

Savings in Cooper-LaTourette (Billions)
  2013-2022 Savings
Discretionary Savings $1,126
  Discretionary Cuts Required by BCA $502
  Discretionary Savings Below BCA Cap
$624
Net Health Care Savings $355
  Gross Health Care Savings $576
  Doc Fix -$271
  Cap Growth at GDP+1% $50
Other Mandatory Savings $305
Chained CPI $266
Limit Highway Spending to Gas Tax Revenue $156
Tax Reform $1,200
Social Security Reform $232
Interest $547
   
Total Savings $4,187

 

Cooper-LaTourette also includes reconciliation instructions to committees to reduce other mandatory spending. Specifically, they call for changes to agriculture programs, federal employee retirement, the Postal Service, the PBGC, and student loans. These savings would total about $300 billion. In addition, the budget would move all transportation programs to the mandatory side of the budget and limit surface transportation funding to revenues received through the gas tax.

Finally, there is $1.2 trillion of new revenues from comprehensive tax reform that broadens the base and lowers tax rates. In addition, the proposal would generate new revenues (and cut spending) by switching to the more accurate chained CPI for all inflation indexed parameters of the tax code and spending programs.

Congressmen Cooper and LaTourette deserve much praise for putting out a budget resolution that isn't simply a wish list of policies, but seeks to find the middle ground. We have plenty of fiscal plans already that have been proposed to reduce the deficit, but the true measure of a successful fiscal plan going forward is one that reduces the deficit but also has a chance at generating bipartisan support.

Line Items: Bloom and Gloom Edition

Bloom and Gloom – Washington’s famous Cherry Blossoms bloomed just ahead of the festival in their honor, and most promptly disappeared due to stormy weather in DC. Now, we can look forward to five weeks of celebrations with the namesakes mostly absent. A similar situation is playing out with the federal budget. There have been weeks of hearings, which will culminate this week as the House votes on the FY 2013 budget resolution. Yet, it is clear that there will be no budget coming out of Congress, again. So, there will be lots of pomp and circumstance, but in the end there will be nothing to celebrate.

Health Care Reform Turns Two – The Affordable Care Act had its two-year anniversary last week. To stroll down memory lane and recall the craziness at the time, read this blast from ‘Line’ Items’ past. As it enters its terrible twos, we will find out who it will be terrible for, as the U.S. Supreme Court is hearing arguments in a legal challenge. Meanwhile, the House last week voted to repeal the main cost-control element of the law, the Independent Payment Advisory Board (IPAB). The bill coupled IPAB repeal with limiting noneconomic damages in medical liability cases. We like medical malpractice reform, but not the IPAB repeal. Lost in the talk about IPAB repeal and the health law before the Supreme Court, CRFB noted that the President’s budget and the House GOP budget both agree on limiting Medicare growth, but they differ drastically on how to do it.

Nipping the Budget in the Bud – The House will vote on a budget resolution this week. In addition to the resolution drafted by House Budget Committee Chairman Paul Ryan (R-WI), which passed the Budget Committee last week by one vote, budget proposals are also coming forth from House Democrats, the Republican Study Committee, the Congressional Progressive Caucus, and possibly others. The House Rules Committee will meet Tuesday afternoon to decide which alternatives will get votes. No matter what the House does, the Senate has already made it clear it will not vote on a budget resolution this year, opting instead to instruct appropriators to craft spending bills based on the $1.047 trillion spending cap for 2013 in the Budget Control Act. If the House adopts the Ryan proposal with a $1.028 trillion topline spending limit, then we could be exposed to more temporary spending measures and threats of government shutdowns as the two chambers reconcile their differences. More budget dysfunction will spawn more calls for budget process reform. Ironically, the Ryan budget has some budget reform ideas of its own. See many more budget process reform recommendations here.

Will Tax Reform Blossom? – The House Ways and Means Committee will unveil a corporate and individual tax reform proposal this week. The Ryan budget had some specific tax reform proposals that we will likely see in the Ways and Means plan since Ryan worked with Ways and Means Committee Chairman Dave Camp (R-MI). This comes as the Congressional Research Service identified some of the impediments to simplifying the tax code and broadening the base through eliminating or limiting tax breaks known as tax expenditures because they are essentially spending through the tax code. To drive this point home, the Tax Policy Center illustrated how much bigger the government would be if tax expenditures were counted as spending. See ideas for dealing with tax expenditures here, here and here. Meanwhile, a poll of members of the National Association of Business Economics (NABE) shows that an overwhelming majority feel that increased revenues through tax reform should be a part of reducing the federal budget deficit, along with cutting spending.

 

Key Upcoming Dates (all times ET)

March 27

  • House Rules Committee meets to decide on a rule for considering the FY 2013 budge resolution and what amendments will be in order at 2:30 pm.

 

March 28

  • House begins consideration of FY 2013 budget resolution.
  • Senate Homeland Security and Governmental Affairs subcommittee hearing on combating waste and fraud in government programs at 2:30 pm.

 

March 29

  • House concludes consideration of FY 2013 budget resolution.
  • US Dept. of Commerce's Bureau of Economic Analysis releases its third and final estimate of 2011 fourth quarter GDP growth.

 

April 3

  • Presidential contests in DC, Maryland, Wisconsin, and Texas

 

April 6

  • Dept. of Labor's Bureau of Labor Statistics releases March 2012 employment data.

 

April 13

  • Dept. of Labor's Bureau of Labor Statistics releases March 2012 Consumer Price Index (CPI) data. 

 

April 17

  • Tax Day! Federal income tax returns are due.

 

April 24

  • Presidential contests in Connecticut, Delaware, New York, Pennsylvania, and Rhode Island

 

April 27

  • US Dept. of Commerce's Bureau of Economic Analysis releases its advance estimate of 2012 first quarter GDP growth.