In an op-ed in The Hill, former Sen. Judd Gregg (R-NH) urged Congress to begin to take action on the budget before the election. He says that rather than trying to fix all of our fiscal problems immediately, they could tackle one aspect while leaving broader solutions until after the election. He explains:
[Congress] should not try and pass a comprehensive bill addressing all the causes of our impending fiscal meltdown.
Such expansive and substantive action is beyond Congress’s capacity, especially with the summer recess looming and the need to campaign this fall.
Similar to TARP, Congress should pick one issue that is a driver of our fiscal problems and can be addressed with a focused, single-purpose bill and fix it.
Social Security comes to mind.
It is a program with dramatic structural problems due to the retirement of the baby boom generation.
It is a critical program. It is broken. And it is fixable.
The president and Congress would not need to do heavy policy work. They could simply adopt the bipartisan proposal of Simpson-Bowles on Social Security, which made it sound for at least 50 years, without significantly affecting present beneficiaries.
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.
Although a bit under the radar, the appropriations process in both the House and Senate is moving forward in a relatively timely manner (OK, maybe the standards are low). Of course, as with the past few years, disputes between the two chambers on a few issues are likely to make the process another grind-it-out affair with solutions only coming at the eleventh hour.
The process might not look so bad if you just looked at the progress in each individual chamber. The House has already passed five of the 12 bills and five others have passed the Appropriations Committee. One other, Interior-Environment, has been released but not acted on and the Labor-HHS-Education bill has not yet been released. The Senate Appropriations Committee has been busy as well, passing nine of the 12 bills, although none of these bills have passed the full Senate yet.
Although the process is moving along, there are many issues that will need to be addressed. There is always the question of policy riders, specifically those related to the Affordable Care Act and the Dodd-Frank Act. As with last year, this year's process will have another fight over funding levels, since the House currently has $19 billion less in overall discretionary budget authority than the Senate. The Senate is using the Budget Control Act discretionary caps. Each bill in the House has consistently had lower funding levels than the companion bill in the Senate. Further complicating the matter is the sequester, which may induce some manuevers to try to anticipate or blunt its impact if no resolution can be achieved.
In short, it's business as usual for the appropriations process.
|Status of Appropriations Bills|
|Bill||House Status||Senate Status|
|Agriculture||Passed by Committee||Passed by Committee|
|Commerce-Justice-Science||Passed by House||Passed by Committee|
|Defense||Passed by Committee||No Action|
|Energy-Water||Passed by House||Passed by Committee|
|Financial Services||Passed by Committee||Passed by Committee|
|Homeland Security||Passed by House||Passed by Committee|
|Interior-Environment||No Action||No Action|
|Labor-HHS-Education||No Action||Passed by Committee|
|Legislative Branch||Passed by House||No Action|
|Military Construction-VA||Passed by House||Passed by Committee|
|State-Foreign Ops||Passed by Committee||Passed by Committee|
|Transportation-HUD||Passed by Committee||Passed by Committee|
Source: House and Senate Appropriations Committee websites
The Senate passed the Agriculture Reform, Food, and Jobs Act (i.e. the 2012 Farm Bill) today on a 64-35 vote. The bill included $969 billion of spending over the next ten years, mostly for nutrition programs, but makes some changes to both farm and nutrition programs that would result in $24 billion of savings relative to CBO's baseline. Note, however, that CBO's estimate of the bill was completed a month ago, so it does not account for amendments or other changes to the bill since then -- and there have been several.
The previous Farm Bill's authorization ends July 31 for commodity programs and September 30 for the rest. President Obama has called for about $30 billion in savings in his budget and many groups feel that it is time to reduce farm subsidies to rein in the budget deficit.
The bill ends current commodity programs, which include direct payments with fixed rates based on acreage and yields and countercyclical payments based on market prices. These payments are replaced with an "agriculture risk coverage" program that would guarantee farmers a certain amount of revenue based on expected crop prices and yields. The combination of these changes result in $16 billion of savings, with other changes resulting in $20 billion of total commodity payment savings. However, one paper from the American Enterprise Institute noted that a decline in crop prices could leave taxpayers on the hook for much more money that would wipe out the projected savings.
Other changes include reductions in acreage eligibility and enrollment in conservation programs and a change that requires beneficiaries who receive energy assistance to get at least $10 of benefits to qualify for a utility allowance that increases Food Stamp benefits (currently, the minimum is $1). The May estimate of the bill shows savings of $6 billion in conservation programs and $4 billion in nutrition programs.
|May Estimate of the Farm Bill (billions)|
Just because the Farm Bill has now passed the Senate does not mean it will be seeing the President's signature soon. The House has not moved as quickly in taking up Farm Bill reauthorization, preferring to deal with it after the July 4 recess. There will certainly be differences in how much should be cut and where those cuts should come from.
On Monday, we presented a budgetary analysis of the effect the Supreme Court decision on the Affordable Care Act could have on the budget. Naturally, we relied on CBO for the estimates, but in the case of eliminating the individual mandate alone, there have been a variety of estimates about what could happen.
There is great uncertainty surrounding the effects of striking down any part or all of the law, but the effect of striking down the mandate alone has caused much debate in the health policy world about the magnitude of the effects. Some believe that the lack of a mandate would have a huge effect on the individual insurance market. Some young and healthy people would forgo getting coverage, leaving insurers to cover a sicker pool of people. Premiums would rise, continuing to push out relatively healthy people who decide getting coverage is not worth it, and the pattern would continue until only the sickest people have insurance and premiums are exorbitantly high.
Some are more optimistic about repeal of the mandate, arguing that the subsidies for individuals to purchase health insurance and the Medicaid expansion are generous enough to keep healthy people in the risk pool, limiting the increase in premiums. In addition, even though the Affordable Care Act limits the amount by which insurers can charge different premiums based on age, insurers are still able to have at least some differential, which would limit the premium increase that would have to occur overall as the pool of insured people became relatively older on average.
CBO estimates that about 16 million fewer people would get coverage under ACA if the mandate is repealed (or half of the total coverage expansion). Premiums in the individual market would rise by 15 to 20 percent on average compared to what they would be with full implementation of ACA. The net effect would reduce the deficit by $280 billion through 2021 (or $340 billion through 2022 by our estimate).
Here are what some other estimates say:
- Jonathan Gruber: MIT economics professor Jonathan Gruber is in the "huge effect" camp when it comes to the mandate. He estimates repealing the mandate would result in 24 million fewer people getting coverage (three-fourths of the expansion) while premiums would rise by an average of 27 percent. According to Gruber, the cost of the coverage expansion would be 30 percent lower without the mandate, compared to CBO's estimate of 25 percent.
- Urban Institute and Robert Johnson Wood Foundation: A joint study by the Urban Institute and the Robert Johnson Wood Foundation in January came to a similar conclusion as CBO. The two authors, Matthew Buettgens and Caitlin Carroll, looked at what the hypothetical effect of the ACA would be in 2011 if it were fully implemented with and without the mandate. They found that between 14 and 16 million fewer people would be covered. In addition, they found that premiums in the health insurance exchange would rise by 10 percent if there was high participation and 25 percent if there was low participation and low utilization of the subsidies. Removing the mandate would lower government spending in that year by between $10 billion and $25 billion (3 to 7 percent).
- Lewin Group: A Lewin Group study by John Sheils and Randall Haught last September shows relatively smaller effects than other estimates. Similar to the previous study, they estimate the effects of ACA in 2011 assuming full implementation. Because their model assumes that the mandate would not be a particularly effective enforcement method, their results show that only about 8 million fewer people would gain coverage. At the same time, individual market premiums would rise by an average of 12.6 percent. Although they do not specifically analyze the budgetary effects of eliminating the mandate, it is very likely that the fiscal impact would be more limited than CBO or the above studies suggest.
- RAND Corporation: A RAND Corporation study by Christine Eibner and Carter C. Price, using a different methodology than other studies, also shows relatively modest effects. They look at the mandate's effect in 2016 on insurance coverage and premiums. Their estimate shows that 12.5 million fewer people would get coverage, and that premiums in the individual market would rise by 9.3 percent on average. Interestingly, their study estimates that government spending (including by states) would rise by $10 billion in 2016 in absence of the mandate, since the cost of more uncompensated care and the lost revenue from the mandate penalties would more than offset lower spending on the coverage expansions.
These estimates show the impact for just one of the Court's possible decisions. Should other insurance reforms be thrown out with a repeal of the mandate, that would have another impact on premium levels. It is important to note that if premiums increase as these experts have projected, per-capita costs of coverage will surely increase even if total costs go down.
Projections always come with uncertainty, especially for a policy that has not been implemented yet on the national level. The wide range of estimates for repealing the mandate is a perfect example of this uncertainty.
The Hill has an informative article today on how former chair of the Senate Budget committee, former Senator Judd Gregg (R-NH) is increasingly involved in helping sway Republicans to go for a comprehensive, bipartisan deficit reduction plan. Gregg, a member of the Simpson-Bowles Fiscal Commission, and someone who voted in favor of the plan, told The Hill that he hopes to "offer any assistance to reinvigorate" the Simpson-Bowles plan.
Gregg is attempting to get a comprehensive deal done and is trying to urge members of each party to get something done now. The viable vehicle going forward, he says, is Simpson-Bowles:
“I do genuinely believe the Simpson-Bowles commission is the only viable [blueprint] out there that is bipartisan and substantive.”
We at CRFB are pleased that Senator Gregg is involved in these negotiations and helping lead the Senate towards a comprehensive debt deal. But it's not just ex-Senators who can get involved. Ordinary citizens as well can join the push for putting our budget on a sustainable path. Click here to learn more.
We're seeing more stories, in recent days, floating the idea that policymakers might waive the entire fiscal cliff, at least temporarily. One piece in Reuters suggests that there could be a bipartisan agreement in Congress to couple a short term extention of the 2001/2003 tax cuts with a process to reform the tax code. Here's what the Reuters article said in referring to comments from Sen. Max Baucus (D-MT):
The top tax-writing lawmaker in the U.S. Senate expressed interest in a bipartisan proposal to extend all tax cuts expiring at year's end, coupled with a mandate to force Congress to revamp the tax code within a set time frame.
Senator Max Baucus' receptiveness to the idea reflects one strand of thinking among some Democrats: that despite their preference for letting tax rates rise only for the wealthy, a more likely scenario in an end-of-the-year deal with Republicans may involve extending the low rates for all taxpayers at least for a short period of time.
Using the tax cuts as an incentive to enact tax reform makes a lot of sense (in fact, we talked about that idea two years ago), and given the difficulties associated with tax reform it is certainly sensible to set up a process aimed at achieving it. But we shouldn't just ignore the costs of a one-year extension or, more importantly, the cost of locking in a tax cuts-extended level of revenue permanently with a new tax code.
Any extention of the fiscal cliff policies really should come with a detailed plan to put the debt on a smart and gradual downward path. If process must be the answer, there should at least be a detailed framework with revenue and spending targets, credible enforcement mechanisms, and some deficit-reducing policy changes upfront. That would at least guarantee that the process will not be used to effectively deficit-finance the tax cuts.
We have shown in the past the huge increase in debt that would come from extending most or all of the tax cuts without offsetting the costs (and that goes for averting the rest of the cliff as well). The fiscal equation becomes much more difficult if that happens. Any plan to delay the fiscal cliff must either pay for the costs or else put the debt on a sustainable path.
Former Director of the CBO Alice Rivlin and Former Sen. Pete Domenici testified today to the Senate Finance Committee on the long-term debt problem, the “fiscal cliff”, and the Domenici-Rivlin plan to address these challenges. Similiar to Simpson-Bowles--albeit with key policy differences--the Domenici-Rivlin plan addresses both tax reform and health care reform, arriving at a balanced solution that deals with our future fiscal troubles.
On health care, Sen. Domenici stressed the importance of "bending the blue line," or restraining health care cost growth. The Domenici-Rivlin plan uses a premium support plan that would give beneficiaries a fixed payment to purchase a private plan or traditional Medicare. Rivlin argued that the benefits of competition would be large enough to do a significant amount of cost-cutting, but as a backstop, they would limit payment growth to GDP per capita plus one percent. Both witnesses correctly noted that no fiscal plan would be successful at reigning in debt if they did not address Medicare and other health spending.
Domenici-Rivlin also reforms the tax code by lowering tax rates and broadening the tax base while raising revenue. By broadening the base through reductions in major tax expenditures, Domenici-Rivlin arrive at a tax code that is more progressive and raises more revenue with two rates at 15 percent and 28 percent.
On the need for revenue, even Domenici, a former Republican, stressed that raising more revenue compared to current policy was necessary to reduce our deficits and that spending cuts could not be the only solution. Rivlin noted that while economic recovery would likely raise revenues to their recent historical average, there will be more seniors than ever before and that demographic change will neccessitate some change in our tax code.
Both Domenici-Rivlin and Simpson-Bowles have been the major bipartisan frameworks for reducing deficits and provide a clear starting point for lawmakers. There is not a lack of fiscal plans out there, only a lack of will to enact one that can get through the political system. As a veteran of the Senate, Domenici challenged his former colleagues:
This problem is within your jurisdiction....You are the Super Committee. It falls on you to solve the health care problem, you to solve the Medicare problem.
The full testimony from Rivlin and Domenici can be found here.
It is no secret to those following the news that the Supreme Court will soon make a decision on the constitutionality of pieces of the Affordable Care Act. There have been many discussions of the health policy implications of the decision, which are obviously very important. However, given the name of our organization, we'll discuss the budgetary implications of the possible rulings.
For starters, we will present our attempt to update CBO's last comprehensive ACA score in February 2011 for recent developments and new data. That score had the Affordable Care Act reducing deficits by $210 billion from 2012-2021. Our score accounts for a few changes: the effective repeal of the CLASS Act (a long-term care insurance program), small legislative changes to a few of the spending provisions, CBO's most recent score of the coverage provisions in March of this year, and the shifting forward of the budget window to 2013-2022.
The lack of the CLASS Act reduces receipts by about $85 billion since the program had a five-year vesting period in which it collected premiums without paying out benefits. The legislative changes are incorporated into CBO's March 2012 score of the coverage provisions, which shows those provisions' cost rising by $40 billion over ten years since the February 2011 score. Shifting the budget window forward bumps up the ACA's deficit reduction a bit since it incorporates an additional deficit reduction year, 2022.
Overall, our score has net deficit reduction of $119 billion from 2013-2022. Thus, if the Supreme Court throws out the law entirely, it will increase the deficit by that much over ten years. Again, note that this is not an official CBO score, and it also is not a comprehensive update since CBO has not published new data on the budgetary effect of non-coverage provisions.
|CRFB Estimate of the Affordable Care Act (billions)|
|Gross Coverage Provisions||$10||$72||$135||$175||$195||$212||$225||$233||$251||$266||$1,775|
Source: CBO, CRFB calculations
Note: Coverage provisions include both spending and revenue effects. Overall, the Affordable Care Act increases outlays by $969 billion and increases revenue by $1,087 billion
Based on these numbers, we know the budgetary effect of the Court upholding the law (nothing) or repealing it entirely ($119 billion baseline deficit increase). What about the in-between scenarios?
- Individual mandate repealed: Canceling the individual mandate but leaving the rest of ACA would have at least three offsetting effects. On the one hand, it would increase deficits by reducing the revenue associated with the mandate penalties and by increasing premiums in the individual insurance market by as much as 20 percent according to CBO due to adverse selection (for more on adverse selection, see here, for example). On the other hand, CBO estimates that 16 million fewer people would get insurance and therefore be eligible for any sort of benefit program. CBO finds the net effect of this change to reduce the deficit by about $280 billion between 2012 and 2021, which is the equivalent of roughly $340 billion through 2022.
- Individual mandate and insurance regulations repealed: If the mandate is ruled unconstitutional, the Court must also decide on the question of "severability"--how much of the rest of the law goes down with it. The Obama Administration argued that if the mandate is thrown out, provisions forcing insurance companies to offer coverage regardless of health status (guaranteed issue) and limiting their ability to charge different premiums for people with different statuses (community rating) should be thrown out as well. They said that the health insurance market would function very poorly if the mandate was thrown out and these two provisions were kept. It's unclear how much this scenario would differ fiscally from the previous scenario, but it seems likely that it would "save" more than just repealing the mandate. Total coverage costs would go down further since fewer people would get coverage, and the adverse selection aspect of removing the mandate would be lessened, thus resulting in lower per-person costs compared to removing just the mandate.
- Medicaid expansion repealed: Although this is a less likely scenario, there is still a possibility that the Court could rule that the Medicaid expansion contained in the law is unconstitutional because it coerces states into the program. If the expansion is struck down, both the cost of ACA and the number of additional people covered would go down significantly. CBO's March 2012 score of the coverage provisions estimates that the expansion will cost $930 billion from 2013-2022; granted, savings from repealing it would probably differ based on interactions with other parts of the health care system. At the same time, the 17 million people who would have been covered by Medicaid would either find coverage through other sources or, more likely, become uninsured.
- Both mandate and Medicaid expansion repealed: It is also possible that both the individual mandate and the Medicaid expansion would be ruled unconstitutional, while the rest of the law stands. CBO has already stated that the repeal of the mandate itself would reduce the cost of the Medicaid expansion--by about $200 billion, according to our estimates. Thus, throwing out both the mandate and the expansion would have a deficit reduction effect that is less than the sum of their individual savings, although it is difficult to estimate precisely what that effect would be. It is clear, though, that this option would result in hundreds of billions of savings but at least 20 million fewer people gaining coverage.
In the meantime, we will have to play the waiting game to see how the Supreme Court decision will affect the health care system and the budget.
Playing Dead – Lawmakers face several deadlines in coming weeks as the number of days that Congress will be in session dwindles. Deadlines loom at the end of the month for highway funding and student loans. Deadlines also loom further down the line for a farm bill and appropriations for the coming fiscal year, not to mention the tax cut expiration, sequester and other parts of the fiscal cliff at the end of the year. Meanwhile, Congress remains mostly deadlocked over how to deal with these matters as elections that will decide control of Washington near. The result is little movement in Washington and Congress appears to be a lifeless body. Even though this week is a rare instance where both the House and Senate are in session, not much is expected to happen outside of Senate consideration of the farm bill.
Signs of Life for Farm Bill – Legislation to renew agriculture programs had been stalled in the Senate over disagreements on what amendments would be considered. An agreement reached Monday means the chamber will be busy this week voting on over 70 amendments. The House is waiting for the Senate to act before it begins its own work on the legislation.
Breathing Life Into Tax Extenders? – Politico reported that Senate Finance Committee Chair Max Baucus (D-MT) is imploring lawmakers to agree on a series of tax extenders before the election. CRFB urges the extenders to be dead on arrival unless they are paid for.
The Health Care Cost Control Doctor Is In – The Medicare Payment Advisory Commission (MedPAC) last week issued a report with recommendations for controlling Medicare costs. As Medicare, and health care in general, will be a major driver of the national debt going forward, the ideas put forth by the panel are well worth considering.
Debt Can Be an Economy Killer – A new paper indicates that significant debt can impair a country’s economy in the long run, by as much as 24 percent. Try your hand at reducing the debt with our popular “Stabilize the Debt” online budget simulator.
Public Conceptions and Contributions Fall Short – A new poll from the Pew Research Center illustrates that, while more voters see the debt as a major issue, there is still little agreement on how to address it. Meanwhile, The Wall Street Journal reports that individual contributions to paying down the debt are up, but still a drop in the bucket. We need a comprehensive plan that includes tough choices. We also need a national discussion on the nature and depth of the problem and why there are no easy solutions. Our “Debate the Debt” campaign calling on the presidential candidates to devote a debate exclusively to the issue can help shed light on it and turn the election dialogue away from sound bites and towards solutions. Join the nearly 15,000 supporters who have signed the petition.
Key Upcoming Dates (all times ET)
- Senate Finance Committee hearing on “Confronting the Looming Fiscal Crisis” with former Senator Pete Domenici (R-NM) and former OMB Director Alice Rivlin at 10 am.
- House Ways and Means Committee Health Subcommittee hearing on the Medicare Payment Advisory Commission’s June report to Congress at 10 am.
- House Appropriations Committee markup of the FY 2013 Agriculture, Rural Development & FDA spending bill and the FY 2013 Transportation, Housing & Urban Development spending bill at 10:15 am.
- House Budget Committee markup of the “Activities and Summary Report of the Committee on the Budget” at 11:30 am.
- House Appropriations Committee markup of the FY 2013 Financial Services & General Government spending bill at 10 am.
- House Appropriations subcommittee markup of the FY 2013 Interior & Environment spending bill at 1 pm.
- House Ways and Means Committee Social Security Subcommittee hearing on the 2012 Social Security Trustees Annual report at 9 am.
- Presidential primary in Utah
- US Dept. of Commerce's Bureau of Economic Analysis releases its third estimate of 2012 first quarter GDP growth.
- Dept. of Labor's Bureau of Labor Statistics releases June 2012 employment data.
- Dept. of Labor's Bureau of Labor Statistics releases June 2012 Consumer Price Index (CPI) data.
- US Dept. of Commerce's Bureau of Economic Analysis releases its advance estimate of 2012 second quarter GDP growth and revised estimates of 2009 through 2012 first quarter GDP growth.
The AARP has just released a helpful new paper considering the pros and cons of different options to reform Social Security. Our fiscal outlook in the long run shows that the Social Security program is in need of change, but how to best address the issue remains up for debate. The paper provides two useful different perspectives, Virginia Reno of the National Academy of Social Insurance and David John of the Heritage Foundation, on reform options such as Raising the Full Retirement Age, Recalculating COLA, and Increasing the Payroll Tax Rate.
This paper provides invaluable insight on the promise and peril of making needed reforms to the Social Security program. For example, the two scholars discuss the option of indexing either the retirement age or the benefit formula to longevity. John argues that longevity indexing would be more fair then cutting benefits or raising the retirement age because it would automatically take into account how long Americans are living. But Reno also argues that gains in longevity are not distributed equally throughout the population, with high earners increasingly living longer than lower earners. Longevity indexing would not take this disparity into account. This is just one example of how reform options can be evaluated.
In total, the options included:
- Raising the Full Retirement Age
- Begining Longevity Indexing
- Recalculating the COLA
- Increasing the Payroll Tax Cap
- Eliminating the Payroll Tax Cap
- Reducing Benefits for High Earners
- Benefit Improvements
- Increasing the Payroll Tax Rate
- Taxing All Salary Reduction Plans
- Covering All Newly Hired State and Local Government Workers
- Increasing the Number of Years Used to Calculate Initial Benefits
- Begining to Means-Test Social Security Benefits
It is good to have these debates, as from our long-term projections, we have seen that rising health care costs and population aging will cause our current entitlement programs to be unsustainable, including Social Security. Looking for solutions now, even if they are difficult, will also allow Americans to plan for the future and preserve the program without resorting to persistent deficit spending. It will also allow for a fuller debate that allows the pros and cons to be weighed carefully.
A link to the full paper can be found here.
Former Senator Judd Gregg (R-NH) has an op-ed in The Hill this morning titled, "Lawmakers Haven't Run Out of Time to Craft a Bipartisan Deficit Deal." In it, Senator Gregg points out the need for a bipartisan deal, and notes that "Simpson-Bowles, was, and is the only bipartisan, substantive vehicle that actually reduces the deficit and the debt and makes viable our tax code and programs like Social Security."
On the need for both parties to get behind the plan, Senator Gregg continues:
The other choice is to pursue a renewed effort based on a bipartisan and relatively-balanced approach, as set forth in Simpson-Bowles and expanded on by the various working groups in the Senate.
The American electorate is obviously out of sorts with the nonfunctioning, partisan atmosphere they see in Washington. It is difficult to believe voters are going to find the approach of chaotic cuts as the type of governing they want or expect.
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.
The Urban Institute has a new report on the charitable deduction (co-authored by CRFB board member Eugene Steuerle) that details some options for reforming it. The charitable deduction, which has existed since 1917, is one of the largest tax expenditures in the code. The Joint Committee on Taxation estimates that from 2011 to 2015, it will result in about $245 billion of foregone revenue.
The Urban report looks at a variety of reforms to the deduction. They group the reform options into four categories: caps, floors, credits, and grants. They summarize seven different options:
- Limiting the value of itemized deductions to 28 percent (including the charitable deduction) for people making over $250,000
- Capping the total benefit taxpayers receive from all tax expenditures, including itemized deductions, at 2 percent of adjusted gross income (this proposal is one that CRFB president Maya MacGuineas has proposed alongside Martin Feldstein and Daniel Feenberg).
- Create a 2 percent of AGI floor for the charitable deduction and a cap of 15 percent.
- Create a 1 percent of AGI floor or a $210/420 floor.
- In lieu of a deduction, allow all taxpayers a tax credit equal to 12 percent of their donations, subject to a 2 percent adjusted gross income floor. (this option is from the Simpson-Bowles commission).
- In lieu of a deduction, allow a 25 percent tax credit.
- In lieu of a deduction, provide charities an amount equal to 15 percent of a donor's contribution.
The Urban analysis notes that looking solely at the amount of revenue raised does not represent the full impact of each policy. They provide the following table of options that raise roughly the same amount of revenue, but have different effects on the total amount of charitable giving.
As the table shows, the floors have the least effect on total contributions, while converting the deduction into a refundable credit could lower total contributions by as much as $11 billion. However, since the refundable credit--as opposed to the deduction--is far more likely to be available to lower- and middle-income people, the lower four quintiles show significant increases in contributions.
The report is very informative in terms of the trade-offs that policymakers face if they seek to limit the deduction. The goals of progressivity, raising revenue, and maintaining charitable giving tend to bump into each other, so lawmakers will have to choose wisely.