Deficit Negotiations and the Supercommittee Ron Haskins October 19, 2011
2 The Unsustainable Fiscal Path, 2010-2080 70 60 50 Percent of GDP 40 30 20 Average Federal Revenue, 1970-2009 Net Interest 10 Medicare, Medicaid, Exchange Subsidies, and CHIP Social Security 0 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055 2060 2065 2070 2075 2080 Year Source: Congressional Budget Office, Supplemental Data for the Congressional Budget Office's Long-Term Budget Outlook (June 2010), available at http://www.cbo.gov/ftpdocs/115xx/doc11579/ltbo-2010data.xls. Note: Based on the Alternative Fiscal Scenario.
Spending and the Deficit as a Percentage of GDP in 2010, 2020, and 2050 3 30 25 20 2010 2020 2050 26,0 Percent of GDP 15 10 12,4 12,9 10,4 10,4 16,5 9,4 5 5,9 4,8 4,8 4,8 4,8 5,2 5,1 6,5 3,8 6,6 0 Defense Social Security Medicare, Medicaid, CHIP, and Exchange Subsidies 1,4 All Other Noninterest Net Interest Deficit Sour e: Co gressio al Budget Offi e, Supple e tal Data for the Co gressio al Budget Offi e's Lo g-term Budget Outlook (June 2010), availa le at http://www.cbo.gov/ftpdocs/115xx/doc11579/ltbo-2010data.xls. Notes: Based on the Alternative Fiscal Scenario. The all other noninterest category includes defense spending. The separate defense category is assumed to grow at the same rate as GDP.
4 Overview of Presentation Sources of Debt Preconditions for Action The Debt Ceiling Deal Taking Action: Social Security, Medicare, Tax Increases Public Support for Action
5 Causes of Increased U.S. Debt: Spending, Economic Estimates, Tax Cuts, 2001-2011 6 Contribution to Debt ($ Trillions) 5 4 3 2 1 0 4,9 4,1 3,5 New Spending Economic Estimates Tax Cuts Source: Pew, 10 Essential Fiscal Charts, 2011
6 Causes of Increased U.S. Debt: Spending and Tax Cuts by Category, 2001-2011 Contribution to Debt ($ Trillions) 1,80 1,60 1,40 1,20 1,00 0,80 0,60 0,40 0,20 0,00 1,70 1,39 1,33 1,26 0,73 0,69 0,66 0,27 0,02 Spending on Tax Category Source: Pew, 10 Essential Fiscal Charts, 2011
7 Taking Action: Preconditions Public recognition that deficits are a problem Public willingness to pay new taxes and accept spending cutbacks Everything on the table Bipartisanship Presidential Leadership
8 Actions Necessary to Get to Debt/GDP Ratio of 60 Percent by 2021 Percentage Change in Spending 50 45 40 35 30 25 20 15 10 5-46 - 21 + 36 - + 15 16 8 0 Discretionary Only Mandatory Only All Spending Income Taxes Only All Revenues Spending Cuts and Revenue Increases Source of Deficit Reduction Note: Current policy baseline; $6.1 trillion deficit reduction in 2021 (assuming tranche 1 of debt ceiling agreement has been achieved, $917 billion cut). Source: Pew, 10 Essential Fiscal Charts, 2011.
9 August Debt Ceiling/Deficit Reduction Package Raise Debt Ceiling (up to $2.4 trillion) Deficit Reduction of $917 Billion Establish Supercommittee to Reduce Deficit by Additional $1.5 or $1.2 Trillion
10 What Republicans and Democrats Wanted Out of Budget Deal Got What They Wanted? What They Wanted Democrats Republicans Cuts in Defense Yes No No Cuts in Big Entitlements Yes No No Tax Increases No Yes
Impact of Debt Ceiling Deal on Increase in the Federal Debt, 2012-2021 14 11 Increase to the Debt in Trillions 12 10 8 6 4 2 11,628 9,511 0 Extended Policy Baseline After Debt Ceiling Deal Source: Congressional Budget Office, Summary Data for the Alternative Fiscal Scenario, from Long Term Budget and Economic Outlook (June, 2011) and Table 3: Effect on the Deficit of the Budget Control Act of 2011, from Impact of the Budget Control Act of 2011 (August 1, 2011).
12 Discretionary Spending Caps 10 Years; $917 Billion Half Domestic; Half Defense/Security Firewall Between Domestic and Defense (2012 only) Action So Far
Spending (Billions) 1.000 900 800 700 600 500 400 300 200 100 0 Impacts of Debt Ceiling Cuts on Defense Spending, 2012-2021 712 724 738 753 769 786 806 826 847 869 891 700 650 661 675 689 705 722 739 756 773 CBO Baseline Baseline with Debt Ceiling Cuts, Round 1 Baseline with Debt Ceiling Cuts, Rounds 1 and 2 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Year Note: Figures are in budget authority. Source: Congressional Budget Office, Table 1-6: Illustrative Paths for Discretionary Budget Authority Subject to Caps in Budget Control Act and Table 1-5: CBO Baseline Projections of Discretionary Spending, from CBO Budget and Economic Outlook: An Update (August, 2011) and Table 1: Estimated Savings from Automatic Reductions, from Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act (September, 2011). 13
14 Spending (Billions) Impacts of Debt Ceiling Cuts on NonDefense Spending, 2012-2021 700 600 500 400 300 200 100 0 511 528 538 550 562 576 590 606 622 639 656 505 CBO Baseline 467 478 489 500 511 524 538 552 564 Baseline with Debt Ceiling Cuts, Round 1 Baseline with Debt Ceiling Cuts, Rounds 1 and 2 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Year Note: Figures are in budget authority. Source: Congressional Budget Office, Table 1-5: CBO Baseline Projections of Discretionary Spending, and Table 1-6: Illustrative Paths for Discretionary Budget Authority Subject to Caps in Budget Control Act from Budget and Economic Outlook: An Update (August, 2011) and Table 1: Estimated Savings from Automatic Reductions, from Estimated Impact of Automatic Budget Enforcement Procedures Specified in the Budget Control Act (September, 2011).
15 Overview of Supercommittee Goal: $1.5 B, 10 Years (begin 2013) 12 Members (6 Rs; 6 Ds) Due Dates: Report to Congress: November 23 Congress Vote on Proposal: December 23 Up or Down Vote; No Filibuster; No Amendments If Fail; Sequester Triggered
16 Taking Action: Social Security Reforms Medicare Reforms Tax Increases
17 Taking Action: Social Security Reforms Reduce COLA by 0.5 Percentage Points Raise the Full Retirement Age to 70 30 30 Index Earnings in the AIME and Bend Points in the PIA Formula to Prices 60 Lower Initial Benefits to Top 70 Percent of Earners 50 Reduce PIA Factors to Index Initial Benefits to Prices Rather Than Earnings 100 Tax Covered Earnings Above the Taxable Minimum; Do Not Increase Benefits 90 Increase the Payroll Tax by 3 Percentage Points Over 20 Years 50 Increase the Payroll Tax by 1 Percentage Point in 2012 30 0 20 40 60 80 100 120 Percentage Improvement in Actuarial Balance Source: Congressional Budget Office, Summary Figure 1, in Social Security Policy Options, summary (2010).
18 9 Annual Average Real Growth in GDP and in Health Expenditures 8 7 7,7% 6,5% Average Annual Real Health Expenditure Growth Average Annual Real GDP Growth 6 5,7% Percent Growth 5 4 4,2% 3,2% 3,2% 4,5% 3,4% 4,3% 3 2 1,5% 1 0 1960s 1970s 1980s 1990s 2000s Note: The 2000s consist of 2000-2009. Sources: Centers for Medicare and Medicaid Services, "Table 1: National Health Expenditures Aggregate, Per Capita Amounts, Percent Distribution, and Average Annual Percent Growth: Selected Calendar Years: 1960-2009," NHE Web Tables; Bureau of Economic Analysis," Table 1.2.4 Price Indexes for Gross Domestic Product by Major Type of Product," National Income and Product Account Tables.
19 Taking Action: Medicare Reform Premium Support Service Areas Mandatory Health Care Services Open Market; Bids from Any Entity Central Clearing House Setting Annual Premium Amounts Adjustments to Premium
20 Taking Action: Reducing Tax Expenditures Item Cost (in Billions) Mortgage Interest $93.8 Property Taxes on Real Property $22.8 Capital Gains on Sales of Principle Residences $16.5 Reduced Rates of Dividends / Long-Term Capital Gains $84.2 Capital Gains at Death $31.7 Investment Income on Life Insurance $25.7 Charitable Contributions $34.5 Employer Contributions for Health Care, Health Premiums $117.3 EITC $52.4 State Taxes $43.6 Total = $522.5 Billion
21 Polls: The Deficit Is Top Priority Percent Who Say Deficit Is Top Priority 70 60 50 40 30 20 10 0 56 53 53 60 58 40 51 55 35 2002 2003 2004 2005 2006 2007 2008 2009 2010 Year Source: Pew Research Center for the People & The Press, various years.
22 Polls: Public Support for Sacrifice 70% 70% 67% 70% 60% 61% 60% 60% 50% 50% 50% 52% 44% 40% 36% 40% 40% 30% 30% 27% 30% 20% 20% 20% 10% 0% Yes No 10% 0% -10% Willing Not Willing 5% Some, But Not Others 1% Don't Know/No Answer 10% 0% -10% 4% Willing Not Willing Don't Know/No Answer Source: Gallup, April 2011. Source: CBS News Poll, January 2011. Source: CBS News Poll, January 2011.
23 Polls: Willingness To Cut Specific Programs Foreign economic aid Foreign military aid Spending by the regulatoryagencies generally Space programs Federal welfare spending Subsidies to business Farm subsidies Federally funded scientific research programs Federal housing programs Defense spending The food stamp program Pollution control Spending for mass transportation Federal aid to cities Federal jobs programs Federal highway financing Revenue sharing with states and cities Health care Federal aid to education Social security payments 11 21 24 28 37 35 34 33 31 42 42 41 41 40 51 51 54 56 69 75 0 10 20 30 40 50 60 70 80 Percent Supporting Specific Cuts Source: Harris Interactive Poll, January 17 27, 2011