Domenici-Rivlin 2.0, the Fiscal Cliff & a Framework to Bridge Them

7/30/2019 Domenici-Rivlin 2.0, the Fiscal Cliff & a Framework to Bridge Them

1/17

Domenici-Rivlin 2.0, the Fiscal Cliff &

a Framework to Bridge Them

DOMENICI-RIVL IN DEBT REDUCTION TASK FORCE


2/17

WHAT WELL COVER 2

1) Domenici-Rivlin 2.0

2) Framework for a Grand Bargain

a. Potential Down Payment


3/17

3

Domenici-Rivlin 2.0: An Updated Plan


4/17

PROGRESS REPORT 4

MAJOR DEBT DRIVER STATUS NOTES

Discretionary Spending Accomplished

Economic Growth Measures Some progress

Health Care Cost Containment

Social Security Sustainability

Tax Reform

Action to Address the Drivers of U.S. Debt


5/17

DISCRETIONARY SPENDING HAS ALREADY BEEN RESTRAINED

Source: Congressional Budget Office, BPC estimates

4%

5%

6%

7%

8%

9%

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Percentageo

fGDP

CBO 2010 Baseline

Lowest Level since 1970

Domenici-Rivlin

Budget Control Act

Sequester

Budget Control Act Caps Achieved a Similar Level of Domesticand Defense Discretionary Cuts to Domenici-Rivlin

Note: Each line in the graph depicts the sum of domestic and defense discretionary budget authority (including

war costs) as a percentage of GDP.


6/17

0%

2%

4%

6%

8%

10%

12%

2012 2022 2032 2042 2052

HEALTH CARE COSTS ARE THE PRIMARY DRIVER OF THE DEBT

%o

fGD

P

Sources: Congressional Budget Offices Alternative Fiscal Scenario (August 2012), additionally assuming that

troops overseas decline to 45,000 by 2015; Bipartisan Policy Center extrapolations

6

Social Security

Discretionary Spending (Defense and Non-Defense)

Other Mandatory Programs

(e.g., federal pensions, unemployment compensation)

Health Care Spending


7/17

REVENUE UNDER CURRENT POLICIES SIMPLY WILL NOT BE ENOUGH

15

16

17

18

19

20

21

22

1998 1999 2000 2001

18.0%

19.9%19.5%

20.6%

19.8%

(projected)

%ofG

DP

Revenues Averaged 20% of GDP When the

Budget Was Balanced

Source: Congressional Budget Office alternative fiscal scenario (August 2012)

Fiscal

years2014-2022

Average

and that Was

Before the Baby

Boomers Arrived

7


8/17

DOMENICI-RIVLIN 2.0A PLAN FOR FISCAL SUSTAINABILITY 8

Expedite the economic recovery by replacing the payroll tax

holiday with a one-time income tax rebate for 2013

Reform the tax code to generate more revenue from amore efficient, pro-growth system

Implement structural reform to bend the health cost curveand ensure that health care entitlements aresustainable

Achieve long term solvency for Social Security


9/17

0%

60%

120%

180%

2012 2017 2022 2027 2032 2037 2042

BPC Plausible

Baseline Debt

Held by the

Public

Bipartisan Plan

Debt Held by

the Public

DEBT DROPS DRAMATICALLY UNDER DOMENICI-RIVLIN 2.0

%ofGDP

Note: Unlike current law, the Bipartisan Policy Centers Plausible Baseline assumes that the 2001, 2003, 2009, and 2010 tax

cuts are extended, the Alternative Minimum Tax is indexed to inflation, Medicares physician payment rates are maintained

at 2012 levels (the Doc Fix), the looming sequester from the Budget Control Act of 2011 is lifted, troops stationed overseas

decline to 45,000 by 2015, and health care spending grows at rates detailed in the Congressional Budget Offices Alternative

Fiscal Scenario.

Sources: Congressional Budget Office (August 2012) and Bipartisan Policy Center projections


10/17

NET INTEREST PAYMENTS DROP DRAMATICALLY UNDER BIPARTISAN PLAN

%ofGDP


0%

1%

2%

3%

4%

5%

6%

7%

2012 2017 2022 2027 2032 2037 2042

BPC PlausibleBaseline Net

Interest

Bipartisan Plan

Net Interest

Note: Unlike current law, the Bipartisan Policy Centers Plausible Baseline assumes that the 2001, 2003, 2009, and 2010

tax cuts are extended, the AMT is indexed to inflation, Medicares physician payment rates are maintained at 2012 levels

(the doc fix), the looming sequester from the Budget Control Act of 2011 is lifted, troops stationed overseas decline to

45,000 by 2015, and health care spending grows at rates detailed in CBOs Alternative Fiscal Scenario.


11/17

DOMENICI-RIVLIN 2.0 BENDS THE MEDICARE COST CURVE


%o

fG

DP

0%

1%

2%

3%

4%

5%

6%

7%

2012 2017 2022 2027 2032 2037 2042

BPC Plausible

Baseline

Medicare

Spending

Bipartisan

PlanMedicare

Spending

Note: Unlike current law, the Bipartisan Policy Centers Plausible Baseline assumes that the 2001, 2003, 2009, and 2010 tax cuts are

extended, the Alternative Minimum Tax is indexed to inflation, Medicares physician payment rates are maintained at 2012 levels

(the Doc Fix), the looming sequester from the Budget Control Act of 2011 is lifted, troops stationed overseas decline to 45,000 by

2015, and health care spending grows at rates detailed in the Congressional Budget Offices Alternative Fiscal Scenario.


12/17

BREAKDOWN OF SAVINGS IN DOMENICI-RIVLIN 2.0(INCLUDING ALREADY ENACTED SAVINGS) 12

Revenue

$1,500

Health Care

$1,000

Discretionary

$1,400

Other Mandatory$300

Debt Service

$600

$0

$1,000

$2,000

$3,000

$4,000

$5,000

Budget Savings Through 2022

Billio

nsofDollars

29% of Savings

21% of Savings

13% of

Savings

6% of Savings

31% of Savings

Note: Savings are calculated against BPCs Plausible Baseline. Unlike current law, the BPCs Plausible Baseline assumes that the 2001,

2003, 2009, and 2010 tax cuts are extended, the Alternative Minimum Tax is indexed to inflation, Medicares physician payment rates

are maintained at 2012 levels (the Doc Fix), the looming sequester from the Budget Control Act of 2011 is lifted, troops stationed

overseas decline to 45,000 by 2015, and health care spending grows at rates detailed in the Congressional Budget Offices Alternative

Fiscal Scenario.

Sources: Congressional Budget Office (August 2012), Bipartisan Policy Center estimates

D-R 2.0

Total Savings= $4.8 Trillion


13/17

13

Revenue

49% Revenue

38%

Health Care

33%Health Care

33%

Other Mandatory

7%Other Mandatory

4%

Debt Service

11% Debt Service

25%

0%

20%

40%

60%

80%

100%

Budget Savings Through 2022 Budget Savings Through 2032

Percentage

of

PlansBudgetSavings

Sources: Congressional Budget Office (August 2012), Bipartisan Policy Center estimates

Note: Savings are calculated against BPCs Plausible Baseline. Unlike current law, the BPCs Plausible Baseline assumes that the 2001,

2003, 2009, and 2010 tax cuts are extended, the Alternative Minimum Tax is indexed to inflation, Medicares physician payment rates

are maintained at 2012 levels (the Doc Fix), the looming sequester from the Budget Control Act of 2011 is lifted, troops stationed

overseas decline to 45,000 by 2015, and health care spending grows at rates detailed in the Congressional Budget Offices Alternative

Fiscal Scenario.

BREAKDOWN OF SAVINGS IN DOMENICI-RIVLIN 2.0(EXCLUDING ALREADY ENACTED SAVINGS)


14/17

14

A Framework:From Fiscal Cliff to Grand Bargain


15/17

THE FISCAL CLIFF 15

With just weeks before the fiscal cliff hits, no chance of

fundamental entitlement and tax reform (e.g., Domenici-Rivlin2.0) being enacted this year

Cant just have a memorandum of understanding and workout details later must pass legislation to change the currentlaw

Need a bridge to avoid the cliff, demonstrate a commitment tosolving the problem, and set the stage for a big deal next yearon drivers of debt

The Solution: Framework for a Grand Bargain


16/17

THE FRAMEWORK FOR A GRAND BARGAIN 16

Eliminate threat of the fiscal cliff by extending tax cuts,turning off sequester, patching AMT, extending theDoc Fix, etc.

Replace it with:

An expedited congressional procedure Accelerated RegularOrder to achieve deficit reduction, including fundamentaltax and entitlement reform, in the 113th Congress withoutmany of the traditional barriers (e.g., the filibuster)

A down-payment package with tangible savings that serves as

a stepping stone to the grand bargain

A realistic backstop that serves as an enforcement mechanismto facilitate action


17/17

THE POTENTIAL DOWN PAYMENT 17

Demonstrates a commitment to larger changesnext year

Facilitates short-term growth (with an income taxrebate) and phases in deficit reduction

Balances reductions to entitlement spending withincreases in revenue

Avoids further cuts to discretionary spending, whichincludes nearly all public investment monies andhas already been cut significantly

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Domenici-Rivlin 2.0, the Fiscal Cliff & a Framework to Bridge Them

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