Domenici-Rivlin 2.

0, the Fiscal Cliff & a Framework to Bridge Them

D O M E N I C I - R I V L I N D E B T R E D U C T I O N TA S K F O R C E

WHAT WELL COVER

1) Domenici-Rivlin 2.0

2) Framework for a Grand Bargain

a. Potential Down Payment

Domenici-Rivlin 2.0: An Updated Plan

PROGRESS REPORT

Action to Address the Drivers of U.S. Debt

MAJOR DEBT DRIVER Discretionary Spending Economic Growth Measures Health Care Cost Containment Social Security Sustainability Tax Reform STATUS NOTES Accomplished Some progress

DISCRETIONARY SPENDING HAS ALREADY BEEN RESTRAINED

Budget Control Act Caps Achieved a Similar Level of Domestic and Defense Discretionary Cuts to Domenici-Rivlin
9%

8%

Percentage of GDP

7%

CBO 2010 Baseline Lowest Level since 1970

6%

Domenici-Rivlin

Budget Control Act

5% Sequester

4%
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Note: Each line in the graph depicts the sum of domestic and defense discretionary budget authority (including war costs) as a percentage of GDP. Source: Congressional Budget Office, BPC estimates

HEALTH CARE COSTS ARE THE PRIMARY DRIVER OF THE DEBT

12%

10%

Health Care Spending

8%

% of GDP

Social Security
6%

4%

Discretionary Spending (Defense and Non-Defense) Other Mandatory Programs (e.g., federal pensions, unemployment compensation)
2022 2032 2042 2052

2%

0%
2012

Sources: Congressional Budget Offices Alternative Fiscal Scenario (August 2012), additionally assuming that troops overseas decline to 45,000 by 2015; Bipartisan Policy Center extrapolations

REVENUE UNDER CURRENT POLICIES SIMPLY WILL NOT BE ENOUGH

Revenues Averaged 20% of GDP When the Budget Was Balanced

22

21
20 %of GDP 19 18 17 16 15

and that Was Before the Baby Boomers Arrived

20.6% 19.9% 19.8%

19.5%
(projected)

18.0%

1998

1999

2000

2001

2014-2022 Average

Fiscal years

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

DOMENICI-RIVLIN 2.0 A PLAN FOR FISCAL SUSTAINABILITY

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 a more efficient, pro-growth system Implement structural reform to bend the health cost curve and ensure that health care entitlements are sustainable Achieve long term solvency for Social Security

DEBT DROPS DRAMATICALLY UNDER DOMENICI-RIVLIN 2.0

180% BPC Plausible Baseline Debt Held by the Public

120%
% of GDP

60%

Bipartisan Plan Debt Held by the Public

0% 2012

2017

2022

2027

2032

2037

2042

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

NET INTEREST PAYMENTS DROP DRAMATICALLY UNDER BIPARTISAN PLAN

7% 6% 5% % of GDP 4% 3% 2% BPC Plausible Baseline Net Interest

Bipartisan Plan Net Interest

1%
0% 2012

2017

2022

2027

2032

2037

2042

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

DOMENICI-RIVLIN 2.0 BENDS THE MEDICARE COST CURVE

7% 6% 5% 4% % of GDP 3% 2% 1% 0% 2012 BPC Plausible Baseline Medicare Spending

Bipartisan Plan Medicare Spending

2017

2022

2027

2032

2037

2042

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

BREAKDOWN OF SAVINGS IN DOMENICI-RIVLIN 2.0

(INCLUDING ALREADY ENACTED SAVINGS)
$5,000

12

$4,000

Other Mandatory $300 6% of Savings

Debt Service $600

13% of Savings

Billions of Dollars

$3,000

Discretionary $1,400 29% of Savings Health Care $1,000 21% of Savings Revenue $1,500 31% of Savings

$2,000

D-R 2.0 Total Savings = $4.8 Trillion

$1,000

$0

Budget Savings Through 2022

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

BREAKDOWN OF SAVINGS IN DOMENICI-RIVLIN 2.0

(EXCLUDING ALREADY ENACTED SAVINGS)
100%

13

Debt Service 11%

Percentage of Plans Budget Savings

80%

Other Mandatory 7%

Debt Service 25% Other Mandatory 4% Health Care 33%

60%

Health Care 33%

40%

20%

Revenue 49%

Revenue 38%

0%

Budget Savings Through 2022

Budget Savings Through 2032

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

A Framework: From Fiscal Cliff to Grand Bargain

14

THE FISCAL CLIFF

15

With just weeks before the fiscal cliff hits, no chance of fundamental entitlement and tax reform (e.g., Domenici-Rivlin 2.0) being enacted this year

Cant just have a memorandum of understanding and work out details later must pass legislation to change the current law Need a bridge to avoid the cliff, demonstrate a commitment to solving the problem, and set the stage for a big deal next year on drivers of debt

The Solution: Framework for a Grand Bargain

THE FRAMEWORK FOR A GRAND BARGAIN

16

Eliminate threat of the fiscal cliff by extending tax cuts, turning off sequester, patching AMT, extending the Doc Fix, etc. Replace it with:
An expedited congressional procedure Accelerated Regular Order to achieve deficit reduction, including fundamental tax and entitlement reform, in the 113th Congress without many 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 mechanism to facilitate action

THE POTENTIAL DOWN PAYMENT

17

Demonstrates a commitment to larger changes next year Facilitates short-term growth (with an income tax rebate) and phases in deficit reduction Balances reductions to entitlement spending with increases in revenue Avoids further cuts to discretionary spending, which includes nearly all public investment monies and has already been cut significantly