Brookings: Topics - U.S. Deficit Reduction Committee

“Accelerated Regular Order” — Could it Lead the Parties to a Grand Bargain?

Sarah A. Binder — Fri, 19 Oct 2012 00:00:00 -0400

Suzy Khimm reports on a proposal from the Bipartisan Policy Center that would establish a framework for reaching a grand bargain on deficit reduction in 2013. In short, the BPC proposes that Congress and the president in the lame duck session would agree to a procedural framework for guiding enactment of major spending and tax reforms in 2013. In enacting the framework, Congress and the president would also avert going over the fiscal cliff. In exchange, Congress and the president would make a small down payment on deficit reduction in the lame duck, and would authorize a legislative “backstop” of entitlement cuts and elimination of tax expenditures that would become law if Congress and the president failed in 2013 to enact tax and spending reforms.

The procedural elements of the BPC’s proposal bear some attention. The BPC’s not-quite-yet-a-catchphrase is “accelerated regular order.” Although it sounds like a nasty procedural disease, it’s akin to the fast-track procedures established in the Congressional Budget Act and in several other statutes. In short, the framework proposed by the BPC would instruct the relevant standing committees in 2013 to suggest to the chamber budget committees entitlement and tax reforms that would sum to $4 trillion dollars in spending cuts and new revenues (assuming extension of the Bush tax cuts). The House and Senate budget panels would each report a grand bargain bill for their chamber’s consideration that would be considered (without amendment) by simple majority vote after twenty hours of debate. Failure to meet the framework’s legislated deadlines would empower the executive branch to impose entitlement savings and to eliminate tax expenditures to meet the framework’s target.

Loyal Monkey Cage readers will recognize that the BPC proposal resembles in many ways the procedural solution adopted in the Deficit Control Act in August of 2011. But there are at least two procedural differences from the 2011 deficit deal. First, rather than a super committee, the BPC envisions “regular order,” meaning that the standing committees—not a special panel hand-selected by party-leaders—would devise the legislative package. Like the August deficit deal, the BPC proposal then offers procedural protection for the package by banning the Senate filibuster and preventing changes on the chamber floors (hence, an accelerated regular order). Second, rather than a meat-axe of sequestration that imposes only spending cuts, the BPC offers a “backstop,” giving what I take to be statutory authority to the executive branch to determine which tax expenditures to eliminate and which entitlement programs to cut back.

These differences from 2011 are subtle, but the BPC believes that they would improve the odds of success compared to the failed Super-committee plus sequestration plan. As a BPC staffer noted:

"One of the reasons the Joint Select Committee on Deficit Reduction failed, in our view, was because only 12 lawmakers were setting policy for the entire Congress,” said Steve Bell, Senior Director of BPC’s Economic Policy Project. “The framework we propose today would both ensure an acceleration of regular budget order in the House and Senate, and it would involve all committees of relevant jurisdiction.”

This is an interesting argument worth considering. Still, I’m not so sure that accelerated regular order would improve the prospects for an agreement.

First, it strikes me that the real barrier to a grand bargain hasn’t been the Senate’s filibuster rule. The super committee was guaranteed a fast-track to passage, but that still didn’t motivate the parties to reach an agreement. The more relevant obstacle in 2011 and 2012 has been the bicameral chasm between a Republican House and a Democratic Senate. To be sure, eliminating the need for a sixty-vote cloture margin would smooth the way towards Senate passage. But we could easily imagine that the 60th senator (in 2013, perhaps a GOP senator like Lisa Murkowski) might be willing to sign onto a deal that would still be too moderate to secure the votes of House Republicans (assuming no change in party control of the two chambers). As we saw over the course of the 112th Congress, House passage required more than the consent of the House median (an ideologically moderate Republican) and more than the support of a majority of the GOP conference. The big deals in the 112th Congress only passed if they could attract the votes of roughly 90% of the House GOP conference. Expedited procedures can protect hard-fought compromises from being unraveled on the chamber floors but by themselves don’t seem sufficient to generate compromise in the first place.

Second, and related, I’m somewhat skeptical that the small size of the super committee precluded a viable agreement. By balancing parties and chambers, the group was (in theory) a microcosm of the full Congress. If true, then delegating to the super committee was more akin to delegating to a mini-Congress. Perhaps the BPC’s idea of allowing the standing committees to generate proposals would broaden legislators’ willingness to buy-in to a final agreement. More likely, I suspect that the framework would produce a House bill perched on the right and a Senate bill left of center (since the filibuster ban would reduce Democrats’ incentives to produce a bipartisan bill). That leaves the bicameral chasm still to be bridged, suggesting that accelerated regular order might not bring Congress all that much closer to a bipartisan agreement in 2013. Consent of party leaders remains critical for an agreement.

Third, the BPC proposal is unclear on the precise nature of the legislative backstop. But would either party agree in advance to the framework if they didn’t know whose ox would be gored by the administration when it exercised its power to reform entitlements and eliminate tax expenditures? Perhaps delegating such authority to the executive branch would allow legislators to avoid voters’ blame, making them more likely to vote for the framework. (That said, it’s somewhat ironic that the BPC’s embrace of accelerated regular order flows from its desire to broaden the set of legislators whose fingerprints are visible on the grand bargain.) Regardless, the prospects for cuts in entitlement programs could lead both parties to favor kicking the can down the road again before it actually explodes.

Fast-track procedures have a decent track record in facilitating congressional action. (Steve Smith and I have extolled their virtues elsewhere.) But the most successful of these episodes involve narrow policy areas (such as closing obsolete military bases) on which substantial bipartisan agreement on a preferred policy outcome is already in place. Expecting a procedural device to do the hard work of securing bipartisan agreement may be asking too much of Congress’s procedural tool kit in a period of divided and split party control.

Authors

Sarah A. Binder

Publication: The Monkey Cage

Image Source: © Jonathan Ernst / Reuters

Two Candidates' Views on Defense

Michael E. O'Hanlon — Wed, 19 Sep 2012 00:00:00 -0400

So how do Republican presidential nominee Mitt Romney and President Barack Obama stack up against each other on the enormously important question of U.S. military spending and broader defense strategy?

This is a crucial question for the country. It’s also one of the better debates between the two men — since their essential disagreement is over substance rather than silliness.

But there is a third player in the debate — the U.S. budget mess. If the argument was just one of Democratic incumbent against Republican challenger, I’d assume the country couldn’t go too far wrong, regardless of who won. But with the trillion-dollar deficits, looming sequestration and other woes afflicting the policy process, I’m less sure things will work out.

Here is, basically, where the president and the governor stand. Obama proposes saving almost $500 billion in defense costs over the next decade, relative to his own administration’s earlier plans. This means some $350 billion in cuts relative to where defense would go if allowed to increase with inflation.

To accomplish this, ground forces would be reduced almost back to pre-Sept. 11 levels. A few major weapons programs would be canceled or scaled back. War costs would also continue to decline — but these are best viewed as a separate subject.

The remaining Obama defense budget would still fund an ambitious weapons modernization agenda — including up to 2,500 new fighter aircraft and about nine new Navy ships each year. The president would protect most military pay and other compensation — not to mention veterans’ benefits, which are in another part of the budget. He strongly opposes further cuts, including the additional $500 billion over a decade that would result from the so-called sequestration. He also doesn’t agree with the Simpson-Bowles commission on the feasibility of additional reductions of that magnitude — even if done through a mechanism other than sequestration.

Romney opposes that first $500 billion in 10-year cuts that Obama favors. He may also oppose the roughly $100 billion in five-year military cuts the president made earlier — when Robert Gates was defense secretary. The former Massachusetts governor wishes to increase the Navy shipbuilding budget to 15 ships a year and keep ground forces roughly where they are today — some 100,000 troops larger than the president forecasts.

Romney’s rhetoric about Russia and nuclear arms suggests that he is unlikely to pursue another round of strategic nuclear arms control — at least not right away. He is bullish on missile defense, and might also reopen the production line for the F-22 fighter jet.

Romney’s website talks about how he “aspires” to devote 4 percent of the nation’s gross domestic product to the armed forces. In the short term, this would not differ much from his above-noted plans, but over time it would push defense spending up substantially — to the point where it would exceed Obama’s plan by as much as $200 billion per year. However, that part of the Romney plan is explicitly described as “aspirational,” so I don’t accord it the same concreteness as his other policy goals.

Leaving aside that 4 percent target, Romney’s plan is little different from the one Obama favored two years ago — before the deficit took center place in U.S. politics. Romney would build more ships but otherwise make few major shifts.

But, in fairness to Romney, he is hardly some uberhawk trying to solve every global problem with a military tool. He’s just espousing a defense plan that Obama himself basically proposed in 2009 and 2010. So the candidates’ viewpoints are both within a reasonable mainstream part of the strategic spectrum.

But then, there is the deficit

There are, however, two more aspects to the budget situation that greatly complicate the debate over future U.S. defense policy.

First is sequestration. If it happens in 2013, even for a few weeks or months, there could be major disruptions. The budget process will be thrown into chaos. Up to 15 percent of the civilian workforce may have to be dismissed — or most of it furloughed for a stretch. Procurement of weapons will not fall off a cliff but will be severely and unproductively disrupted.

A second, longer-term problem is more fundamental — and less avoidable. It will challenge either candidate if elected. For neither nominee is providing enough money to fund all the defense plans they favor. This is not due to negligence, it’s more of a congenital problem in how defense budgeting is always done. But it’s a bigger problem when budget caps appear to be firmly set for several years to come.

Either man might need at least a couple hundred billion dollars more than now anticipated to fund all the forces and weapons in his Pentagon proposal, over the next decade, according to calculations by the Congressional Budget Office and independent scholars. This problem afflicts both proposals — so it isn’t a reason to vote for one man or the other. But it is a sobering reminder of the budget pressures the nation will face.

Put differently, either candidate will need to cut more forces and weapons than now advertised just to comply with anticipated budget caps that each respectively accepts. There are ways to do this — a further scaling back of ground forces, a less expensive nuclear force posture, modest cuts to military compensation, a slightly smaller Navy that maintains forward presence in a more efficient way through a method known as “sea swaps,” efficiencies in the Pentagon’s civilian workforce.

But none are going to be easy. And none now appear in either candidate’s plans in an adequate way.

We can get through this, as long as any further defense budget reductions are modest. I don’t favor those in the Bowles-Simpson or Rivlin-Domenici plans because, in light of all the above, those are too deep. However, getting to a viable defense plan will require us to take into account that third member in the debate: the unwelcome presence of our huge national deficits and debt.

On this debate, as far as it goes, I would give the edge to Obama. His projected deficits, according to the Committee for a Responsible Federal Budget, will be less than Romney’s. As such, his defense budget plan will help us deal with the debt problem. In the process, it will accept more short-term military risk but to a degree that appears reasonable.

Now that Saddam Hussein is gone, we can most likely cut ground forces back to almost 1990s levels. The Navy can still find more efficient ways to deploy and base its ships abroad, so we needn’t build ships at a faster rate to stay engaged in the world. Military compensation remains very robust, so, if anything, we can probably make deeper reforms than now planned.

Authors

Michael E. O'Hanlon

Publication: POLITICO

Image Source: © Handout . / Reuters

Why America’s Public, Not Its Parties, Are the Key to Fixing the Deficit

William A. Galston — Fri, 23 Mar 2012 11:40:00 -0400

The publication of the latest tick-tock story on the collapse of last summer’s Obama-Boehner budget talks has triggered a new round of dueling interpretations. Who really killed the grand bargain? Was it a speaker out of touch with his caucus, or a president who couldn’t make up his mind? There’s no doubt that both leaders have made mistakes, but all these breathless sagas suffer from the same flaw: They divert us from the structural facts that shape political outcomes. Barack Obama and John Boehner weren’t free agents; they were acting as representatives of their respective political parties, neither of which was prepared to do what it took to make a deal. The problem isn’t just political intransigence—it’s that neither political party has made an effort to convince the electorate of the need for change. Without that sort of public discussion, closed-door negotiations are bound to go nowhere.

It’s customary at this point to cite the polarization between the parties, which has indeed grown significantly in recent decades. This phenomenon is more than a blood feud between rival gangs; the parties now espouse incompatible explanations for our long-term fiscal problems and propose incompatible remedies. For Republicans, it boils down to one thing—cutting spending. This premise inevitably leads to proposals like Paul Ryan’s latest budget, with huge cuts to Medicare and to safety net programs for the poor. In response, Democrats emphasize the need for increased revenue—after all, the aging population will increase federal spending as a share of GDP, and we’ll have to pay for it somehow. Of course, we could temper if not prevent this increase by shifting costs and risks to Medicare beneficiaries. But to do this, most Democrats insist, would be to trample on our promises, rip up the social contract, and end Medicare as we know it.

But while party polarization plays a large part in legislative stalemates, the problem goes deeper. Neither political party has been willing to conduct a sustained conversation with the American people about the real choices we face over the next generation. If large political decisions are to be sustainable, they need to obtain the consent of the people—and it’s hard to see how the current discussion can generate that consent, or even contribute to public education.

As Gerald Seib points out, the contenders for the Republican presidential nomination rarely utter the word “deficit” during debates and have failed to propose serious fiscal plans. To their credit, Ryan and Obama have both been clearer. But the public discussion of Ryan’s plan soft-pedals the extent of the changes it would impose on Medicare and Medicaid, while the president’s plan does little to address our longer-term structural challenges.

Over the past few years, the argument that we needed to get the economy back on track before tackling fiscal issues has prevailed—rightly, in my view. But if we’ve finally reached the point at which the recovery is self-sustaining, it’s time to shift the focus of the discussion. A presidential campaign offers the best chance we’ll get to clarify the choices we face and to bring the people into the conversation. And if neither candidate wants to enter into that conversation, it’s the duty of the press to force the issue. At every juncture, Mitt Romney should be asked a simple question: Do you endorse the cuts in Medicare and Medicaid contained in the House Republicans’ budget? And if he spends the fall evading the question, he should be asked again, during the presidential debates, in full view of the American people.

For his part, President Obama should be asked how the pieces of his agenda fit together into a coherent whole. “Mr. President, you’ve identified a host of unmet national needs—in education, infrastructure, research, and innovation, among others—all of which will require more spending. You’ve rejected the Republicans’ proposal to reduce spending by changing the structure of Medicare and Medicaid. And you can’t use the defense budget as a piggy-bank; your own defense secretary has characterized further cuts in defense as a threat to our national security. Your latest budget will make things a bit better in the short term but will do little to address the long-term gap between our revenues and our commitments. In light of this, Mr. President, how high will taxes have to go to pay for your programs? And do you really believe that the wealthy can bear the entire increase while everyone else is held harmless?”

The stakes are high. We need to invest much more to rebuild the foundations of our economy, but right now we don’t have the fiscal flexibility to do so. What we manifestly lack, and desperately need, is a reformed tax code that promotes growth and eliminates special interest preferences. To set ourselves on a sustainable fiscal course, we need to reconcile the aversion to tax increases with the needs of an aging population—but we haven’t even begun that discussion.

Great nations don’t remain great by avoiding their problems. Contrary to popular accounts, what we face today is not bad chemistry between leaders, or even the clash of political parties: It is a crisis of self-government. It will be a dereliction of duty if the presidential candidates don’t bring the American people into the conversation and level with them about the choices we face. Is it hopelessly naive to expect our leaders to do that?

Authors

William A. Galston

Publication: The New Republic

Image Source: Mario Anzuoni / Reuters

The Specter of Sequestration: U.S. Defense Budget Cuts

Mackenzie Eaglen and Michael E. O'Hanlon — Fri, 24 Feb 2012 00:00:00 -0500

Last year, the Joint Select Committee on Deficit Reduction, also known as the “super committee,” failed to agree on over a trillion dollars in budget cuts. This failure has triggered the looming “sequestration” of an additional $500 billion in defense dollar cuts over the next 10 years, among other mechanical cuts to other parts of the budget. But you wouldn’t know that from the budget released this week by President Barack Obama.

Rather, Obama’s budget numbers hue closely to those in last year’s debt ceiling deal known as the Budget Control Act, as if the super committee had never existed. This is understandable at one level. But ignoring reality will not make the most drastic cuts to the military in U.S. history go away.

Read the full article at CNN.com »

Authors

Mackenzie Eaglen
Michael E. O'Hanlon

Publication: CNN.com

Image Source: © Kevin Lamarque / Reuters

@ Brookings Podcast: Automatic Spending Cuts and Programs for the Poor

Ron Haskins — Fri, 30 Dec 2011 11:02:00 -0500

The failure of the congressional super committee to reach a budget accord means that the budget ax will fall across many domestic spending programs and defense spending in the next fiscal year, including a number of programs that help the poor. Senior Fellow Ron Haskins says that while the automatic budget cuts will do some harm to some anti-poverty programs, the largest and most important programs – including Medicaid and Social Security – have been largely shielded.

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After the Lost Budget Opportunities of 2011: What Next?

Alice M. Rivlin — Tue, 27 Dec 2011 10:25:00 -0500

As 2011 ended we should have been celebrating a bipartisan deal to restore the federal government to fiscal sanity. The deal should have included sufficient reductions in spending growth and increases in revenues over the next decade to keep the national debt from rising fasting than the economy can grow. It should have encompassed full-year extension of the payroll tax holiday and unemployment compensation, and possibly other job creation measures. Instead, we are bemoaning the lost opportunities of extreme partisan pig-headedness and hoping that 2012 will bring politicians to their senses before a debt crisis overtakes us.

As 2011 began, President Obama missed a huge opportunity to seize the budgetary high ground. In his 2010 State of the Union address, he had charged the bipartisan Simpson-Bowles Commission with recommending a long-run budget fix after the congressional elections. I served on that Commission, as well as co-chairing with Pete Domenici the Bipartisan Policy Center’s Debt Reduction Task Force, also created to propose a fiscally responsible budget plan after the election.

Both groups worked diligently and reported on schedule. While their detailed recommendations differed, the arithmetic of the budget drove them both to similar proposals: (1) Slowing the future growth of Medicare and Medicaid, while putting Social Security on a sound basis; (2) capping discretionary spending; and (3) broadening the bases of the individual and corporate income taxes to raise more revenue with lower rates. The exhilarating experience of reaching bipartisan compromise on such big issues made many of us optimistic that the political system could reach similar agreement.

Moreover, the congressional elections, which shifted House control to Republicans, brought to Washington new fiscal conservatives determined to reduce borrowing. The new members were passionately anti-tax, but veterans of the Clinton-Gingrich era hoped that divided government might lead to responsible budget compromises. The bitter polarization of the late 1990s had produced a budget surplus, albeit in far more favorable economic circumstances.

President Obama should have embraced the main proposals of Simpson-Bowles (and Domenici-Rivlin) his 2011 State of the Union Address and promised to work with the Congress to restrain future debt and create jobs at the same time. Instead, he made the tactical error of focusing solely on job creation, which made his jobs bill a partisan Democratic proposal instead of an element in a bipartisan plan for growth and deficit reduction. On the Republican side, hopes for fiscal responsibility were shattered by the reckless intransigence of the Tea Party members who were willing to risk closing the government and defaulting on the nation’s debt in their zeal to shrink the public sector. Months of partisan brinkmanship culminated in the embarrassing near- debacle of the debt ceiling fight in late summer.

Getting past that painful episode, however, revived hopes for bipartisan agreement. The Budget Control Act (BCA) raised the debt ceiling; capped domestic and defense appropriations for ten years, as both bipartisan commissions had recommended; and created a Joint Select Committee (JSC) with extraordinary powers. It could propose tax or spending changes which could pass by simple majority without amendment or filibuster. The JSC was charged with recommending at least $1.2 trillion in deficit reduction over ten years to avoid an automatic across-the-board spending cut (or sequester) beginning in 2013, but could have done much more.

Optimists urged the JSC to shoot for a grand bargain involving entitlement and tax reform that would cut $4-5 trillion from projected deficits over ten years, enough to stabilize the ratio of debt to economic activity. Simpson, Bowles, Domenici, and I joined a vigorous effort, including bipartisan groups of senators and representatives, businesses and think tanks, to give the JSC political cover for using their extraordinary powers to get the job done. But the JSC dissolved in partisan rancor without producing even enough debt reduction to avoid sequester. Its demise also sank hopes for easy agreement to extend the payroll tax holiday, unemployment benefits and other measures vital to keeping the recovery on track.

So we enter 2012 with federal debt projections still rising unsustainably; Europe’s crisis providing daily reminders of the dangers of postponing tough budget decisions; and election fever undermining bipartisan cooperation. Hopes for fiscal sanity in 2012 are focused on a lame-duck congressional session convened to avoid a mindless sequester and automatic expiration of the Bush tax cuts. Returning to Clinton era tax rates in 2013 would cut projected debt substantially, but leave entitlement programs untouched and endanger recovery. This prospect might bring both parties back to the bargaining table, but it is hard to believe that a lame duck session could achieve the multi-trillion dollar grand bargain that eluded the JSC.

Whatever happens in the 2012 election, big decisions on taxes and entitlements will still require bipartisan compromise. A reelected President Obama or a new president, working with a new Congress may be able to forge a solution early in 2013, but time is running out. A punishing market reaction to American political dysfunction could turn the missed opportunities of 2011 into prolonged economic failure.

Authors

Alice M. Rivlin

Image Source: Â© Mike Theiler / Reuters

The Super Committee’s Failure and Its Effect on Low-Income Families

Ron Haskins — Mon, 28 Nov 2011 00:00:00 -0500

The following is Ron Haskins' contribution to a two-part op-ed co-authored with Deborah Weinstein originally published in Spotlight on Poverty and Opportunity. The full piece can be found on their website.

The failure of the budget “super committee” shows yet again that Congress and the president are unlikely to reduce the federal deficit without some sort of external force that adds necessity to the normal legislative process. The only serious action on the deficit so far resulted from the necessary raising of the debt ceiling early last August. Republicans seized the opportunity by threatening to block an increase in the debt ceiling unless spending was cut to reduce the deficit. To avoid default, the president and Congress enacted legislation that cut spending by $.9 trillion over ten years and established the super committee to take another $1.5 trillion bite out of the deficit.

The debt ceiling agreement anticipated that the super committee would fail to reach accord. Thus, the agreement provided for an automatic reduction of $1.2 trillion in spending over ten years in such a case. So unless Congress and the president wiggle out from under the automatic reduction, over $2 trillion in debt reduction will have been achieved this year. That’s about a third of what is needed, but a third is progress. And this progress seems to have been made without deep cuts in programs for the poor.

The next opportunity for serious action on the deficit will occur next fall as the expiration date of the Bush tax cuts approaches. There is likely to be another ugly battle as Republicans try to preserve all the tax cuts and Democrats try to end tax cuts for the rich. This battle may well expand into another grand negotiation over taxes and spending. For those hoping to protect programs for the poor, the battle continues.

Authors

Ron Haskins

Publication: Spotlight on Poverty and Opportunity

Web Chat: Congressional Super Committee Unable to Find Compromise

Ron Haskins — Wed, 23 Nov 2011 12:30:00 -0500

The co-chairs of the Joint Select Committee on Deficit Reduction announced on Monday that the “super committee” had reached an impasse and would be unable to deliver a compromise plan on the budget deficit. On November 23, Ron Haskins answered your questions on the failure of the Congressional super committee in a live web chat moderated by POLITICO.

12:30 Comment From David: Why did the super committee have so much trouble crafting a compromise plan?

12:33 Ron Haskins: There are many reasons but let's start with the two most obvious: most Republicans oppose tax increases and most Democrats oppose cuts in the Medicare, Medicaid, and Social Security. Another factor is that the appointments to the super committee were based on loyalty to party positions. If Republicans wanted a deal, they would have put members like Senator Coburn on the super committee; if Democrats wanted to deal, Senator Warner would have been on the super committee. This observation leads to the single biggest problem: the nation is not getting leadership from Congress or the White House. A pox on all their houses.

12:33 Comment From John T.: What will be the fallout now that the super committee has failed?

12:38 Ron Haskins: The most important consequences is that our national political leaders have blown yet another chance to make progress on a problem that is literally a threat to the future of the country. I dearly hope that one consequence of the super committee's failure is not that congress, having failed in its most recent gambit, will now try to figure out how to undermine the sequester. If congress actually allows the $1.2 trillion sequester to go through, we would have achieved $2 trillion in deficit reduction in the past year. That is not gridlock. Of course, like most observers, I would prefer and big deal (Go Big! as they say), but I'll take little bites if I can't get the whole meal. I wish another consequence were that both parties would suffer major electoral defeats in the 2012 elections and that the public, in polls and in surveys of voters after the election, would make it clear that there will be consequences for elected officials who do not deal seriously with the deficit and compromise to make progress.

12:38 Comment From Marcus: Will the failure of the super committee be critical to the 2012 election?

12:41 Ron Haskins: I don't think there will be electoral consequences for the monumental failure of the super committee, but I fervently wish there would be. The underlying problem here is that the public is not ready for the actions that will be required to seriously reduce the deficit. The public is finally aware there is a problem and they tell pollsters that Congress and the president should do something. But they also say they don't want cuts in Social Security or Medicare and they don't want to raise taxes. Here I think the president must step up and tell the American people what will be required. We need a national educational campaign led by the top people in both parties.

12:42 Comment From Michael: Why wasn’t President Obama more involved with the super committee in trying to facilitate a compromise plan?

12:46 Ron Haskins: The president has not talked with me about his reasoning, so let me guess. He may well have made a political calculation that the consequences of raising taxes and cutting Medicare and other entitlements would have hurt him in the 2012 election. Thus, his best course would be to avoid the super committee and let them deal with the problem. Besides, lots of smart people thought from the beginning that the super committee will fail, so the president would be better off if he stayed as far away as possible. To me, it looks like the president -- just like the brave souls up on Capitol Hill -- made a political choice rather than take the risks that will inevitably come for any politician that actually solves the nation's deficit problem.

12:46 Comment From Jennifer: Now that the super committee has folded, when do you think America will start to tackle its $15 trillion deficit problem?

12:50 Ron Haskins: I take a back seat to no one in disgust over the failure of the super committee. Even so, let's focus some attention on what has been accomplished; namely, we got $900 billion in deficit reduction out of the debt ceiling deal and if the sequestration takes place, we'll get another $1.2 trillion (all figures over 10 years). As Peter Orszag recently told the National Journal, our debt crisis needs a solution that is more like a diet than an exam. In other words, this race may be won by slow and steady progress and not a big bang.

12:50 Comment From Lucy: What happens now regarding the budget deficit?

12:56 Ron Haskins: I think I have been wrong about almost all my previous predictions, so don't believe this one. One the other hand, this is Washington -- it's more important to be interesting than to be right. The next confrontation might occur after the election in a lame duck session of Congress. The big issue will be renewing the Bush tax cuts. In a world that has even a modest level of rational behavior, the two parties would decide in advance that they cannot take a legislative action that would increase the deficit by around $3.7 trillion over ten years by simply renewing the Bush tax cuts. Democrats might take a strong position to insist that the cost of renewing even part of the Bush tax cuts will be a budget deal that involved both program cuts and new revenues. But Democrats have not shown much courage in the past when it was time to pass or renew the Bush tax cuts. Politicians love to play to the voters and voters like tax cuts. Nonetheless, I expect there to be a lame duck session, and I expect that the media and many DC groups that hate the deficit to make very forceful public cases against a straight renewal of the Bush tax cuts.

1:02 Vivyan Tran: Thanks for the questions everyone. Happy Thanksgiving!

Authors

Ron Haskins

Image Source: Â© Jonathan Ernst / Reuters

Will the Super Committee Hit Congress Hard?

Isabel V. Sawhill — Tue, 22 Nov 2011 14:03:00 -0500

The failure of the super committee speaks volumes about the condition of our political system, and especially of the Congress. Other bipartisan groups outside of Congress have shown that it is possible to achieve a compromise. Bowles-Simpson and Rivlin-Domenici were both able to craft proposals that included a reasonable balance of both spending cuts and revenue increases and which included enough total savings to put the nation on a fiscally sustainable path.

The super committee failed not because of a lack of good options and not even because of big philosophical differences. These other groups have shown that these need not be insurmountable hurdles. The problem, in a word, was politics. To be more specific, the problem was taxes.

Now we are into the blame game. Each side tells the story from their own slightly distorted perspective, but the Republican distortions are, in my view, far more egregious. Having accepted $900 billion in cuts to discretionary spending as part of the Budget Control Act enacted this summer, Democrats were naturally loathe to accept another all-spending-cuts package. The Republican refusal to put taxes on the table led to the usual stalemate. However, Republicans evidently realized that this would not be a winning strategy with many independent voters. So they ginned up several proposals that contained token amounts of new revenues, hoping—probably correctly—that the public wouldn’t notice how ridiculously small these proposals were. They may also be hoping that no one will notice, in the heat of an election year debate, that these small revenue increases were accompanied by an effort to insure that the Bush tax cuts would be permanently extended and that, in addition, taxes would be reduced below current levels, especially for the wealthy.

It is not just the public’s trust in government that has been dealt another blow by the super committee’s failure, it is also the economy. Democrats had hoped to extend existing payroll tax cuts and unemployment insurance benefits and they, too, fell by the wayside in these negotiations. The lapse of these measures at the end of this year could knock about a percentage point off of GDP growth in 2012.

Where do we go from here? According to the law, there are now supposed to be automatic cuts in defense and nondefense spending to the tune of $1.2 trillion over the decade. However there is much talk about changing this law and rescinding the required sequester. Even should these cuts go into effect in January 2013, they would close only a small portion of the budgetary gap we face over the coming decade. So the next big fight will likely occur during the lame duck session of Congress in 2012 when both sides will have to decide what to do about the expiration of the Bush tax cuts. This time, it is argued, Democrats may well have the upper hand since the tax cuts will expire automatically if the two sides are, once again, unable to agree on a plan. The $64 question is whether Democrats will allow this to happen or will, instead, insist on preserving tax cuts for the middle class. To be sure, if the economy is still depressed, it would not be a good time to raise middle class taxes. But any effort to temporize or preserve the tax cuts for some groups would require legislative action, giving Republicans renewed leverage to maintain all or most of the cuts.

Maybe by then there will be groups occupying Washington instead of Wall Street.

Authors

Isabel V. Sawhill

Publication: POLITICO

Image Source: Â© Jonathan Ernst / Reuters

What the Super Committee Should Say

Mon, 21 Nov 2011 10:00:00 -0500

Event Information

November 21, 2011
10:00 AM - 11:30 AM EST

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

With the November 23 deadline quickly approaching, the U.S. Joint Select Committee on Deficit Reduction continues to work toward a potential deal to reduce the budget deficit by at least $1.2 trillion. Yet, questions on what to cut and how remain at the center of a contentious political debate. If the committee fails to reach a resolution, as much as $500 billion could be slashed from the defense budget, with other severe consequences to follow. Alongside the challenges of reducing the deficit, making smart investments in infrastructure, education and other catalysts for growth will be critical to national economic rejuvenation.

On November 21, the Brookings Institution hosted a discussion on the budget deficit and the future of the American economy. Panelists included Brookings Senior Fellow Michael O’Hanlon, author of The Wounded Giant: America's Armed Forces in an Age of Austerity (Penguin, 2011), Vice President Bruce Katz, director of the Metropolitan Policy Program at Brookings and Brookings Senior Fellow Alice Rivlin, co-chair of the Domenici-Rivlin Debt Reduction Task Force.

After the program, the participants took audience questions.

Video

Participants

Panelists

The Super Committee: Less Important Than Meets The Eye

Henry J. Aaron — Sat, 19 Nov 2011 00:00:00 -0500

The effort to cut federal budget deficits resembles nothing so much as the old movie serials in which each week the hero ran a gantlet of perils the last of which threatened imminent death or dismemberment. Seven days later, the intrepid adventurer would somehow escape unscathed, only to repeat the cycle.

The courageous crusader of the last couple of months has been the so-called ‘super committee,’ the group created by Congress last August to slay the economic menace threatening the economy—budget deficits. Impelling projected deficits are anticipated increases in the rising cost of health care for the elderly, disabled, and poor through Medicare and Medicaid.

Much of the press seems to regard the success or failure of the super Committee—and the Congressional action that will or will not follow when it agrees or fails to agree on a deficit reduction plan—as ‘the moment of truth,’ the testing time when the leaders of the United States will determine whether it remains a great economic power or falls prey to economic indiscipline. The test of seriousness, some argue, is the willingness to face up to the ‘unsustainability’ of Medicare and Medicaid in their current forms.

Nonsense! The debate on when and how to lower projected federal deficits is genuinely important. So are efforts to rein in growth of health care spending. The idea that this is the moment when future deficits will, can, or, indeed, should be closed is a delusion. So is the idea that growth of public health care spending can be slowed materially without reform of the whole health care system. But there is one genuinely serious matter at stake in the current deficit discussions. That crucial issue is whether any fiscal reform program Congress adopts uses tax increases to achieve at least half of the program’s deficit reduction. Without such tax increases, Medicare, Medicaid, and the subsidies of the Affordable Care Act—indeed, the whole social safety net—cannot long survive.

Deficit Cuts Should Begin Only After Economic Growth Recovers

First, cutting deficits at some point is vital. Debt cannot indefinitely grow faster than the nation’s economy without catastrophic consequences. But it would be genuinely stupid to cut spending or raise taxes significantly before the economy is advancing robustly and unemployment has been significantly reduced. When nearly 14 million people are unemployed—almost 6 million for more than six months—and an additional 8 million people have withdrawn from the labor force because job prospects are so poor, it is downright perverse to be talking primarily of cutting government spending—which will surely lower demand and put more people out of work—rather than about spending increases and tax cuts that will spur demand and put people to work.

Deficit Cuts Of $1.2 Trillion Would Only Make A Small Dent In The Long-Term Debt Problem

Second, there is little chance that Congress can agree now on measures sufficient to solve the long-term deficit challenge facing the nation; and there is absolutely no chance that the super committee can end the debate.

The committee’s minimum assignment—to cut deficits by $1.2 trillion over the next decade—is clear. If legislation is not enacted to lower federal budget deficits by at least $1.2 trillion over the next decade, spending will be cut automatically by enough to reach that target. If triggered, the automatic cuts will come half from national defense and half from domestic programs other than Social Security, Medicaid, and other programs for the poor. The automatic cuts to Medicare would come only from payments only to providers and could not exceed 2 percent—roughly $11 billion in 2013.

Current reports suggest that the committee will fail to meet this minimum target. Whether it will deadlock completely or agree on smaller cuts remains unclear. But even if it fulfilled its basic assignment, the deficit reduction job would remain mostly undone.

If current projections are correct, national debt in ten years will be 90 percent of national income and rising. That is the projection that is triggering so much angst today Suppose the automatic cuts of $1.2 trillion over ten years take effect when scheduled in 2013. Even with those cuts, current information indicates that projections in 2013 will anticipate national debt equal to 90 percent of national income ten years later. In other words, cutting the deficit by $1.2 trillion over the next decade will delay for just two years the return of fiscal conditions the same as those that are now causing so much concern. There is nothing magical about 90 percent, of course. Countries can get in trouble with creditors when debt is smaller. They may retain lenders’ confidence when debt is much larger.

Future deficits are projected to grow mostly because anticipated increases in health care spending—even with the deficit-reducing effects of the Affordable Care Act—are so large. It will take spending cuts or tax increases sufficient to cut deficits $4-5 trillion, not just $1.2 trillion, to prevent growth of national debt from greatly outpacing national income.

Debate Over Deficits Will Continue Regardless Of The Super Committee’s Results

The deficit reduction debate will not end, whatever the super committee may or may not recommend and however Congress responds to those recommendations. If the sequester is triggered, it now appears that there will be a strong move to suspend it. As it will not take effect until 2013, Congress will have plenty of time to undo it.

Within the next few weeks, Congress will once again have to decide whether to permit scheduled fee cuts for physicians under Medicare—now set to be about 27 percent—to take effect at the start of next year. That will be an occasion for yet more debate on how to revamp the Medicare payment system.

More generally, a 2013 effective date for spending cuts means that Congress may revisit any budget changes Congress may enact in response to recommendations of the Super Committee. One chance will come late in 2012 or early in 2013 when government debt exceeds the ceiling enacted last August. During the last negotiation over the debt ceiling, Republicans successfully used the threat of default to extract major budget concessions from the administration. One can have little doubt that they will use it again, reopening any fiscal issues not previously resolved to their liking.

The 2012 elections may well shift the balance of political power. Under some scenarios, the changes could be vast. If Republicans win the Senate (probable) and the presidency (possible), legislation could be enacted to replace Medicare with vouchers, to convert Medicaid to a block grant, and to repeal or substantially amend the Affordable Care Act. If president Obama is reelected and Democrats retain control of the Senate, it is possible that efforts would be made to roll back any spending cuts that cut seriously into safety-net programs. Either way, no decision on spending that isn’t implemented until 2013 can be regarded as final.

Failure To Include Tax Increases As Well As Spending Cuts Would Doom The Social Safety Net

As stated above, there is, however, one core principle at stake in the current debate. Given the size of the deficit cutting measures that will be required to prevent a debt explosion, simple arithmetic imposes a hard dilemma. Unless half or more of future deficit reduction comes from tax increases, the spending cuts required to stabilize the ratio of debt to national income will eventually be so large that it will be impossible to sustain Social Security, Medicare, Medicaid, and the premium subsidies of the Affordable Care Act. In the debate on raising the debt ceiling, Democrats agreed to a deficit-reduction program consisting exclusively of spending cuts. If that approach becomes entrenched, preserving major social insurance and social welfare legislation of the 20th century will become mathematically impossible.

In plain language, the most important issue for health care policy is not whether one or another of the various changes listed in the Budget Options book of the Congressional Budget office is enacted. It is whether Congress recognizes that tax increases must be a major part of any deficit reduction program. From the standpoint of preserving the social safety net, it would be better if the super committee deadlocked than if it reported a deficit reduction program relying exclusively or principally on spending cuts.

Authors

Henry J. Aaron

Publication: Health Affairs Blog

Image Source: Â© Kevin Lamarque / Reuters

What Happens if the Super Committee Fails?

Isabel V. Sawhill — Wed, 16 Nov 2011 11:32:00 -0500

Almost everyone is agreed that we need to get our fiscal house in order and that the super committee needs to find the political will to get this done. As their deadline for acting draws nearer, a favorable outcome looks doubtful, and the prospect of an automatic sequester looms large. However, if action continues to be focused on a small slice of the budget, too much of any fiscal discipline will fall on a very limited number of programs without making a real dent in our long-term deficit problems.

To stabilize the ratio of debt-to-GDP we need deficit reduction in the neighborhood of $4 trillion over the coming decade. So far virtually all of the action has focused on discretionary spending. The Budget Control Act of 2011 (BCA), passed in the wake of the debt ceiling crisis, put new caps on discretionary spending that will, according to CBO, reduce such spending by about $900 billion between 2012 and 2021, including debt service. The law also called for a Joint Committee (aka the Super Committee) to come up with at least $1.5 trillion in additional spending cuts. At the present time, many observers are skeptical about the ability of the committee to come up with much in the way of savings, given partisan disagreements.

If the committee fails to enact savings of $1.2 trillion (including interest), the law calls for a sequester that, together with the committee’s actions (if any), would cut spending $1.2 trillion, half from defense and half from nondefense. Although not all of this second tranche needs to come from discretionary spending, it would once again take the brunt of the cuts because of the exemption of Social Security, Medicaid, and some other entitlement programs, a limit on cuts to Medicare, and no provision for new revenues. CBO estimates that the proportion borne by discretionary programs would be 71 percent and the proportion borne by nonexempted mandatories would be 13 percent (with the remainder taking the form of debt service savings). These new cuts would begin in 2013 and would be on top of the initial reduction achieved by reducing the caps in the first tranche. Thus, total discretionary spending would be reduced by about $1.6 trillion.

This scenario may seem quite reasonable to many members of the public. After all, people are justifiably disgruntled with government. They believe that a lot of money is wasted or spent ineffectively, they are suffering from a depressed economy, and they have little idea of exactly what the government does with their tax dollars. With this in mind, it is useful to look at these discretionary programs in a little more detail, focusing especially on the nondefense portion. (It’s a lot easier to imagine what defense dollars go for — weapons systems, the armed forces, and related expenses.) The roughly $600 billion spent on nondefense domestic discretionary programs in 2012 is a relatively small part of what the federal government spends every year. It accounts for only 18 percent of the total, but includes everything from education and the environment to transportation, housing assistance, veterans' health care, and the FBI.

To help people better understand what this 18 percent is spent for, I categorize the total into four areas according to their purpose, broadly defined. One is programs that address the competitiveness gap that the president has frequently cited. This includes investments in education, training, infrastructure, and research. The second area is programs that help the disadvantaged, such as housing vouchers for low-income families and nutrition assistance for low-income women and their babies. The third is programs devoted to protecting the public—including the safety of the food supply, prescription drugs, airlines, nuclear plants, highways, workplaces, and patrolling the nation's borders—along with disaster relief. The final is programs for veterans, especially their health care. If one were to wall off these four areas from cuts, there wouldn't be a lot left from which to cut.

I estimate that out of the total nondefense domestic discretionary spending in 2012, 44 percent was for competitiveness purposes (mostly education, training, and transportation), another 12 percent was for low-income programs, 13 percent was for public safety and disaster relief, and 11 percent was for veterans. The remainder totals about $145 billion. That $145 billion may sound like a lot of money (and it is) but it is only 4 percent of total federal spending. I compare it to total federal spending since most of it is what I would call "overhead"—salaries and office space for the people who run the government, administer the laws, promulgate and enforce the regulations, prepare Social Security checks, monitor fraud, respond to Congressional and citizen requests, and so forth. Even relatively efficient organizations have overhead rates that are as high or higher than 4 percent.

Some important caveats: any exercise of this sort is no substitute for the kind of careful scrutiny of what actually goes on within each line item in a budget and allocating programs across these five categories is somewhat subjective. Are there efficiencies to be had and activities that could be privatized, consolidated, devolved to lower levels of government, or done away with entirely? Undoubtedly. Still, the kind of cuts the BCA has imposed will necessitate some extraordinarily tough choices and make it very difficult if not impossible to protect veterans, low-income families, public safety or "investments" in future growth. Moreover, cutting “overhead” — for example, such expenses as the administration of Social Security or disability benefits, will lead to some combination of poorer service for beneficiaries and inappropriate payments.

In sum, assuming that the members of the Joint Committee are unable to agree to an alternative set of actions, a sequester of these domestic discretionary programs on top on the caps already enacted are going to force draconian cuts in this relatively small portion of the budget. Those who are willing to accept such cuts should worry about the likely effects on our competitiveness, on the disadvantaged, on public safety, on veterans, and on the ability of the federal government to responsibly administer a wide variety of laws and programs in a way that does not lead to greater fraud and abuse. Instead, the debate badly needs to shift to the over $1 trillion we "spend" (through the backdoor) on tax subsidies, and the $1.5 trillion that funds just three big programs: Social Security, Medicare, and Medicaid. If we are serious about fiscal discipline, everything needs to be on the table. Everything.

Authors

Isabel V. Sawhill

Image Source: Â© Mike Theiler / Reuters

To Deficit Panel: Go Big, Long, Smart

Bill Frenzel, Jim Nussle, Tim Penny and Charlie Stenholm — Tue, 01 Nov 2011 16:46:00 -0400

Like most Americans, we watched with dismay this summer as politicians failed to reach a timely agreement on raising the debt ceiling while crafting a plan to address our debt crisis.

Had the result of the debt ceiling debacle been a grand, bipartisan bargain to cut future deficits by $4 trillion or more, the fallout from the political wrangling would have been worth it. Instead, what we got was the lowest common denominator – some discretionary cuts unlikely be sufficient to get the debt under control.

Yet the debt deal opened a window in the form of a Select Committee, charged with recommending $1.5 trillion in additional savings.

To be considered a success though, $1.5 trillion won’t be enough. Instead, the Select Committee will have to go big, go long and go smart.

Why Go Big? Because $1.5 trillion isn’t enough to stabilize the debt. Under reasonable assumptions, even with the savings, the national debt will continue to rise from about 67 percent of gross domestic product this year to more than 75 percent by 2021. The historical average is less than 40 percent of GDP — so $1.5 trillion just isn’t good enough.

The goal should be putting the debt on a downward path relative to the economy, which will mean doubling or evening tripling the Select Committee’s savings target.

Why Go Long? The country’s short- and medium-term debt is important, but the worst problems are longer-term, as the baby boom generation retires and health care costs continue to grow. No matter how much they raise taxes or cut discretionary spending, the Select Committee will be unable to repair our fiscal situation unless they address the long-term drivers of our growing debt – Social Security, Medicare and Medicaid.

The Select Committee must pass serious, structural changes that slow the growth of federal health care spending by using every tool available. It must enact comprehensive Social Security reform, which would makes that program solvent for the next 75 years and beyond.

Why Go Smart? Because we can’t just take a sledge hammer to the budget and declare the problem solved. Instead, we need to put in place reforms that promote economic growth. Though we cannot grow our way out of this problem, it will be virtually impossible to keep the debt under control without robust economic growth.

The Select Committee should therefore replace low-priority spending with high-value investments; enact enough deficit reduction to leave fiscal space for an economic recovery agenda, and reform the byzantine tax code to lower the rates, broaden the base and generate more economic growth and revenue. Most broadly, we will have to revamp our budget from one that is is consumption-oriented to one that focuses instead on investment.

Going big, long and smart, isn’t just the right economic strategy. By putting the debt on a sustainable path and avoiding further downgrades from the rating agencies — it is the right political strategy.

First, it may actually be easier to agree to a $4 trillion package than $1.5 trillion. In a larger package, entitlement reform can put the country’s largest program on a sustainable path rather than rely on half measures. Revenues will come from a growth-enhancing overhaul of the tax system rather than just rifle shots that may close small tax loopholes but won’t fundamentally help the economy.

While tough measures will be necessary either way, they are a lot easier to swallow if they are part of a package that fixes the problem. It would be politically appealing to declare final victory, instead of yet another budget showdown that ends in a punt.

Second, the American people are fed up with the political system. Even the most casual observer can see the inability of our leaders to make hard choices. Going big would show the public that Washington can work.

Both parties in Congress and the White House need a reputational overhaul — and fixing the budget would do the trick.

The public is hungry for real progress on reducing the deficit. Sixty percent of Americans say the Select Committee should compromise on a grand bargain to reduce the deficit, according to a recent poll, even if the deal includes policies they disagree with.

We only hope the Select Committee is up to the job.

Authors

Bill Frenzel
Jim Nussle
Tim Penny
Charlie Stenholm

Publication: POLITICO

Image Source: Â© Jonathan Ernst / Reuters

Reduce the Budget Deficit Through Innovation

Jon Baron and Ron Haskins — Tue, 01 Nov 2011 00:00:00 -0400

The solution to the nation’s long-term deficit problem is generally portrayed as a choice among sharp budget cuts, major tax increases or a combination of the two. Given the magnitude of the problem, some level of sacrifice is probably unavoidable. But there is a third, overlooked approach to major budget savings — innovation — that the new congressional super committee should also include as a key component of its deficit-reduction strategy.

Innovation in this case is the process of trying a range of promising approaches and using rigorous evaluation methods to determine which of them really work. In many areas of the economy — such as information technology, agriculture and manufacturing — innovation has often identified ways to both reduce cost and improve performance. This has led to amazing progress over time, including exponential gains in computing power over the past half-century at a steadily decreasing price. So a logical question is: Can innovation in policy produce more effective government at lower cost?

The answer is yes. There are proven examples, from U.S. welfare policy and other areas, where innovative reforms produced major budget savings while simultaneously improving people’s lives. This suggests that part of the answer to our deficit problem lies in American ingenuity and not just sacrifice.

Welfare policy shows the potential. In the 1980s and 1990s, the federal government supported many innovative state and local welfare reform programs. Importantly, the government required these reforms to be evaluated using the scientific “gold standard” method of randomly assigning some welfare recipients to the new program approach and others to welfare-as-usual. Three of the major reform initiatives — two in California, one in Oregon — were found especially effective. Focused on moving welfare recipients quickly into the workforce through short-term job-search assistance and training (as opposed to longer-term remedial education), the initiatives produced gains in participants’ employment and earnings of 20 percent to 50 percent. Remarkably, they also produced net savings to the government, in reduced welfare and food stamps, of $1,700 to $6,000 per person.

Here was strong scientific evidence that reform of a government program both saved taxpayer money and helped people move into work. Because of their credibility, these findings helped shape the bipartisan 1996 federal Welfare Reform Act and subsequent transformation of state and local welfare programs nationwide to a work-focused approach.

But welfare is a relatively small piece of the federal budget. What about in the huge, growing, high-cost area of healthcare? Here, a recent example of smart reform is the Transitional Care Model, a nurse-led hospital discharge and home follow-up program for chronically ill older adults. The program is designed to address a major problem in the American healthcare system: More than one-third of older patients discharged from U.S. hospitals each year are re-hospitalized within 90 days, generating major costs to Medicare.

The Transitional Care Model has been shown in two rigorous randomized studies to reduce re-hospitalizations by 30 percent to 50 percent and net healthcare costs by $4,000 per patient, without any adverse effects on patient health or quality of life. These results suggest that effective nationwide implementation of this reform model would generate savings to Medicare of about $10 billion per year — without cutting anyone’s benefits.

A second healthcare example is a federal study in the 1990s that rigorously evaluated a prospective payment system for Medicare home health agencies — i.e., paying such agencies an up-front lump sum per patient — against the usual cost-reimbursement approach. This study found that prospective payment reduced Medicare costs by 20 percent over three years compared to cost reimbursement, with no adverse effects on patient health. These findings helped shape Medicare’s national implementation of prospective payment for home health agencies in 2000, producing large cost savings in the $15 billion program.

To identify enough of these cost-saving innovations to yield meaningful deficit reduction, many more rigorous evaluations of diverse policy innovations are needed. Innovation, by its nature, involves trial and error. In innovative sectors of the economy, such as information technology, many laboratory findings that initially appear promising are found not to work, requiring continuous experimentation to find those that will. The same pattern applies in welfare, healthcare and other policy areas — only a subset of the promising strategies that are rigorously evaluated are ultimately found effective, underscoring the importance of testing many.

The Joint Select Committee on Deficit Reduction could make this happen. As one of its central recommendations, it could propose a new “innovate and evaluate” initiative over the next decade, spanning the broad range of federal program areas — defense procurement, healthcare, retirement savings, education, housing, foreign aid and others. The goal would be to build a sizable body of proven, cost-saving strategies that aggregate to major long-term spending reductions, without loss of quality or benefit to the American people.

The deficit talk in Washington is stuck on the austerity and tax channel. An important, third option has been overlooked — one that could produce more effective and less expensive government. Innovate.

Authors

Jon Baron
Ron Haskins

Publication: The Hill

An Overview of the Domenici-Rivlin Budget Plan

Pete V. Domenici and Alice M. Rivlin — Tue, 01 Nov 2011 11:13:00 -0400

Senator Murray, Representative Hensarling and Members of the Joint Select Committee on Deficit Reduction, thank you for inviting us to testify on the enormous fiscal and economic challenges confronting our nation.

The testimony we have submitted summarizes more than one and a half years of deliberation by nineteen former senior policy makers ranging from former Democratic mayors of large cities to former governors, to former members of presidential cabinets. The Task Force represented a very diverse cross-section of the nation’s economic and political interests.

The United States faces two huge challenges: (1) accelerating growth and job creation and (2) reducing future deficits to stabilize the debt so that it is no longer growing faster than the economy. These objectives reinforce each other. Faster growth will reduce deficits, and stabilizing the debt will cut future interest rates, reduce uncertainty and enhance growth. This Committee, with its extraordinary powers, has both the opportunity and the obligation to address both challenges.

The Bipartisan Policy Center’s Debt Reduction Task Force urges you put ideology aside, cooperate across partisan lines, and craft a Long term budget plan that will put the country on a path to sustainable prosperity and responsible budgeting. To achieve success, the Committee will have go well beyond the minimum charge of identifying at least $1.2-$1.5 trillion in savings over the next ten years, because even savings of this magnitude would still leave the debt rising faster than economic growth. We believe you should craft a grand bargain involving structural entitlement and tax reform that would save at least $4 trillion over ten years. In order to do so, the Committee should take full advantage of the authority given to it by the Budget Control Act (BCA) in Section 404, and write instructions to compel authorizing committees to produce fundamental tax and entitlement reform and provide for “fast-track” consideration of those reforms.

We believe that a grand bargain would have enormous economic benefits and would also reassure citizens and markets that our political process is functioning in the public interest, not stuck in partisan gridlock or overwhelmed by special interests. Failure to reach agreement (or even settling for the minimal $1.2 trillion savings) would increase the chances of continuing weakness in the economy, high joblessness, and deep distrust of the ability of elected leaders to govern.

The BPC recommends a three-step process in order to spur our economy, achieve savings and stabilize our debt:

Step 1 was passage of the BCA, which provided $900 billion in discretionary savings, similar to the amount recommended by the BPC’s Task Force.
Step 2 – in progress – calls on the Committee to identify a down-payment of $1.2-$1.5 trillion in net deficit reduction over ten years, which should be accompanied by a full payroll tax holiday to spur the economy. The deficit reduction should utilize the many bipartisan plans that have been released, combining spending cuts from all parts of the budget with revenues. These savings also must be real – no budgetary gimmicks. Many of these policies will not be overly popular, but a comprehensive plan – one that addresses every aspect of the budget – is the most politically palatable approach.
Step 3 requires the Committee to take full advantage of Section 404 of the BCA and instruct the relevant authorizing committees to legislate further reform. The two primary areas of focus should be fundamental, pro-growth tax reform that raises revenue, and structural Medicare reform to ensure the future sustainability and efficiency of the program, as explained in the Domenici-Rivlin Protect Medicare Act.

Should the Committee fail to reach agreement on major reforms that will encourage growth and stabilize our fiscal situation, you will have missed an historic opportunity to set the country on the right track, and the consequences both to the economy and to public confidence could be dire. A sequester would produce mindless, possibly harmful cuts in spending, and even avoiding the sequester by finding $1.2 trillion would only kick the biggest part of the rising debt problem down the road. We urge you to seize the opportunity to get the job done.

The central elements of any grand bargain to stabilize our debt are clear:

Policies to promote growth and create jobs now;
Savings from discretionary accounts (which have already been enacted in the Budget Control Act);
Fundamental health care reform, especially Medicare; and
Fundamental tax reform that raises revenue.

The Bipartisan Policy Center’s Debt Reduction Task Force, which we co-chaired, only was able to achieve consensus by addressing all four.

Downloads

Download the full testimony

Authors

Pete V. Domenici
Alice M. Rivlin

Publication: Joint Select Committee on Deficit Reduction

Time to ’86 the Tax Code? Prospects for Tax Reform After 25 Years

Wed, 19 Oct 2011 13:30:00 -0400

Event Information

October 19, 2011
1:30 PM - 4:00 PM EDT

Falk Auditorium
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

October 22 marks the 25th anniversary of the signing of the Tax Reform Act of 1986, landmark legislation that brought together members of both political parties to dramatically simplify the tax code. Twenty-five years after that bipartisan success, the Joint Select Committee on Deficit Reduction is considering significant tax reform to help cut at least $1.2 trillion from the federal budget deficit. Many Republicans have vowed to oppose any revenue increases, arguing for using spending cuts alone to reduce the deficit—while Democrats have instead proposed a combination of spending cuts and tax increases, with the latter focused on raising rates for wealthy Americans. With sharp partisan lines being drawn in the budget deficit debate, is there any hope of achieving sound, comprehensive tax reform before the next presidential election?

On October 19, the Urban-Brookings Tax Policy Center hosted a conversation reflecting on the impact of the Tax Reform Act of 1986, and the prospect for passing significant tax reform as part of a “grand bargain” on deficit reduction. In two panel discussions, tax and budget experts examined lessons from the last major tax reform, and discussed opportunities for reform in the current political landscape.

Following each panel, the participants took questions from the audience.

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Time to ’86 the Tax Code? Prospects for Tax Reform After 25 Years

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Transcript (.pdf)

Event Materials

20111019_tax_reform

Participants

Panelists

William G. Gale

Senior Fellow and Co-Director, Urban-Brookings Tax Policy Center

Moderator: Donald Marron

Director, Urban-Brookings Tax Policy Center
The Urban Institute

Bruce Bartlett

Author, The Benefit and the Burden (Simon & Schuster, 2012)
Columnist, The Fiscal Times

Jane Gravelle

Senior Specialist, Economic Policy
Congressional Research Service

Gene Steuerle

Institute Fellow and Richard B. Fisher Chair
The Urban Institute

Kevin Hassett

Senior Fellow and Director of Economic Policy Studies
American Enterprise Institute

Eric Toder

Institute Fellow and Co-Director, Urban-Brookings Tax Policy Center
The Urban Institute

@ Brookings Podcast: Make Defense Cuts Carefully

Peter W. Singer — Fri, 30 Sep 2011 10:58:00 -0400

As the congressional super committee works to produce a deficit reduction plan, Peter Singer urges the lawmakers to balance cuts in domestic discretionary and defense spending carefully. Singer says the debate over defense cuts too often focuses on specific weapons programs, not the support needed to maintain weapons, or changes to the Pentagon’s personnel and health care policies that might also produce significant and ongoing savings. He warns that a great nation must keep pace with technological advances.

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The Buffett Rule for Taxes: Math or Class Warfare

Alice M. Rivlin — Thu, 22 Sep 2011 00:00:00 -0400

In defending his proposal to ensure that millionaires not pay taxes at lower rates than ordinary wage earners—the Buffett rule—the president said, “It is not class warfare. It is math.” I was reminded of the experience I have had many times when I have talked about the fact that the distribution of income in the United States has become dramatically less equal in recent years, especially at the very top. Average incomes have stagnated while incomes of the very well-healed have sky rocketed. Often someone in the group shouts, “class warfare” or “populism,” meaning “don’t go there.” The shouter thinks invoking images of angry peasants with pitchforks and torches advancing on the castle ought to end any conversation about the distribution of income or wealth.

Well, I’m with the president on this one. The distribution of income and the impact of our tax code on it ought to be widely discussed. According to the most recent Congressional Budget Office numbers, since 1980 the portion of pre-tax income earned by the median quintile of the population has gone from 16 to 13 percent. The portion earned by the top five percent has gone from 21 to 32 and the top one percent from 9 to 19. The increase in the concentration of wealth at the top has been even more dramatic. Meanwhile, the tax laws have shifted in favor of the high rollers. The reason Warren Buffett’s secretary pays income tax at a higher rate than he does is that much of his taxable income is in the form of capital gains, dividends, and perhaps carried interest (the term for earnings of hedge fund managers), which are taxed at lower rates. Mr. Buffett has been courageous in this pointing out and rallying a group of fellow millionaires and billionaires to work for reforms that would increase their taxes.

The Buffett rule proposed by the president, however, is largely symbolic. It is a form of Alternative Minimum Tax (AMT) that would leave the current tax code pretty much untouched, but add another provision to ensure that millionaires paid at least an average tax rate. A better approach would be to blow up the tax code and start over, getting rid of almost all special provisions (including the lower rates on capital gains, dividends, and carried interest) and taxing all income at the same rate. The tax reform proposals in the Simpson-Bowles and Domenici-Rivlin plans would do this—and a lot more—and would result in a simpler, fairer tax system. Comprehensive tax reform should be part of the “grand bargain” to stabilize future debt that the Joint Select Committee has the opportunity to enact. The president should be urging them to go in that direction.

Authors

Alice M. Rivlin

Publication: American Square

Obama's Deficit Opportunity

Ron Haskins — Wed, 21 Sep 2011 10:01:00 -0400

In every great legislative achievement there are key moments when the right politicians make the right choices and assume the inevitable risks of true leadership. Now is such a moment for President Obama and congressional leaders on both the deficit and the stimulus.

Nearly everyone agrees that the federal deficit is a threat to the nation’s future but that serious spending cuts or tax increases should wait at least a year, in deference to the nation’s stalled economy. The debt-ceiling fight showed that Congress and the president are capable of agreeing to take a bite out of the deficit. True, the public and the media complain about how ugly the fight was, but I don’t recall anything in the Federalist Papers about elegance being a characteristic of good legislation.

Not only did the ugly process achieve nearly a trillion dollars over 10 years in deficit reduction, but by establishing the supercommittee and giving its legislative product every procedural advantage possible, the combatants gave themselves a decent chance of taking a second big bite out of the deficit.

The broad outline of a deal is obvious. The recipe calls for major portions of spending cuts and more modest portions of revenue increases that don’t begin to bite until 2013. The two biggest obstacles to a comprehensive deal are that Democrats want to protect the biggest entitlements while Republicans oppose tax increases. The simple truth is that politically and substantively both positions are nuts — the budget cannot be balanced in a reasonable way without both major changes to Medicare and revenue increases. Nor will either side agree to a major package unless it includes what the other side says it won’t give. But once one side relents the other side will be under tremendous pressure to relent as well.

Sure, most Republicans have signed a pledge not to raise taxes, and the party’s presidential candidates all said they would turn down a budget deal with a 10-to-1 ratio of spending cuts to tax increases. But this is mere chest-beating. The real test of whether Republicans would actually turn down a deal with huge spending cuts and modest tax increases is to put such a deal on the table in full view of the public. Already, GOP Sens. Tom Coburn (Okla.) and Mike Crapo (Idaho), two widely respected conservatives, have agreed to tax increases in exchange for entitlement cuts, and House Speaker John Boehner (R-Ohio) was negotiating a deficit package with the president that included tax increases before their deal-making imploded. There are cracks in the Grover Norquist armor.

Similarly, House Minority Leader Nancy Pelosi (Calif.) and other Democrats say they oppose cuts in entitlement programs. But again, other prominent Democrats have publicly agreed to reductions in entitlement spending. Both the president’s Bowles-Simpson commission and the Domenici-Rivlin bipartisan commission agreed to changes in Social Security and Medicare that would reduce projected spending. And in the Obama-Boehner negotiations the president appeared to be willing to corral spending on Medicare, by far the most important single ingredient in a spending-reduction package.

A few years ago, my colleague Isabel Sawhill, a Brookings economist, and I interviewed 20 members of Congress and senior staffers who had participated in major compromise legislative deals such as the 1983 Social Security reforms and the 1990 and 1997 budget deals. When we asked them about the necessary ingredients to achieve these huge compromise deals, the biggest area of agreement was that presidential leadership was vital.

Now is the moment for the president to step up. His speech Monday was far too political, seemingly aimed at scoring political points more than achieving a budget and stimulus deal. He should reverse himself by inviting the supercommittee to the White House and telling its members he’s putting fundamental reforms of Medicare and the tax code on the table. He should then place before the committee a bill that follows the Bowles-Simpson deficit plan supplemented with the premium-support Medicare reforms envisioned by the Domenici-Rivlin plan. Then he should turn to Rep. Dave Camp (Mich.), the Republican chairman of the House Ways and Means Committee, and say that the supercommittee should send something close to Obama’s proposal to Congress and give Ways and Means until next spring to write tax-reform provisions that would broaden the base and reduce rates while yielding $1 trillion in increased revenue over a decade, one-quarter of the $4 trillion in total deficit reduction the president is proposing.

The conventional wisdom is that a deal of this magnitude cannot be achieved with a presidential election just around the corner. But Obama must realize that without a major demonstration of leadership he might not win the election. His speech Monday appealed to his base, but he can’t win reelection without centrists and independents. Similarly, Republicans must realize that the public regards them as obstructionists already and that rejecting a bargain with the president that will receive accolades from many pundits would have major consequences for both their presidential and congressional candidates next year. If the president leads, both sides have every reason to follow, especially out of fear of the consequences if they don’t. And then there is the minor issue of our children and grandchildren.

Authors

Ron Haskins

Publication: The Hill