Apr 18 2012
Listen to audio of this statement (This is a large file and may take a minute to load)
The Markup will come to order. I want to welcome everyone to the Senate Budget Committee today. The Committee meets today to begin consideration of the Concurrent Resolution on the Budget for Fiscal Year 2013. I will have a statement. Then I will recognize the Ranking Member for his statement. Then the Chair will recognize other Members of the Committee, in seniority order, alternating between the sides, as members of different parties are available. And Members will be recognized for statements of five to seven minutes. Amendments will not be in order today. The Mark will not be before us, as is the tradition of this Committee, until the end of our opening statements today.
I did break from tradition, by providing the Ranking Member yesterday, roughly 24 hours in advance – I think it was a little less than that as it turned out – the Mark that I will be releasing later today, so that hopefully Members will have a better idea of what they are talking about with respect to their opening statements. So, we did break from tradition by giving the Ranking Member the Mark yesterday.
As I announced yesterday, I am going to lay down as my Chairman’s Mark the bipartisan Fiscal Commission plan, also known as the Bowles-Simpson plan. It is a plan which I believe represents the best blueprint from which to build a bipartisan deficit reduction agreement.
What I am proposing is not partisan. I am trying to break from ‘business as usual,’ that has gone on for too long. I am hoping that my Senate colleagues will be open to finding a path forward that can bring us together before we face the expiration of all the tax cuts from the Bush era and before we face the imposition of the sequester. The only way this can happen is if we find some way to come together. And I know it is difficult.
I want to emphasize that we already have a budget in place for this year and next. So we are in a different position than we usually are with respect to a budget resolution.
Last year, instead of a budget resolution, Congress passed the Budget Control Act, which is an actual law. It states very clearly that the Budget Control Act “shall apply in the Senate in the same manner as for a concurrent resolution on the budget” for fiscal years 2012 and 2013. So we have spending limits in place for 2012 and 2013.
The Budget Control Act also provided for 10 years of spending caps, providing $900 billion in savings over that period. And it created a Special Committee to reform Medicare and Social Security and the tax system. And the Budget Control Act said that if the Special Committee did not succeed, there would be another $1.2 trillion of spending cuts imposed at the beginning of next year, the so-called sequester.
Because the Special Committee did not reach an agreement, those additional cuts are now in the law. So a total of more than $2 trillion of spending cuts was provided by the Budget Control Act. That is the biggest package of spending cuts that I could find in the history of our country. And all of those cuts are now in law.
And a law is much stronger than a budget resolution. As all of us know here, a budget resolution is purely a Congressional document. It never goes to the President for his signature. A law, like the Budget Control Act, is passed not only in the House and Senate, but is signed by the President. So it is the law.
What we do not have is – and the reason why I think it is important that we find a way to negotiate a long-term budget agreement – is that we don’t have a long-term budget plan. That is what we must now work to achieve.
The Fiscal Commission Budget Plan, which I am presenting today, provides a comprehensive and balanced deficit reduction framework to build upon. It is not perfect, but it does represent a middle-ground. It brings the deficit down from what it would otherwise be, and it brings the debt down from what it would otherwise be. And it does so in a responsible, fair, and balanced way. It protects the most vulnerable. It phases in changes to avoid harming the economy. And it includes savings from across the budget, including from entitlement reform and from tax reform that raises revenue while lowering rates.
I recognize adjustments will have to be made to that plan, because what I am putting before the body is the original Bowles-Simpson plan. Obviously, things have happened in the last two years, for instance the Budget Control Act. So, we know adjustments will have to be made. That is going to take time. And those adjustments will have to be negotiated, and those negotiations, I think, will have to take place before we get to the end of this year when will face the expiration of all of the Bush tax cuts and the imposition of the sequester.
I intend to give Members of the Committee an extended period to evaluate my Mark. And as they review this plan, I hope to hear back from Members on how they think we can maximize our chances of successfully reaching a bipartisan agreement.
There is nothing I would want more than to reach agreement on a long-term plan right now. And it could be that outside events, such as a crisis overseas, will drive us to come together sooner than we might otherwise. I would certainly be open to reaching conclusion sooner, if that is possible. But I am a realist, and I recognize the chances of that are slim.
Many have suggested we will not be able to reach conclusion until after the election. It may be that both sides will find it difficult to move off their fixed position before a national election. I wish that weren’t the case, but it probably is the case. By we are going to have powerful motivating factors pushing us toward resolution – the expiration, as I have indicated, of all of the Bush era tax cuts and the potential imposition of the sequester.
Let’s remember that the original Fiscal Commission panel was structured to have a vote after the 2010 election. It was structured that way for a reason. Senator Gregg and I believed it was critically important to have the vote and the votes when there was the greatest prospect of actually getting a result. And we concluded the best chance right after an election.
That is what I am hoping to replicate now. By presenting the Fiscal Commission plan as a budget resolution, I would hope we could be ready with a bipartisan plan later this year. It is going to take an enormous amount of work. All those who served on the Commission, all those who served on the Special Committee, all of those who served on the Group of Six, what is now the Group of Eight, I think know, these things can not be done in a matter of weeks. The ground has to be plowed now.
We are borrowing almost 40 cents of every dollar we spend. That is the hard reality we face as we meet here today. That is not sustainable.
Gross federal debt is expected to reach 104 percent of our Gross Domestic Product this year, and then continue rising to 119 percent of GDP by 2022. Many economists regard anything above the 90 percent threshold as the danger zone. And the long-term debt outlook is even more dire.
The reality is that we face both a spending and a revenue problem. Spending is near its highest level as a share of the economy in more than 60 years. And revenue is at or near a 60 year low as a share of our national income. Both sides of the ledger, I believe, are part of the problem and will have to be part of the solution.
We also know that the American people support a balanced approach to deficit reduction. In a Pew Research Center poll conducted in November, people were asked, “What is the best way to reduce the federal budget deficit?” Seventeen percent supported cutting major programs only. Eight percent supported increasing taxes only. And 62 percent said we should do a combination of both.
The Fiscal Commission Budget Plan does just that. It cuts spending and it raises revenue through tax reform. It does exactly what the American people are asking us to do. It is the kind of plan, I believe the American people, when fully briefed on it, will support.
The Guiding Principles and Values of the plan, as they were outlined in the original Fiscal Commission Report, were as follows:
- We all have a patriotic duty to make America better off tomorrow than it is today.
- That we shouldn’t disrupt the fragile economic recovery.
- That we should cut and invest to promote economic growth and keep America competitive.
- That we should protect the truly disadvantaged.
- That we should cut spending we cannot afford – no exceptions.
- We should demand productivity and effectiveness from Washington.
- That we should reform and simplify the tax code.
- That we shouldn’t make promises we can’t keep.
- That the problem is real, and the solution will be painful.
- And we should keep America sound over the long run.
Here is an overview of the Fiscal Commission Budget Plan that I am putting before the body today. It includes $5.4 trillion of deficit reduction over 10 years, including savings from last year’s Budget Control Act. It lowers the deficit from 7.6 percent of GDP in 2012 to 2.5 percent in 2015 and 1.4 percent in 2022. So it takes the deficit down well below the 3 percent of GDP level that is widely viewed as sustainable. It stabilizes gross debt by 2015 and then lowers it to 93 percent of GDP by 2022 – putting debt on a clearly downward trajectory. It reduces overall spending to 21.9 percent of GDP by 2022. And it reduces discretionary spending to an historic low of 4.8 percent of GDP by 2022. It builds on health care reform, but adds additional health savings. And it fully offsets the “Doc fix,” preventing a dramatic drop in Medicare payments to physicians who treat Medicare patients. It calls for Social Security reform that ensures the 75-year sustainable solvency of Social Security. And it calls for Social Security savings to be used only to extend the program’s solvency, not for deficit reduction. Finally, it includes fundamental tax reform – tax reform that will make the tax code simpler, fairer, and more efficient, while raising additional revenue.
This next chart shows the deficit trajectory under the plan. As I noted, it brings the deficit down to 1.4 percent of GDP by the end of the decade, well below the 3 percent level that is viewed as sustainable.
It stabilizes the debt, as I indicated, by 2015, and begins to bring it down steadily after that.
Over the ten years of the plan, spending averages 21.8 percent of GDP, which is actually below the level we experienced during the Reagan Administration.
The plan brings discretionary spending – those funds appropriated by Congress each year – down from 8.4 percent of GDP in 2012 to an historic low of 4.8 percent of GDP by 2022.
But I think we all acknowledge that health care spending is the 800 pound gorilla. Although the health care reform law adopted in 2010 made progress in changing health care incentives and bending the cost curve, rising health costs remain the single largest factor contributing to the nation’s long-term fiscal imbalance.
In 1972, Medicare, Medicaid, and other federal health spending totaled 1.1 percent of GDP. By 2050, that federal health spending could grow to more than 13 percent of GDP. And we can see that Medicare represents the fastest growing portion of that spending. Of course, it is important to remember that rising health care costs are a problem in the private sector as well. This is not just a Medicare- or Medicaid-related problem.
Like the original Fiscal Commission plan, the plan I am presenting today does not re-open the health care reform debate. Instead, it builds on health care reform by providing additional health savings. It provides an option to phase out the tax exclusion for health care – a step the Congressional Budget Office has said would be one of the most significant steps we could take to bend the cost curve on health care spending. As I noted before, it fully offsets the cost of a “Doc fix. To offset these costs, it includes savings proposals, such as: Medicare beneficiary cost-sharing; reforming payments to health care providers; eliminating state gaming of the Medicaid tax; and extending the Medicaid drug rebate to “dual” eligibles in Medicare Part D.
While the Fiscal Commission Budget Plan calls for the same Social Security reforms as the original Fiscal Commission plan, it does not include in its numbers the savings from those Social Security proposals. That is because, as everyone on this Committee knows, the Congressional Budget Act of 1974 – the law that established the budget process – prohibits the inclusion of Social Security in the deficit totals of a budget resolution. So Social Security reforms will have to be considered separately.
However, the Fiscal Commission Budget Plan does include a policy statement that supports the original Fiscal Commission recommendations regarding Social Security. It calls for Social Security reform that reforms Social Security to make it solvent, not for deficit reduction. All the savings from reforming Social Security go to extending the solvency of Social Security, not for deficit reduction. It restores the 75-year solvency of Social Security and puts it on stable path beyond 75 years. It strengthens the safety net with an enhanced minimum benefit for low-wage workers, a bump up in benefits for our oldest seniors and long-time disabled, and a hardship exemption for those unable to work past 62 – all of these were part of the original Bowles- Simpson proposal, and I’ve carried them through to this proposal. It gradually increases the maximum level of wages taxed for Social Security; and raises the retirement age, but only very gradually – reaching age 69 by 2075.
With respect to the enhanced minimum benefit provision, I received a commitment during the Fiscal Commission discussions that it be better targeted to protect low-income beneficiaries. And I am committed to seeing that provision improved.
The Fiscal Commission Budget Plan also includes the kind of fundamental tax reform that was included in Bowles-Simpson. The need for tax reform could not be more clear. The state of the tax code is simply indefensible. It is out of date, inefficient, and hurting the competitive position of our country. As everyone who has been filing taxes in recent days knows, the complexity of the tax code imposes a significant burden on those required to file returns. Expiring provisions create uncertainty and confusion. The tax code is also hemorrhaging revenue from the tax gap, tax havens, and abusive tax shelters. We also need to restore fairness to the tax code. The current system is contributing to the growing income inequality in the country. And finally, we need tax reform to help address the long-term fiscal imbalance. Revenue is part of the problem and must be part of the solution.
Adopting comprehensive tax reform will spur economic growth and allow us to compete better in the global marketplace. Here is how our CBO Director, Mr. Elmendorf, described the economic benefit of tax reform in his testimony before this Committee. And I quote him: “I think analysts would widely agree that reform of the tax code that broadened the base and brought down rates would be a positive force for economic growth, both in the short term and over a longer period.”
Tax reform can also help address the growing income inequality in the country. In recent years, we have seen that gap grow. Since 1979, the real after-tax household income for the top one percent has grown about 275 percent. Over the same time period, the income for the middle quintile has grown about 35 percent.
Our tax system, I believe, is contributing to this income inequality. It is not the only factor, there are many others, globalization and others. But I think we have to acknowledge, the tax system is part of it. Tax expenditures – the countless preferences, credits, deductions, and exclusions that have been added to the code over the years – are disproportionately benefitting those at the very top.
In 2011, the top one percent of taxpayers received an increase in after-tax income of almost $220,000 from tax expenditures. In comparison, the middle quintile received about $3,200 from tax expenditures.
By scaling back some tax expenditures – and by the way, tax expenditures are now more than all of the appropriated accounts – by scaling some of them back we can simplify the tax code, vastly improve the economy’s efficiency and competitiveness, and help restore fairness.
Here is how conservative economist Martin Feldstein, Chairman of the Council of Economic Advisers under President Reagan, described the benefit of reducing tax expenditures in an oped in the Wall Street Journal. And I quote from Martin Feldstein: “Cutting tax expenditures is really the best way to reduce government spending....” Let me just repeat that. “Cutting tax expenditures is really the best way to reduce government spending.... [E]liminating tax expenditures does not increase marginal tax rates or reduce the reward for saving, investment or risk-taking. It would also increase overall economic efficiency by removing incentives that distort private spending decisions. And eliminating or consolidating the large number of overlapping tax-based subsidies would also greatly simplify tax filing. In short, cutting tax expenditures is not at all like other ways of raising revenue.”
We also know that we need more revenue. Some of my Republican colleagues have argued that revenue should not exceed 18 percent of GDP, the average over the last several decades. But on the five occasions when the budget was in surplus since 1969, revenues have ranged between 19.5 percent and 20.6 percent of GDP. And we will likely need an somewhat higher revenue level in the future, because the country faces an unprecedented demographic situation with the retirement of the baby boom generation.
The Fiscal Commission Budget Plan includes the kind of fundamental tax reform that I believe needs to be adopted. It eliminates or scales back tax expenditures, and lowers tax rates. It promotes economic growth and improves America’s global competitiveness. It makes the tax code more progressive.
Notably, the Commission’s report included an “illustrative” tax reform plan that demonstrates how eliminating or scaling back tax expenditures can simplify the code while lowering rates. Instead of six brackets, it includes just three – 12 percent, 22 percent, and 28 percent. The corporate rate would also be reduced from 35 percent to 28 percent. Capital gains and dividends would be taxed as ordinary income. That is part of the original Bowles-Simpson plan. Although a differential could be maintained if it were bought up with a higher top rate. The mortgage interest and charitable deductions would be reformed, better targeting these tax benefits. The Child Tax Credit and Earned Income Tax Credit would be preserved to help working families. And the Alternative Minimum Tax would be repealed.
Overall, the Fiscal Commission Budget Plan would increase revenue to 20.5 percent of GDP by 2022.
Over the ten years, revenue under the plan would average 19.7 percent of GDP, roughly the same level seen during the Clinton Administration, when we experienced the longest period of uninterrupted economic growth in the nation’s history, and 24 million jobs were created.
In dollar terms, compared to the alternative baseline provided in the plan, it includes $2.4 trillion in new revenue over the ten years. Compared to a current law baseline, it represents a $1.8 trillion tax cut. So, compared to the alternative baseline, it represents an increase in revenue of $2.4 trillion. Compared to current law, it represents a tax cut of $1.8 trillion.
Like the original Fiscal Commission proposal, the plan includes a number of process changes to improve budget procedures and help enforce fiscal discipline. These include: discretionary spending caps through 2022 enforced by a 60-vote point of order and sequester; firewalls between Security and Non-Security funding through 2015; a separate cap for war funding with annual limits proposed by the President; a more rigorous emergency designation procedure and annual budgeting for disasters. Let me just say with respect to a more rigorous emergency designation procedure, Senator Crapo has done an enormous amount of work on trying to close down the emergency designation loophole that has been so abused in the past. Some of those provisions are provided here; all of which were in Bowles-Simpson. A failsafe to pressure Congress to maintain a stable debt-to- GDP ratio starting in 2015; more accurate inflation adjustments for indexed programs; and a process to ensure more reliable and timely extended unemployment benefits.
So that is the plan. It is comprehensive. It is balanced. It is fair. And it represents the best blueprint we have from which to build a bipartisan agreement.
But I recognize it is not perfect. And I recognize adjustments will have to be made before anything like this can hope to be adopted. Those adjustments will have to be negotiated, and those negotiations will take time. Those of us who were involved in the Commission certainly know that.
I intend to give Members time to evaluate my Chairman’s Mark. And then I hope to hear back on how you think we can best maximize our chance of getting a result. How can we best maximize the chance of actually getting a result?
We are facing a fiscal train wreck at the end of this year. The expiration of all of the Bush era tax cuts, the sequester. I don’t think anybody thinks that would be a good place to go.
It is time to move off of our fixed positions. I understand that is probably unlikely right before an election, but before the end of the year, we are going to have to find a way to come together.
This Fiscal Commission Budget Plan represents, I believe, a blueprint to begin that conversation.
Listen to audio of these remarks (This is a large file and may take a minute to load)
I thank all of my colleagues today.
Let me indicate my own view, because everyone else has expressed themselves on this question. When I hear colleagues say there’s been no budget put in place for 1,000 days, I just don’t think that is correct. I really don’t.
We passed last year the Budget Control Act. The Budget Control Act is not a resolution. The Budget Control Act is a law.
A resolution is purely a Congressional document. It never goes to the President for his signature. The Budget Control Act passed both Houses of the Congress and went to the President for his signature.
The Budget Control Act not only set the budget for this year and next. And I just read the language from the Budget Control Act: “...the allocations, aggregates and levels...shall apply in the Senate in the same manner as for a concurrent resolution on the budget for fiscal year 2012.”
That exact same language is repeated in the next paragraph for 2013. The Budget Control Act law “shall apply in the Senate in the same manner as for a concurrent resolution on the budget.”
To suggest we have not put in place spending limits or spending restraint, I think is misleading to people who are listening. I believe it is very clear in the Budget Control Act that we passed a law that put in place spending limits, not only for two years, but quite extraordinarily, spending caps for 10 years. I have been here 26 years. I have never seen a budget resolution put in place spending caps for more than three years. The Budget Control Act put in place spending caps for 10 years.
In addition, the Budget Control Act created a Special Committee with the obligation to come up with a plan for reforming Social Security, Medicare and the tax system, and told them if you are able to agree, you will be able to bring that proposal to the floor of the Senate and not face a filibuster, be able to pass reforms to those programs on a simple majority vote. And it further said if you can’t agree, there will have to be an additional $1.2 trillion of cuts put in place in the so-called sequester.
Because the Special Committee did not agree, the $900 billion of savings under the Budget Control Act are law, as are the additional $1.2 trillion of spending cuts created by the fact that the Special Committee could not agree on reforming Medicare, Social Security and our tax system. That is a total package of over $2 trillion of spending cuts. That is more than any package of spending cuts or spending restraint in the history of our country.
Where I do agree is that we don’t have a long-term plan. We do have a budget for this year, and next. Spending restrictions in place for those two years. But what we don’t have is a long-term plan. That’s why I spent a lot of time trying to figure out what I would take before this Committee.
At the end of the day, I decided to do what I deeply believe. And I deeply believe Bowles-Simpson, however imperfect it is, and there are lots of things there that I strenuously disagree with. I told my staff, I’ll never forget the morning of the vote on Bowles-Simpson, the only thing worse than being for this is being against it. Because at least it gets our debt under control and begins to bring it down. And it does it in some kind of balanced way. I would be the first to acknowledge we have got to make adjustments to it, because things have happened in the interval.
I would say this also to you, and I say this with sincerity. I don’t believe that this is going to get resolved, I don’t believe that all parties are going to get out of their fixed positions, before an election. I wish we could. I wish we would. I don’t see any evidence in my 26 years that that is going to happen.
In fact, budget resolutions have not been done for a decade – no matter who was in charge of the Senate – in an election year. The only time it has happened was when I last became Chairman – in 2008, I was able to get, in an election year, a budget resolution. That’s one reason I insisted that in the Budget Control Act we did put in place spending limitations for the next two years, and the enforcement mechanisms, and spending caps for the next 10.
I tell you I believe as deeply as anybody in this Committee that we have got an obligation and a responsibility – Senator Johnson, you said it well, a responsibility, a deep responsibility – to get this country back on track. I am willing to work with anyone in these coming months to figure out what adjustments would need to be made to the Mark I have laid down. I will dedicate myself to trying to find a way to come together so at the end of this year, before we face the expiration of all the tax cuts that are in place, and before we face the sequester that I do believe would cut too much on national defense, that we find an alternative. I am absolutely committed to trying.
With that, the Committee will stand in recess. We’ll distribute the Mark. I thank all Members for participating.
Materials:Charts used in the description of the Fiscal Commission Budget Plan
- 6/19/13 -
- 6/18/13 -
- 6/12/13 -
- 6/6/13 -
- 6/4/13 -
- 5/23/13 -
- 5/22/13 -
- 5/21/13 -
- 5/21/13 -
- 5/16/13 -