Play On – The NHL playoffs are under way. The Red Wings were clipped, the Sharks sunk, the Canucks cannot, and the Penguins were iced. In Washington, fans are holding their breath. Will the Caps grind out a win over the defending champion Bruins, or will they suffer yet another early exit? Meanwhile, there is plenty of action away from the ice. Both parties continue to play off of each other when it comes to fiscal matters. The same excuses and insults are shot back at one another like a hockey puck, with no one seemingly aiming for the net.
Social Security and Medicare Still Short-Handed – The Trustees minding the net for Social Security and Medicare on Monday yet again issued a warning about the long-term finances of the two essential programs - and now a short term problem as well. The Medicare trust fund is projected to become insolvent by 2024, illustrating how much more needs to be done to rein in the growth of health care costs. The Social Security trust fund, which is running deficits and is forecast to continue to do so (with a $940 billion deficit in the next decade), is now projected to become exhausted in 2033, three years earlier than expected last year. At that point, beneficiaries will see a 25 percent reduction in benefits. Social Security’s disability program is in particularly dire shape, with its trust fund projected to become insolvent just four years from now, when beneficiaries will see a 20 percent reduction in benefits. This will occur in the next presidential term. CRFB commented on how the report shows the need for Social Security reform now. To learn more about the relationship between Social Security and the federal budget, read this.
Budget Power Play – The budget season has become even more drawn out than the NHL postseason. Last week the House "deemed" the FY 2013 budget resolution it passed earlier this month on a party line vote, allowing the House Appropriations Committee to produce spending bills based on the top-line spending number of $1.028 trillion in the bill. Also, six other House committees were given the go-ahead to follow the "reconciliation" instructions in the House bill and find additional savings to replace the defense cuts that will kick in at the beginning of next year because of the sequester resulting from the failure of the Super Committee. This would set off a confrontation with the Senate, which has no plan at this point to replace the sequester and is moving ahead with drafting spending bills based on the $1.047 trillion top-line figure in the Budget Control Act. Even Republicans like Senate Minority Leader Mitch McConnell (R-KY) supported the Senate figure. The White House has threatened to veto any spending bill that follows the lower spending level. However, Roll Call (subscription required) reports that House Republicans may ease away from the lower spending levels, perhaps avoiding another budget showdown alter this year. Either way, it is clear that the budget process needs reform.
Conrad Takes Simpson-Bowles Off the Bench – Senate Budget Committee Chair Kent Conrad (D-ND) surprised many last week when he presented the Simpson-Bowles Fiscal Commission plan as his Chairman’s Mark for the FY 2013 budget resolution in the committee. He said, “It is a plan which I believe represents the best blueprint from which to build a bipartisan deficit reduction agreement.” Conrad served on the Fiscal Commission and supported the plan. CRFB praised Conrad for putting forth the plan in a statement. The proposal was discussed in a meeting of the committee, but no vote was held.
Coburn Slashes Colleagues in New Book – Another Fiscal Commission member, Sen. Tom Coburn (R-OK), also made waves last week. His new book chastises lawmakers of both parties for not doing enough to reduce the national debt, blaming their desire to get reelected for the lack of action. He says the fiscal threat to the U.S. is greater than any foreign threat and that we face a debt crisis within two years unless a long-term deficit plan is enacted.
Sudden Death Lame Duck – Washington is already bracing for the inevitable lame duck session of Congress after the election. That’s because a slew of expiring tax provisions and across-the-board spending cuts are on the horizon. Taken together, Federal Reserve Chair Ben Bernanke refers to this confluence as the “fiscal cliff” because it could result in a significant blow to the economy if allowed to happen all at once. This threat has many hopeful that a deal on a fiscal plan can be reached to avoid such a fate. CRFB recently examined the fiscal cliff and the need to avoid it by enacting a comprehensive plan.
Icing on Taxes - Like a zealous defenseman, plenty of Americans were cross-checking last week…their taxes, that is. Tax Day had many lawmakers with their sticks up as well as they sought the advantage on tax reform. The Senate considered legislation implementing the “Buffett Rule” to ensure that millionaires pay a tax rate of at least 30 percent. The bill failed to overcome a filibuster on a largely party-line vote. The House followed by passing legislation providing a tax cut for small businesses. The $46 billion cost of the bill would not be paid for. CRFB reiterated its position that there should be no tax cuts without offsets. Even better, tax changes should be enacted in the context of fundamental tax reform, as CRFB recommended on Tax Day, that simplifies the tax code, broadens the base and ensures adequate revenue. There are lots of ways to reform taxes. Dealing with tax expenditures is a good place to start.
Scoring Duplication as a Goal – A bipartisan group of legislators introduced a bill last week requiring all legislation to get a “duplication score” from the Congressional Research Service to make sure a proposed program does not duplicate an existing one. The proposal is in response to Government Accountability Office studies detailing $100 billion in savings that could be achieved by eliminating duplicative programs.
National Debt Tour Finds Success on the Road – While teams usually prefer to play on home ice, CRFB is willingly taking a road trip to promote the need for a comprehensive “Go Big” plan this year. The latest stop was last week in Roanoke, Virginia, following earlier visits to Boston and New York City. The Roanoke event featured speakers such as Senator Mark Warner (D-VA) and Reps. Bob Goodlatte (R-VA) and Robert Hurt (R-VA). At each stop, more Americans are joining the cause to Beat the Debt, you can too.
Will Farm Subsidies See the Penalty Box? – The Senate Agriculture Committee marks up a farm bill this week. The farm bill reauthorization this year promises to be a key battle in the deficit reduction fight. Many are calling for steep reductions in farm subsidies that go to many wealthy farmers and agribusinesses and are accused of distorting the market. Changes may also be coming to the Supplemental Nutrition Assistance Program (SNAP), formerly known as food stamps.
Making Presidential Contenders Face-Off Over the Debt – With the presidential campaign threatening to literally go to the dogs over which candidate treats canines better, many are looking for more substance from this election. This campaign offers a prime opportunity to conduct the informed discussion this nation needs on the challenge to our future prosperity and global standing presented by the national debt and how to address it in a way that preserves our commitment to broad-based economic growth and opportunity. Our U.S. Budget Watch project is helping to inform voters about the issue. In addition, CRFB is calling for presidential candidates to debate the debt, as did CRFB co-chairman Bill Frenzel in a piece posted at RealClearMarkets. A debate devoted to how each candidate would address the debt, including specific ideas, would improve the campaign discourse and bring us closer to solutions. Stay tuned for ways you can help in this effort.
Key Upcoming Dates (all times ET)
- Presidential contests in Connecticut, Delaware, New York, Pennsylvania, and Rhode Island
- Senate Appropriations subcommittee mark-up of Energy and Water Development spending bill at 10:30 am.
- Senate Agriculture Committee mark-up of the farm bill at 9 am.
- House Budget Committee hearing on "Replacing the Sequester" at 10 am.
- Senate Finance Committee hearing on what tax reform means for state and local tax and fiscal policy at 10 am.
- House Appropriations Committee mark-up of Energy and Water spending bill at 1 pm.
- House Judiciary Committee mark-up of reconciliation language at 1:30 pm.
- Senate Finance Committee hearing on improving the taxpayer tax filing experience at 10 am.
- House Ways and Means Committee hearing on certain expiring tax provisions at 10 am.
- House Appropriations Committee mark-up of the Commerce, Justice and Science spending bill at 10 am.
- House Education and the Workforce Committee hearing on the President's FY 2013 budget request for the Dept. of Health & Human Services at 10 am.
- US Dept. of Commerce's Bureau of Economic Analysis releases its advance estimate of 2012 first quarter GDP growth.
- House Ways and Means Committee hearing on Medicare premium support proposals at 9 am.
- Dept. of Labor's Bureau of Labor Statistics releases April 2012 employment data.
- Presidential contests in Indiana, North Carolina, and West Virginia
- Presidential contests in Nebraska and Oregon
- Dept. of Labor's Bureau of Labor Statistics releases April 2012 Consumer Price Index (CPI) data.
- Presidential contests in Arkansas and Kentucky
- Presidential primary in Texas
- US Dept. of Commerce's Bureau of Economic Analysis releases its second estimate of 2012 first quarter GDP growth.
- Dept. of Labor's Bureau of Labor Statistics releases May 2012 employment data.
- Presidential contests in California, Montana, New Jersey, New Mexico, and South Dakota
- Dept. of Labor's Bureau of Labor Statistics releases May 2012 Consumer Price Index (CPI) data.
- Presidential primary in Utah
- US Dept. of Commerce's Bureau of Economic Analysis releases its third estimate of 2012 first quarter GDP growth.
With the release of Trustees reports on Social Security and Medicare, CRFB has released its analysis of the Social Security report, breaking down the sources of deterioration in the projection and what it means for the program. We will do a full analysis of the Medicare report in The Bottom Line later.
The program's 75-year actuarial shortfall--the 75-year imbalance between spending and revenue--rose to 2.67 percent of payroll (1.0 percent of GDP) from 2.22 percent of payroll (0.8 percent of GDP) in last year's report. In addition, the dates for trust fund insolvency for OASI and DI have been moved up to 2035 and 2016, respectively, from 2038 and 2018. Considering the whole OASDI trust fund, the insolvency date has been moved up three years to 2033. If no action is taken, disability insurance benefits will be cut by 21 percent only five years from now, while overall Social Security benefits will be cut by 25 percent in 2033.
More pessimistic economic assumptions are mostly to blame for the deterioration. In the short term, higher than expected inflation and lower than expected wage growth have led to higher spending and lower revenue projections. Over the long term, the Trustees have cut their projections of average hours worked, which also lowered revenue in this year's report. Other demographic changes and the shifting forward of the 75-year projection window also added somewhat to the program's imbalance.
|Changes in Trustees Projections (Percent of Payroll)|
|2011 Actuarial Imbalance||-2.22%|
|Near-Term Economic Assumptions||-0.14%|
|Long-Term Economic Assumptions||-0.07%|
|Demographic and Disability Assumptions||-0.09%|
|Shifting 75-Year Window||-0.05%|
|2012 Actuarial Imbalance||-2.67%|
The significant deterioration in Social Security's projections should be alarming. Large immediate benefit cuts face disability benefit recipients in only five years, while overall insolvency looms in twenty years. These dates should give a sense of urgency to lawmakers. As the Trustees said:
Lawmakers should address the financial challenges facing Social Security and Medicare as soon as possible. Taking action sooner rather than later will leave more options and more time available to phase in changes so that the public has adequate time to prepare.
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.
In addition to the infographic CBO released yesterday, it also released a detailed new report on the Supplemental Nutritional Assistance pood stamp program. As an “automatic stabilizer,” the program has grown tremendously in the past few years as more individuals have become eligible for benefits as a result of the economic downturn.
Total spending on the SNAP program reached a record high of $78 billion in 2011, but participation also reached unprecedented levels with 45 million receiving benefits, or one in every seven Americans. Obviously, the weak economy was the primary driver of the spending increase, as 65 percent of that growth came from increased participation. In addition, the 2009 stimulus instituted a temporary bump-up in benefits, which also contributed to the increase in spending. The CBO expects SNAP spending to keep increasing until 2014, when the temporary benefit increase expires and the economy continues to recover.
CBO also include some options to reform the program that would either increase or decrease the generosity of the program. These policies include changes to eligibility requirements (raising or lowering the income test for qualifying), modifying the level of benefits, reforming program administration, and block granting SNAP to the states.
The CBO report provides an interesting look at how automatic stabilizer function and how an economic downturn can lead to a large increase in the debt. The full report and infographic are well worth viewing.
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.
|Eliminating the State and Local Taxes Deduction (billions)|
|All Earners||High Earners Only|
|Assuming Tax Cuts Expired/No AMT Patch (Current Law)||$950||$350|
|Assuming Tax Cuts Expired/AMT Patch||$1,450||$550|
|Assuming Tax Cuts Extended/AMT Patch (Current Policy)||$1,300||$500|
|Assuming Romney Tax Plan||$1,200||$550|
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).
|Value of Top Ten Tax Expenditures (billions)
|Health Insurance Exclusion||$190||$1,012|
|State and Local Taxes Deduction||$85||$436|
|Accelerated Depreciation (Machinery and Equipment)||$49||$375|
|Imputed Rental Income Exclusion||$59||$337|
|Preferential Capital Gains Rate||$48||$321|
|Municipal Bond Exclusion||$43||$228|
|Memorandum: Cost of Romney Tax Cuts||$420||$2,200|
|Memorandum: Cost of Romney Individual Tax Cuts||$290||$1,500|
Although CBO's analysis of the budgetary effects of the President's budget was released last month, today they released a very useful report on the economic effects of the budget. The results are mixed, depending on the time period you look at.
CBO uses two different sets of effects to evaluate the President's proposals. For 2013-2017, they consider short-run economic effects, namely those involving aggregate demand. For 2018-2022, they consider long-run effects, those related to capital stock, labor supply, and productivity.
On the first part, President Obama does pretty well, averting many parts of the fiscal cliff, and including some new stimulus as well. In 2013 alone, CBO estimates the budget would raise real GNP by somewhere between 0.6 and 3.2 percent; in other words, using real GDP numbers, it would increase the size of the economy by between about $80 billion and $435 billion. Also, the mean of that range, 1.9 percent, is just about what we estimated averting the entire cliff would do to the economy (although that was through 2014). For 2013-2017, CBO estimates the effect would be smaller as the economy got closer to potential, ranging from a 1.4 percent increase to a 0.2 percent decrease.
The 2018-2022 period does not look as good for the President. On the negative side, the budget would have higher deficits than current law, and higher effective marginal tax rates on capital income than current law due to the impact on some tax provisions (carried interest, the itemized deduction limitation, among others). Both of these have the effect of reducing the capital stock, which hurts growth in that period. On the positive side, the budget reduces marginal tax rates on labor through its extension of most of the 2001/2003 tax cuts and the AMT patch. Overall, the negatives outweigh the positives: CBO estimates a reduction of real GNP ranging from 0.5 to 2.2 percent over this period.
CBO also estimates how deficits would differ if the macroeconomic effects of the budget were incorporated. For 2013-2017, the economic changes would result in somewhere between little change and a $200 billion reduction in deficits. For 2018-2022, deficits would be between $100 billion and $300 billion higher. Using the middle of those ranges puts deficits about $150 billion higher from 2013-2022.
In short, CBO's report shows the value of averting the fiscal cliff and bringing down deficits for the economy. The President's budget does pretty well on the first part but does not do enough on the second. A comprehensive fiscal plan that makes economically smart changes would do good on both fronts.
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.
The House is set to move forward on legislation that would enact a tax cut for small businesses. The Small Business Tax Cut Act (HR 9) allows small businesses (businesses with less than 500 employees) to temporarily deduct 20 percent of their domestic business income in 2012 up to 50 percent of employee wages. JCT has estimated that the bill would cost $46 billion, with almost all of that coming in the next few years. The bill has already passed the Ways and Means Committee.
Despite the cost, the House seems to not be looking at offsets for the bill. As we have said repeatedly in the past, any new tax cuts or spending increases have to be paid for; failing to do so is part of what has led us into the fiscal situation we're in. There are many options to offset this measure, so there is no excuse for adding the $46 billion cost to deficits and debt, a move that would surely continue the narrative that lawmakers do not have control of the budget.
A fitting way to offset the cost of a business tax cut would be through corporate base-broadening. Surely, if the House feels that cutting taxes for small businesses is important, they can find some narrowly targeted and distortionary tax preferences that they feel they can do without.
PAYGO is a very valuable principle and one that should be adhered to. The House should hold itself to that standard and offset the $46 billion cost, rather than perpetuating a lack of confidence in lawmakers' ability to responsibly manage the nation's finances. If it's not worth paying for, it's not worth doing.
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.
|Sen. Toomey's Budget (Percent of GDP)|
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.
In an op-ed in The Roanoke Times, CRFB president Maya MacGuineas calls for policymakers and citizens to put fiscal responsibility at the forefront of the national debate this year, rather than waiting. She noted while conventional wisdom may say that nothing will get done this year, the state of our fiscal affairs says otherwise.
The Committee for a Responsible Federal Budget is working with lawmakers from both sides of the aisle and other leaders who are convinced that the November elections provide a prime opportunity, not a hurdle, for forging public consensus on solutions to the challenges facing our country.
Furthermore, the expiring tax cuts, the looming debt ceiling increase and the arbitrary spending cuts mandated by last year's Budget Control Act represent a "fiscal cliff" that will almost certainly necessitate serious action before the year is out.
MacGuineas also said that not only should policymakers be active in creating a plan to reduce the deficit, but citizens should be as well. Their participation can make a big difference in getting a fiscal plan done.
After one of our Debt Tour events, I often am asked what everyday people can do to influence the debate. My answer is to 1: Thank those elected officials who have already committed themselves to the cause, and 2: Make sure that during the long months of campaigning to come, voters press anyone seeking their vote to explain exactly what he or she will do to fix America's finances and avoid saddling our children and grandchildren with a crippling debt burden.
I also encourage people to sign up to receive more information on our campaign by going to BeatTheDebt.org.
Despite all of the roadblocks and inertia that confront those seeking a common-ground solution on this issue, I am convinced that it can and will happen. But not without a groundswell of grass-roots support that lets politicians know that kicking the fiscal can down the road is no longer acceptable — and may be harmful to their political health.
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.
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.
At a press conference today, Senate Budget Committee Chairman Kent Conrad (D-ND) put forward a budget resolution that his Committee will be marking up starting tomorrow, one that is based on the Fiscal Commission plan. He explained the logic in proposing this budget rather than a strictly Democratic proposal:
What I am proposing is not partisan. I am trying to break from the ‘business as usual’ practice that has gone on for too long. I am hoping that my Senate colleagues will stand with me to do what is right for the country. That’s really the only way we can get something done. That might not happen this week, but it will have to happen.
Sen. Conrad claims that the budget would generate over $4.3 trillion in new savings over ten years, with $2.4 trillion of that coming from revenue. The new budget would reduce debt as a percent of GDP to 67 percent in 2022 while reducing deficits to 1.4 percent by that year. Spending and revenue would hover slightly above and below, respectively, 21 percent of GDP.
The policies are largely the same ones that were endorsed in the final Simpson-Bowles report. In health care ($550 billion in savings), they include increasing Medicare cost-sharing, accelerating payment reductions, and fully offsetting the costs and reforming the SGR. Other mandatory savings ($300 billion in savings) include cuts to farm subsidies and reforms to federal retirement programs. The overall discretionary spending levels ($480 billion in savings) from the Commission plan are carried over.
While Senator Conrad’s budget very closely resembles the original framework put forward by the Fiscal Commission, there are four differences that will make the reported savings look different.
- Policies Already Enacted: Since the Fiscal Commission finished its report, some of its policies have already been enacted to the tune of $1.1 trillion in savings. Most of this is from the discretionary spending cuts enacted last year in the 2011 CRs and the Budget Control Act, but there are also a few mandatory policies that were included. Taking these policies out lowers the amount of savings.
- New Ten-Year Window: Conrad's budget uses the ten-year window of 2013-2022, in contrast to the 2011-2020 window that the Commission used. This will notably push up savings above the levels reported in the original Simpson-Bowles report, especially since the savings accumulate gradually and are backloaded, even though many policies are the same.
- Current Policy Baseline: Every budget must specify a “baseline” against which it measures its savings. The original Fiscal Commission plan relied on a baseline which assumed the upper-income tax cuts would expire at the end of 2010. Instead, the White House and Members of Congress in both parties agreed to extend those tax cuts for two years – and Senator Conrad’s baseline now assumes they continue to extend them all indefinitely. This baseline difference results in about a $1 trillion difference in reported revenue through 2022.
- Discretionary Splits:The original Fiscal Commission plan called for equal cuts to both security and non-security discretionary spending relative to 2010 levels. Since that time, various rounds of discretionary cuts have substantially changed the ratio of security/non-security spending. Senator Conrad updates the Commission plan to reduce both categories proportionally off of 2012 levels as opposed to 2010 levels.
- Social Security Savings: Since budget resolutions are not technically allowed to count savings from Social Security reform, the budget cannot count Social Security reform savings towards its deficit and debt totals. However, Conrad makes it very clear that his budget endorses the Fiscal Commission policies, which include raising the retirement age, increasing the payroll tax cap, and switching to the chained CPI, among other things.
|Fiscal Parameters in Sen. Conrad's Budget|
|Billions of Dollars|
|Percent of GDP|
CRFB praises Sen. Conrad for putting forth a bold proposal. As CRFB president Maya MacGuineas said in our press release:
Work to reach a bipartisan consensus on a fiscal plan large enough to stabilize the debt must begin now -- not later, not after the elections, but right now. The longer we wait, the greater the risk we take.