The PREP Plan: Paying for Reform and Extension Policies

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In the coming months, Congress and the President will face a number of important decisions with significant fiscal implications. Specifically, they must decide how to address “Sustainable Growth Rate” (SGR) cuts, which threaten to significantly reduce Medicare physician payments next April, and 55 “tax extenders” that expired at the end of last year.

If policymakers address these two issues irresponsibly, they could add up to $1 trillion to the debt over the next decade. Yet policymakers could also use these moments to make a down payment toward tax and entitlement reforms that slow health care cost growth, speed economic growth, and help put the debt on a sustainable long-term path.

To responsibly address the Sustainable Growth Rate, policymakers should:

  • Permanently replace the SGR with a value-based payment system
  • Fully offset any costs relative to current law
  • Enact offsets that bend the health care cost curve and are gimmick-free

To responsibly address the expired tax extenders, policymakers should:

  • Address most tax extenders permanently in the context of tax reform
  • Fully offset the cost of any continued extenders without undermining tax reform
  • Include a fast-track process to achieve comprehensive tax reform

There are many ways to achieve these goals. The Paying for Reform and Extension Policies (PREP) Plan represents one such approach. We assume, but don’t endorse, the Tricommittee SGR bill and two years of tax extenders and propose $170 billion of SGR offsets that bend the health care cost curve, $83 billion of extender offsets that improve tax compliance, and a fast-track process for tax reform. Offsets would total $250 billion over ten years.

Summary of the PREP Plan (Costs/Savings over Ten Years)

Enact Tricommittee SGR Reform $170 billion
Extend "Tax Extenders" to 2015
$83 billion
Reform Provider Incentives
-$80 billion Improve Tax Enforcement -$35 billion
Reform Beneficiary Incentives -$80 billion  Close Tax Avoidance Loopholes -$45 billion
Reduce Medicaid Costs -$10 billion  Restrict Inversions -$3 billion
Total Offsets -$170 billion Total Offsets  -$83 billion
Set Up Fast Track Process for Comprehensive Tax Reform TBD
Ten-Year Deficit Impact : $0

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