The Social Security and Medicare Trustees have signed off on their respective reports on the financial projections for the two programs, though we continue to wait for the Social Security report to be posted reports online.

According to the Social Security Administration, Social Security faces a 75-year deficit of 2.67 percent of payroll and its trust funds will be exhausted by 2033. The Medicare Part A trust fund, meanwhile, will run out of money by 2024, and the Social Security disability program will exhaust its trust fund by 2016. The Medicare Trustees report can be read here.

We will have a fuller analysis of the Social Security report in a paper later today and a long blog tomorrow on the Medicare report. Once it comes out, you will be able to read the Social Security report here.

Among the many policies Governor Romney has proposed in his run for President are substantial reductions in tax rates for individuals, including a 20 percent across-the-board cut in marginal rates (for example, the top rate would fall from 35 percent to 28 percent). Governor Romney has called for making this plan revenue neutral, in part by offsetting the roughly $3.6 trillion of individual income tax cuts (through 2022) and $5.1 trillion of total tax cuts by reducing or eliminating tax preferences (especially for high-income earners).

To date, Governor Romney has yet to publicly discuss what cuts would need to be made to tax expenditures in order to finance his very specific tax cuts. However, we got a little preview last weekend when he was overheard talking about two possibilities for reducing tax expenditures at a private fundraiser -- cutting the mortgage interest deduction for second homes and the state and local tax deduction.

How much of the $3.6 trillion in cuts would these changes pay for? In part, it depends on the details -- particularly since it is unclear whether the cuts would apply to all taxpayers or higher earners. However, we do have enough information to make some estimates.

The former policy, eliminating the mortgage interest deduction on second homes, is certainly a sensible one and one with bipartisan support. According to the Bipartisan Policy Center, however, the ten-year savings would total only about $15 billion.

The second idea, to eliminate the federal tax deduction for state and local taxes (income, real estate, other property, and sales), could raise substantial revenue. It is unclear from reports whether Governor Romney intends to make this proposal formally, and if so, whether he would cut this deduction for high-income earners only or for all earners. 

Importantly, estimating the revenue from eliminating the state and local tax deduction is not so easy as citing the $862 billion estimate in CBO's 2011 Budget Options. That estimate goes only through 2021 and is based off of current law -- which assumes the 2001/2003/2010 tax cuts all expire and AMT patches are discontinued. There is, however, a substantial interaction between the deduction and the Alternative Minimum Tax, as well as with the rate cuts set to expire this year and the further rate cuts and AMT elimination proposed by Governor Romney. The level of tax rates determines the value of the deduction, while the AMT does not allow the deduction, essentially taking away its value for those who are hit by the tax. Governor Romney's rate cuts lower the value of the deduction, while his repeal of the AMT enables everyone who itemizes to take advantage of the deduction.

Relying in part on information from a 2008 CBO report on the state and local tax deduction, we estimate that eliminating the deduction starting in 2013 would raise about $950 billion relative to current law, closer to $1.45 trillion assuming current law with AMT patches, around $1.3 trillion relative to current policy, and about $1.2 trillion with Governor Romney's plan from 2013-2022.

If Governor Romney would only eliminate the deduction for higher earners, the calculus becomes a bit more complicated -- indeed it depends both on what he considers a higher earner and on how he would limit the deduction. For example, he could phase it out altogether above a certain income threshold, or he could cap it in dollar terms, or he could limit the bracket against which one could collect the itemized deduction.

For simplicity, we assume he simply eliminates the deduction in full for those making above $200,000 per year and retains it in full for everyone else. Relying on recent distributional estimates for the deduction from JCT, we estimate a policy like this would raise about $550 billion -- both against current policy and against Governor Romney's tax plan.

Assuming Governor Romney takes the most aggressive possible action on the state and local deduction and the mortgage interest deduction for second homes, he will still only have offset about one-third of his individual income tax cuts. When looking at all of his tax cuts -- including to the corporate code and estate tax -- this base broadening would cover slightly less than one-quarter of the cost.

This means Governor Romney still has a long way to go to achieve his goal of of revenue neutrality. So where else must he look? The answer is probably everywhere. The rates he is proposing won't require wiping out all tax expenditures, but it will require making some tough choices. Here are the top ten tax expenditures, as estimated by OMB on a static basis. Note that their value is not necessarily equal to the revenue raised from eliminating them and that their value also varies based on other aspects of the tax system (as we noted above).

More often than not, pictures can demonstrate a problem or issue better than the raw data can. CBO has taken that to heart and recently released four detailed infographics showing visualizations of three distinct parts of the federal budget -- detailing revenues, discretionary spending, and mandatory spending -- and one on the Supplemental Nutrition Assistance Program, more commonly referred to as the food stamp program.

From the revenue infographic, one can clearly see the reduction in federal revenues over the last several years as a result of the 2001/2003/2010 and other tax cuts, as well as the economic downturn. The discretionary spending infographic shows the declines in the 1990s due to spending caps, and the subsequent rise from 2001 to 2011 due to the lack of caps and war spending. But perhaps the most telling figure details the increase in mandatory spending, especially in the area of health care where we are spending 2.9 percent more as a percentage of GDP. 

One day after Senate Budget Committee chairman Kent Conrad (D-ND) released a budget resolution based on the Fiscal Commission plan, another Budget Committee member, Sen. Pat Toomey (R-PA) released his own budget. Overall, his budget relies on savings from spending cuts to bring the debt down.

The plan is slightly more aggressive in generating savings than the House Republican budget, reducing debt as a percent of GDP to 55 percent in 2022. Toomey's budget would also bring spending and revenues into balance much quicker than the Ryan budget, creating small surpluses starting in 2020. Spending would be reduced to about 18.5 percent of GDP due to cuts across federal programs.

On health care, the budget would enact medical malpractice reforms, means-test Medicare premiums, adopt the Ryan plan for Medicare premium-support, and would permanently patch the SGR. It would also block grant Medicaid, freeze the program at 2012 spending levels through 2017, and limit its growth to the rate of inflation thereafter. The budget would also repeal the Affordable Care Act.

For other mandatory spending, the budget would block grant most income security programs and phase in caps such that FY 2020 spending would be $30 billion higher than FY 2007 spending. In total, this proposal would save $440 billion over ten years. Other changes, including federal employee compensation reforms, would save an additional $300 billion.

In terms of discretionary spending, the budget would repeal the sequester for defense, but keeps the initial BCA caps. This would translate into higher defense spending levels than the Ryan budget, which calls for increasing defense spending above the rate of inflation. To compensate for the defense sequester, non-defense spending is lowered to FY 2006 levels and frozen for eight years. In addition, the budget assumes a full withdrawal from Afghanistan and Iraq by 2015.

On taxes, the Toomey plan would reduce all individual marginal tax rates by 20 percent and otherwise would extend the 2001/2003/2010 tax cuts. The rate cuts would be paid for with base-broadening that is not specified, although the plan suggests a Feldstein-MacGuineas-Feenberg-like cap on tax expenditures or a dollar-amount cap. On the corporate side, the budget calls for lowering the top rate to 25 percent, switching a territorial system, and paying for it with unspecified base-broadening. 

Sen. Toomey should be applauded for coming up with an aggressive plan to reduce future deficits and for advancing the largely non-existent Senate budget debate that Sen. Conrad is also attempting to move forward. As with the Ryan plan, the concern is with the unspecified base-broadening, but since the Toomey tax cuts are not nearly as sweeping as Ryan's and the spending cuts are greater, this budget would still represent significant savings. 

Today, the National Debt Tour -- a nationwide discussion with policymakers, fiscal experts and business leaders pushing for a major deficit reduction solution in 2012 -- hits Roanoke, Virginia.

After stops in Boston and New YorK City, the tour promoting a "Go Big" approach to addressing the national debt comes to Virgina, with a forum hosted by Ferrum College that features Sen. Mark Warner (D-VA) of the Senate’s “Gang of Six” bipartisan deficit reduction group, Rep. Bob Goodlatte (R-VA), and Rep. Robert Hurt (R-VA). Budget experts Dr. Joe Minarik of the Committee for Economic Development and Dr. Paul Posner, former Director of Federal Budget and Intergovernmental Relations for the GAO will also give informative talks about our current fiscal issues. 

The event should offer a timely and provocative conversation on the immense fiscal problems the country faces as well as an insight into what must be done in order to ensure an effective political solution. As with all stops on the Tour, it will be a great opportunity for citizens to learn about and get involved in the very important budget debate.

The forum will be broadcast live at this link.