The co-chairs of the President's fiscal commission today released the deficit reduction plan that members will be asked to vote on Friday. Alan Simpson and Erskine Bowles, co-chairs of the National Commission on Fiscal Responsibility and Reform, said they had tweaked some proposals slightly since they released their original Co-Chairs' proposal (read our analyses of the tax and spending sides of that proposal for more details). The overall savings number is roughly the same--now at about $3.9 trillion, up from about $3.8 trillion in the Co-Chairs' draft--and the spending cut to tax increase ratio largely remained the same at roughly two to one (excluding interest). The composition of the savings, however, changed somewhat.
CRFB has also updated our chart comparing all of the existing fiscal plans, which can be found here. (Note: This is also a great resource to compare the final Fiscal Commission plan to the Co-Chairs' proposal.)
Among the changes:
- Discretionary spending: The final proposal would freeze 2012 discretionary spending at 2011 levels and then cut it to inflation-adjusted 2008 levels by 2013. For the rest of the decade, discretionary spending would grow at half the inflation rate. Additionally, the final plan includes some proposals that were not included in the Co-Chairs' proposal, such as a 15 percent cut to White House and congressional budgets. The result: $200 billion more in savings over ten years, with about $50 billion more in 2020 alone.
- Tax reform: The plan still includes the "eliminate all tax expenditures and lower rates" option that would result in 8/14/23 percent income tax brackets and a 26 percent corporate tax rate, but it also includes a new illustrative option. This option would have 12/22/28 percent income tax brackets and a 28 percent corporate rate. At the same time, it would repeal the Alternative Minimum Tax, the personal exemption phaseout, and the limitation on itemized deductions; tax capital gains and dividends as ordinary income; and maintain the Earned Income Tax Credit, child tax credit, standard deduction, and personal exemptions. It also would keep, but also reform the mortgage, health, charitable giving, municipal bonds, and savings tax expenditures; and eliminate nearly all other tax expenditures. These options for reform raise about $35 billion more over ten years than the Co-Chairs' proposal. Most of the Commissioners at today's meeting lauded the focus on tax reform, especially on reforming tax expenditures. See our paper on the topic here.
- Health savings: Just as in the Co-Chairs' proposal, the so-called "doc fix" is paid for. The final plan specifically includes additional health care savings, rather than providing only illustrative options as the draft proposal did. Among the options included in the report were: ending Medicare payments for bad debts, reducing Medicaid taxes states can levy on providers, accelerating the home health cuts in health care reform, placing dual-eligibles (Medicaid and Medicare) in Medicaid managed care, eliminating provider exemptions from Independent Payment Advisory Board cuts, and reducing spending on Medicaid administrative costs. In addition, the plan introduces a pilot program to turn the Federal Employee Health Benefits program into a premium support system and it includes a repeal of the CLASS Act, which cost $75 billion through 2020 but likely would strengthen the long-term fiscal outlook. Because the CLASS Act would be repealed and because the new plan does not include an "additional $200 billion savings" assumption, total mandatory savings are about $175 billion less than the Co-Chairs' proposal.
- Process reform: Hurray! The final plan also dives deeper into budget process reform than the Co-Chairs' proposal. While the draft eliminates any mention of biennial budgeting, it calls for allowing spending cap adjustments for program integrity measures, reforming budget concepts (the way things are accounted for in the budget, such as GSEs), and having a better automatic trigger for extended unemployment benefits. These recommendations are in addition to a recommendation to establish a "debt stabilization process." For more info on budget process reform, check out the Peterson-Pew Commission on Budget Reform's recommendations.
Social Security, which was a major issue when the Co-Chairs' proposal came out, remains largely unchanged, except for a new "hardship exemption" for changes in the normal and early retirement ages.
It was great work by the Commission to actually develop a plan. Now comes the hard part--finding the 14 votes needed to approve the plan. As we argued yesterday in a release:
“The members of the Fiscal Commission have the critical task of leading the nation in a discussion about how to fix our budget challenges before credit markets turn against us and force more painful actions. Supporting a plan need not mean that a member supports every aspect of it, but rather that they understand that real leadership will require compromise.”
As it stands, seven members have pledged support for the plan, one member--Rep. Jan Schakowsky (D-Ill.) , who offered her own alternative a few weeks ago--explicitly opposed the plan, and eight members did not declare their intentions. Two members, Sen. Max Baucus (D-Mont.) and Rep. Dave Camp (R-Mich.), were absent from the meeting.
Many Commission members at the meeting said that regardless of how they vote, the proposal represents a good framework for discussion and debate. Congressional leaders have agreed to consider the proposal if it garners 14 Commission votes. With support halfway there, we hope the Commission can reach that goal. But more importantly, we're hoping this excercise, one way or another, will spur action soon in Congress.