Sen. Conrad Proposes Fiscal Commission Budget

At a press conference today, Senate Budget Committee Chairman Kent Conrad (D-ND) put forward a budget resolution that his Committee will be marking up starting tomorrow, one that is based on the Fiscal Commission plan. He explained the logic in proposing this budget rather than a strictly Democratic proposal:

What I am proposing is not partisan. I am trying to break from the ‘business as usual’ practice that has gone on for too long. I am hoping that my Senate colleagues will stand with me to do what is right for the country. That’s really the only way we can get something done. That might not happen this week, but it will have to happen.

Sen. Conrad claims that the budget would generate over $4.3 trillion in new savings over ten years, with $2.4 trillion of that coming from revenue. The new budget would reduce debt as a percent of GDP to 67 percent in 2022 while reducing deficits to 1.4 percent by that year. Spending and revenue would hover slightly above and below, respectively, 21 percent of GDP.

The policies are largely the same ones that were endorsed in the final Simpson-Bowles report. In health care ($550 billion in savings), they include increasing Medicare cost-sharing, accelerating payment reductions, and fully offsetting the costs and reforming the SGR. Other mandatory savings ($300 billion in savings) include cuts to farm subsidies and reforms to federal retirement programs. The overall discretionary spending levels ($480 billion in savings) from the Commission plan are carried over. 

[chart:6016]

While Senator Conrad’s budget very closely resembles the original framework put forward by the Fiscal Commission, there are four differences that will make the reported savings look different.

• Policies Already Enacted: Since the Fiscal Commission finished its report, some of its policies have already been enacted to the tune of $1.1 trillion in savings. Most of this is from the discretionary spending cuts enacted last year in the 2011 CRs and the Budget Control Act, but there are also a few mandatory policies that were included. Taking these policies out lowers the amount of savings.
• New Ten-Year Window: Conrad's budget uses the ten-year window of 2013-2022, in contrast to the 2011-2020 window that the Commission used. This will notably push up savings above the levels reported in the original Simpson-Bowles report, especially since the savings accumulate gradually and are backloaded, even though many policies are the same.
• Current Policy Baseline: Every budget must specify a “baseline” against which it measures its savings. The original Fiscal Commission plan relied on a baseline which assumed the upper-income tax cuts would expire at the end of 2010. Instead, the White House and Members of Congress in both parties agreed to extend those tax cuts for two years – and Senator Conrad’s baseline now assumes they continue to extend them all indefinitely. This baseline difference results in about a $1 trillion difference in reported revenue through 2022.
• Discretionary Splits:The original Fiscal Commission plan called for equal cuts to both security and non-security discretionary spending relative to 2010 levels. Since that time, various rounds of discretionary cuts have substantially changed the ratio of security/non-security spending. Senator Conrad updates the Commission plan to reduce both categories proportionally off of 2012 levels as opposed to 2010 levels.
• Social Security Savings: Since budget resolutions are not technically allowed to count savings from Social Security reform, the budget cannot count Social Security reform savings towards its deficit and debt totals. However, Conrad makes it very clear that his budget endorses the Fiscal Commission policies, which include raising the retirement age, increasing the payroll tax cap, and switching to the chained CPI, among other things.

CRFB praises Sen. Conrad for putting forth a bold proposal. As CRFB president Maya MacGuineas said in our press release:

Work to reach a bipartisan consensus on a fiscal plan large enough to stabilize the debt must begin now -- not later, not after the elections, but right now. The longer we wait, the greater the risk we take.