Competing Outlines Emerge from the Super Committee

We talked yesterday about a roughly $3 trillion plan offered by Democrats on the Super Committee that would represent a "go big" approach to debt reduction. Now, the Republicans have made a slightly smaller offer, but one that would still exceed the Committee's mandate.

As with the Democratic plan, details are not available for the Republican offer; only broad outlines of savings in each category are available. Overall, the plan would save about $2.2 trillion according to a Politico article, or about $2 trillion if higher revenues from possible dynamic effects of future tax reform are excluded. 

The plan counts $640 billion for revenue, but none of it appears to be "traditional" revenue increases or tax expenditure cuts. According to Politico, $440 billion of that total comes from increased "government fees" that could include various user fees and/or possibly higher health care premiums, and the remaining $200 billion comes from assuming additional revenue from the dynamic macroeconomic effects of some type of revenue-neutral tax reform. As we've argued before, dynamic scoring would be ideal in a perfect world, but unfortunately it requires a number of assumptions where there is not yet a clear consensus among economists. Budget proposals should be scored based on existing methods and as accurately as possible, and any additional savings from dynamic effects should be a bonus.

Other savings come from discretionary spending, where Republicans are reportedly seeking $250 billion in savings from "reducing personnel costs." Republicans would also save about $400 billion from other mandatory programs and $200 billion from switching to the chained CPI. Things are looking good for the chained CPI -- it appears to have been proposed in both the Democratic and Republican offers! On health care, the amount of savings is unspecified, but reportedly would be larger than the Democrats' proposed savings of about $500 billion.

The numbers from the Democrats are becoming clearer as well, although very few policies are specified. The plan would raise $1.3 trillion in revenue, including more than $800 billion from the expiration of the 2001/2003 tax cuts for upper-income earners. On the spending side, the plan contains $500 billion of health care savings, $400 billion of discretionary spending cuts -- half from defense and half from non-defense, and about $450 billion of other mandatory savings (including savings from the chained CPI). The plan also includes the American Jobs Act, which reduces the total savings to about $2.7 trillion.

Now with some offers on the table, we hope the Super Committee can work toward a bipartisan agreement to put debt on a downward path. It will be interesting to see exactly what these plans contain as more details hopefully emerge. Be sure to check back regularly to The Bottom Line for any new developments. 

Note: The initial post cited a $575 billion estimate for health savings in the Democratic offer, but other reports (here and here) put the estimate closer to $500 billion.

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