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)|
|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%|
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.
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.