Paul Ryan Responds To "Gang Of Six" "Bipartisan" "Deficit-Cutting" "Plan"

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When we presented the Gang of Six joke of a deficit-cutting "plan" we called it a "talking point bulletin full of ridiculous fluff with nothing substantial." It appears that at least Paul Ryan seems to agree: "The plan is not a budget.  It is a set of talking points and graphs
that outlines an ambitious proposal that has serious flaws but also the
potential for worthwhile budget and tax reforms." The Wisconsin Congressman has just released a much needed follow up to the 4 page chart book (disclosed previously here), which confirms that the "Compromise" plan is DOA in the Congress.... 48 hours away from D-Day: "The following analysis
examines these problems, raises questions about the lack of detail in
the plan, and notes the areas where there is potential to make progress
on spending restraint and tax reform."

From:

The Gang of Six Budget Effort
Problems, Questions and the Potential for Promising Reforms

Earlier today, a group of U.S. Senators (“Gang of Six”) released “A Bipartisan Plan to Reduce Our Nation’s Deficits.” 
The plan is not a budget.  It is a set of talking points and graphs
that outlines an ambitious proposal that has serious flaws but also the
potential for worthwhile budget and tax reforms.  The following analysis
examines these problems, raises questions about the lack of detail in
the plan, and notes the areas where there is potential to make progress
on spending restraint and tax reform.

Of note, in response to release of the Gang of Six plan, House Budget
Committee Chairman Paul Ryan issued the following statement:

“The proposal put forward by a group of seven senators today is a
useful addition to the budget debate.  I share the frustration that
these senators appear to have with the U.S. Senate’s inability to pass a
budget in over 800 days.  While the proposal lacks detail in many
respects, it includes some reforms that could help put our country on a
sounder fiscal footing.  Most importantly, it reflects a bipartisan
recognition that lower tax rates are essential to help spur economic
growth.  Unfortunately, it increases revenues while failing to seriously
address exploding federal spending on health care, which is the primary
driver of our debt.  There are also serious concerns that the
proposal’s substance on spending falls far short of what is needed to
achieve the savings it claims.  Nevertheless, this effort serves as a
sign that we can work together on a bipartisan basis to make a serious
down payment now to avert the debt-fueled economic crisis before us.”

_______________________________

Problems

Heavy Reliance on Revenues.  The plan claims to increase
revenues by $1.2 trillion relative to a “plausible baseline.”   It also
claims to provide $1.5 trillion in tax relief relative to the CBO March
baseline.  The CBO baseline assumes the expiration of tax relief,
resulting in a $3.5 trillion revenue increase.  As a result, the plan
appears to include a $2 trillion revenue increase relative to a current policy baseline
If the $800 billion in tax increases from the new health care law are
included, the plan appears to increase revenues by $2.8 trillion,
without addressing unsustainable health care spending that is driving
our debt problems. 

Elusive Spending Restraint.  It is unclear how much the plan
achieves in spending savings.  Based on released documents, it appears
to primarily rely on cuts in the defense budget through $886 billion in
reductions from the President’s budget for “security programs.”[1] 

Lack of Entitlement Reform.  The plan does not address the
$1.4 trillion in spending expansions in the new health care law.  The
health care law increases eligibility for the Medicaid program by
one-third and creates a brand new health care entitlement.  It does not
appear to include reforms to the Medicare program.  While it appears to
pursue Social Security reform, it could end up creating barriers to
enactment of these reforms.  

 Questions

Unspecified Savings Relative to What?  The plan is described
as savings relative to a “baseline.”  The plan appears to use three
different baselines for showing savings:  1) CBO’s current law March
baseline; 2) an undefined modification to that baseline (what it calls a
“plausible baseline”); and 3) the Fiscal Commission’s baseline.  It
does not provide annual spending and revenue totals by category, relying
instead on savings relative to three different baselines.  So, it is
unclear what exactly the spending and tax proposals are.

Where Does the Revenue Come From?  It sets a tall order for
tax reform with what appear to be conflicting assumptions: 1) raise $1.2
trillion in revenue; 2) repeal the alternative minimum tax at a cost of
$1.7 trillion; 3) lower tax rates to encourage economic growth (top
rate of no higher than 29%); 4) do not eliminate tax expenditures for
health care, charitable giving, homeownership, retirement, and
low-income workers and families (the largest of the tax expenditures);
5) raise $133 billion in revenue by 2021 for the highway trust fund
without raising gasoline taxes. 

Where Do Health Care Savings Come From?  It claims $117
billion in additional federal health care savings over 10 years by
assuming that health care spending per capita grows no faster than
economic growth (GDP) plus one percent.  The new health care law already
requires the Independent Payment Advisory Board (IPAB) to cut Medicare
spending growth per beneficiary to achieve this growth rate starting in
2020.  CBO currently projects that Medicare spending will stay within
that growth rate through 2021.[2]  Therefore, it is unclear how the savings are derived. 

Also, if there are savings to be achieved, there is no enforcement
mechanism for achieving them since the plan would “require action by
Congress and the President” to limit growth to these levels.  Current
law requires the President to submit a plan and Congress to enact
legislation to make additional savings in Medicare that the President
and Congress have ignored. 

Where are the Missing Mandatory Savings?  The plan lists $516
billion in mandatory savings for Committees to achieve (including
program integrity savings and savings from modifying the CPI), but then
claims $641 billion in mandatory savings, leaving $125 billion in
missing savings.

Pathway or Roadblocks to Social Security Reform?  While the
plan seems to be a well-intentioned effort to move Social Security
reform forward, it sets out procedures that could derail both Social
Security reform and additional spending savings called for in the plan. 
First, it does not allow a Social Security reform bill to proceed until
the Senate has gotten 60 votes to pass additional deficit reduction. 
Second, it blocks the additional deficit reduction bill if the Senate
does not get 60 votes to pass the Social Security bill.

Potential for Promising Reforms

Tax Reform.  It acknowledges the need for tax reform, proposes
a top rate of not more than 29% and as low as 23%.  It calls for the
reduction of the top corporate tax rate to at least 29% and as low as
23%.  It recognizes the current tax code’s complexity and high marginal
tax rates hinders economic and job growth.  It calls for the tax code to
be reformed to move to a territorial system.  It calls for any
unanticipated additional revenues from economic growth to be used to
lower tax rates or deficit reduction, and not used for higher spending. 
While a laudable proposal, it appears to have no mechanism to ensure
this result.   To achieve this objective would require, at a minimum, a
cap on total spending and ideally a cap on revenues as well. 

Spending Caps.  It proposes to reinstate statutory caps on
discretionary spending.  It also sets out a budget reconciliation
process for committees to achieve mandatory spending savings and if
those savings are not achieved, it calls for across-the-board spending
reductions.

Threshold for Waivers of Spending Limits.  It increases the
number of votes necessary to waive the budget from three-fifths to
two-thirds in the Senate and appears to provide a new requirement that
the House gain two-thirds margin to waive spending limits.

Other Positive Signs:

  • It repeals the CLASS Act, a misguided proposal included in the new health care law.

  • It calls for medical malpractice reform.

  • It calls for reforming the current process for “emergency spending” (though the reforms are unspecified).

View as a PDF here.

[1]
In the security category the Gang of Six reduced the security category
by $886 billion.  Department of Defense (DOD) spending comprises
approximately 85% of the security category.  The Gang of Six also
proposes a firewall that requires this $886 billion is cut from security
spending. 

[2] In his April 13th
budget framework, the President has proposed to require the IPAB to
reduce per beneficiary growth to GDP plus 0.5% of GDP beginning in 2018.