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Wednesday, July 20, 2011

Ryan and the Gang of Six

Posted at 09:31 AM ET, 07/20/2011


Over the past few months, Rep. Paul Ryan has frequently expressed his annoyance that the president formed a bipartisan fiscal commission and then ignored the ideas its co-founders, and a majority of its members, backed. “The president just took us a few steps backwards by ignoring the commission’s findings, by ignoring its conclusions,” he told Politico’s Mike Allen. “He punted to a fiscal commission and then he just didn’t even embrace the Fiscal Commission,” he told Fox News.
Well, now six senators have brought out a plan almost identical to the Simpson-Bowles recommendations and the president has embraced it. Ryan’s response? Not so positive (pdf). Which is entirely predictable, as Ryan served on the fiscal commission and then voted against the final proposal. But it does put his complaints over the past few months into context. Ryan wasn’t upset that the president didn’t support a plan that Ryan also didn’t support. That would be absurd. He just saw an opportunity to attack him for not supporting a plan that, at the least, a lot of Washington elites supported, and saw as a mark of seriousness.



THE GANG OF SIX BUDGET EFFORT
 
PROBLEMS, QUESTIONS AND THE POTENTIAL FOR
 
PROMISING REFORMS
 
July 19, 2011
__________________
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 curren
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 forCommittees 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‐intentionedeffort 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 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 



footnotes
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

Can the Gang of Six’s plan pass?

Posted at 07:49 AM ET, 07/20/2011



Senate Budget Committee Chairman Sen. Kent Conrad( D-N.D.) is a member of the Gang of Six. (Alex Brandon - AP)
Can the Gang of Six's plan pass? There are two answers to that question. The first is "not before the debt limit comes due." The second is, "probably not after that, either."
The Gang of Six's plan -- here's the whole proposal (pdf), here's my summary of its provisions -- though fairly detailed for this sort of thing, hasn't been drafted into legislation yet. It hasn't been sent to the Congressional Budget Office. The rest of the Senate -- much less the House -- hasn't been briefed on it in detail, with staffs answering questions back-and-forth and legislators reaching out to the people they trust for analysis. There's a lot of work left to be done here. Too much for it to wrap up by August 2nd. Even Sen. Dick Durbin, a founding member of the Gang and a generally optimistic guy, admitsthat the proposal can't be finished and sold to his colleagues within the next two weeks.
And after that? It's harder to say. The Obama administration offered Republicans a $4 trillion grand bargain that, if anything, included less in new taxes, but otherwise would have looked quite similar to the Gang of Six's proposal. They rejected it. It's possible that Republicans are looking at the latest polls and reconsidering their intransigence, or perhaps they're simply more favorably inclined towards a proposal written by Sen. Tom Coburn than one outlined by President Barack Obama. I've also heard that there are a number of Senate Republicans frustrated with the House GOP's negotiating stance and anxious to do something bigger than Majority Leader Eric Cantor would prefer. But none of these arguments strike me as gamechangers, particularly considering that the Gang of Six's proposal will have to pass the House as well as the Senate.
Further complicating matters is the fact that if the Gang of Six proposal can't pass by the time the debt ceiling needs to be lifted, then the deal to lift the debt ceiling, which seems likely to include at least $1.5 trillion in spending cuts, will have used up many of the cuts in the Gang of Six's plan. And with those cuts gone, it's not clear why the GOP would sign onto a plan that now includes a higher proportion of taxes to spending cuts, and nor is it clear that Democrats would accept the sort of deep gashes you would have to make in the state to find another $1.5 trillion in cuts that could replace them.
I don't want to be too pessimistic here. The political system's reaction to the plan has been surprisingly positive. But over the last year, pessimism has tended to be the right stance towards the real-world prospects of these sorts of plans.
Five in the morning
1) The Gang of Six's debt plan is out and gaining steam, report Lori Montomery and Rosalind Helderman: "President Obama and lawmakers in both parties latched on to a new strategy for reducing the federal debt Tuesday, saying an emerging plan to save $3.7 trillion over the next decade could help break a political impasse over the debt limit and avert a U.S. default. The proposal, crafted by a bipartisan group of senators known as the 'Gang of Six,' calls for $500 billion in immediate savings and requires lawmakers in the coming months to cut agency spending, overhaul Social Security and Medicare, and rewrite the tax code to generate more than $1 trillion in fresh revenue. In the works since January, the plan became public Tuesday, just as it was becoming apparent that the leading option for raising the federal debt limit faces bleak prospects in the House."
2) My summary of the proposal's features is here. The conclusion: "We're effectively seeing something of a do-over. Simpson-Bowles didn't really get the support of any of the senators on the committee. They all said they wanted to make changes. Now, they have. Many politicians — a number of them on the right — blasted President Obama for dismissing the Simpson-Bowles plan rather than making it his own. In remarks this afternoon, he said the Gang of Six's product is "consistent" with his principles and made it pretty clear that if the House and Senate agree on a variant of this plan, he'll sign it. So what we have here is a bipartisan deficit-reduction plan that hits the $4 trillion target — or at least gets very close — and carries presidential support. Now we find out if such a thing can actually pass."
3) The plan won't be ready in time to prevent default, report Alexander Bolton and Erik Wasson: "Key Senate Democrats on Tuesday said the Gang of Six’s $3.7 trillion deficit-reduction proposal could not be included in a package to raise the $14.3 trillion debt ceiling by Aug. 2. Senate Democratic whip Dick Durbin (Ill.), a member of the Gang of Six, said Tuesday the group’s plan is not ready to be attached to legislation to increase the debt limit. 'The Gang of Six plan has not been drafted nor has it been scored by the CBO -- it’s not ready for prime time,' Durbin said, making reference to the Congressional Budget Office. 'But as a concept, I think we have the starting concepts together, and that’s what we presented today.' 'What we’re trying to do is to build these concepts into a long-term debt-reduction' plan, Durbin said."
4) House Democrats will oppose any entitlement cuts as part of the debt deal, reports Mike Lillis: "The second-ranking House Democrat on Tuesday threw his weight behind the party's blanket opposition to entitlement benefit cuts in a debt-ceiling deal. Minority Whip Steny Hoyer (D-Md.) said it was the consensus of Democrats to oppose any benefit cuts under Social Security, Medicare and Medicaid...As recently as last week, the Democratic whip was being careful not to rule out any policy options during the contentious debt talks -- a position shared by President Obama...By going on the record opposing entitlement benefit cuts, Hoyer has aligned himself with more liberal House Democrats like Minority Leader Nancy Pelosi (D-Calif.), who has been clear from the start of the debate that she's open to entitlement reforms, but not benefit cuts. "
5) Voters think both sides aren't compromising, report Dan Balz and Jon Cohen: "Majorities of Americans see both President Obama and congressional Republicans as not willing enough to compromise in their budget negotiations, but the public views the GOP leaders as particularly intransigent, according to a new Washington Post-ABC News poll. There is also growing dissatisfaction among Republicans with the hard-line stance of their congressional representatives: Fifty-eight percent say their leaders are not doing enough to strike a deal, up from 42 percent in March. While Republicans in Congress have remained united in their opposition to any tax increases, the poll finds GOP majorities favoring some of the specific changes advocated by the president, including higher income tax rates for the wealthiest Americans."


A Bipartisan Plan to Reduce Our Nations Deficits v7


There are three graphs I could not download

The Gang of Six's plan: Better than we're likely to do otherwise

Posted at 05:29 PM ET, 07/19/2011

Let's start with what's in the Gang of Six's plan (pdf) — or at least what we know is in it.
The first piece is $500 billion in immediate cuts and new revenue. That mainly comes through a cap on discretionary spending and slowly moving the government's measure of inflation to chained-CPI, which ends up reducing Social Security benefits and raising taxes. It also repeals the CLASS Act, which doesn't save any money in the short-term but potentially saves a fair amount in the long term, lays down some new budgetary rules and sells off some federal property.
But that's $500 billion out of a planned $3.7 trillion. So it's really what comes next that's interesting.
Entitlements come next. The proposal directs the Senate Finance Committee to find $300 billion in health savings to permanently fix the way Medicare pays doctors, and then to pull out another $200 billion in health savings — or perhaps it's $85 billion, the document is slightly confusing — on top of that. It also directs the committee to "maintain the essential health services the poor and the elderly rely on." I take that to mean structural changes such as the Ryan Plan are off the table, but things like raising the Medicare eligibility age or increasing cost sharing are fair game. Various other committees ranging from Armed Services to Energy then have to find another $250 billion or so. We're talking a lot of money here, so the cuts will have to go deep.
Then, tax reform. The code is simplified down to three brackets. Depending on how many loopholes and breaks the negotiators want to eliminate, the brackets will be between 8 and 12 percent for the lowest bracket, 14 and 22 percent for the middle bracket, and 23 and 29 percent for the top bracket. Notably, the Finance Committee is directed to leave the Earned Income Tax Credit and the Child tax Credit, both of which are hugely important to low-income folks, untouched.
But though some of that money is going to lower brackets, the reforms must raise more than $1 trillion in new revenue — including $133 billion for infrastructure. The plan also appears to build the expiration of the Bush tax cuts for income over $250,000 into the baseline. So the total amount of revenue raised might be closer to $2 trillion, if you're counting against where we are now. Of course, if you count against the expiration of the Bush tax cuts, it's a tax cut of about $1.5 trillion. Finally, the plan also calls for revenue-neutral corporate tax reform.
Then the Budget Committee is charged with drawing up legislation to extend the caps on discretionary spending — which cover both defense and non-defense, and, if I understand this right, cut more than $1 trillion from projected spending — until 2021, and to draw up an enforcement mechanism that will kick in if deficit reduction isn't on track come 2015. Come 2020, federal health spending is put on a global budget, with growth not to exceed GDP plus 1 percent.
Finally, once all that's passed, the Finance Committee is asked to produce legislation making Social Security solvent for the next 75 years, and their product is assured certain procedural advantages. There's very little in the way of specifics here, but there's an odd line suggesting that if this effort fails, then the vote on the whole deficit-reduction plan is invalidated. That sounds wrong to me, so I'll check into it.
All in all, it looks a lot like the Simpson-Bowles plan, which was pretty much the point of the exercise. A few weeks ago, I wrote a column arguing that, in retrospect, the Simpson-Bowles plan was a pretty good deal: It was more balanced on both the spending and the tax side than the president's April deficit-reduction proposal. I think that it is, if anything, truer now than it was then, and truer in this bill than it was in that bill. This bill, for instance, appears to jettison the Simpson-Bowles recommendation that tax revenues be capped at 21 percent of GDP.
It's become quite clear that a big deficit bill will be more balanced than a series of small bills. It would also be nice to get deficits off of the agenda for awhile so the political system could do other things. And though this doesn't get much attention, you can get more actual reform in a big bill — think of the difference between overhauling the tax code and simply raising rates slightly, or the difference between changing how Medicare pays doctors and simply cutting benefits — than you can out of a small bill, which ultimately means you're making better policy. So though there's lots to argue with in this bill, and lots that I, personally, would like to change, I don't think there's much doubt that it's far better than what Congress is likely to do — or not do — if it fails.
What's also interesting is that we're effectively seeing something of a do-over. Simpson-Bowles didn't really get the support of any of the senators on the committee. They all said they wanted to make changes. Now, they have. Many politicians — a number of them on the right — blasted President Obama for dismissing the Simpson-Bowles plan rather than making it his own. In remarks this afternoon, he said the Gang of Six's product is "consistent" with his principles and made it pretty clear that if the House and Senate agree on a variant of this plan, he'll sign it. So what we have here is a bipartisan deficit-reduction plan that hits the $4 trillion target — or at least gets very close — and carries presidential support. Now we find out if such a thing can actually pass.

Happy Hour Roundup

Posted at 06:46 PM ET, 07/19/2011


* Yes, the ground is shifting on the debt ceiling — big time. From thenew Washington Post/ABC News poll:
More than eight in 10 — including 80 percent of Republicans — say there will be serious harm to the U.S. economy if the government cannot continue to borrow money to fund its operations and pay its debts after Aug. 2.
The more-than-eight-in-ten number — it’s 82 percent, according to the internals — is up 11 points since early June.
* Also key: The new NBC/WSJ poll finds that a plurality now wants a debt ceiling hike, a sharp reversal from June.
* The Post poll also finds that more trust Obama over the GOP on the debt limit, 48-39, and that a big majority, 62 percent, favor addressing the deficit with a mix of spending cuts and tax increases.
* But Obama still has clear vulnerabilities: His approval rating in the Post poll is stuck at 47 percent, and 57 percent disapprove of his handling of the economy.
* Also, Jennifer Rubin makes a fair point — while Dems are winning the debt ceiling standoff, the larger war over government is still unfolding largely on GOP turf.
* Key quote from John Boehner, on the McConnell escape-hatch proposal: “It is responsible for us to look at what Plan B will look like.” Yes, and the rest of the House, too.
* The “Gang of Six” plan may have been very pleasing to the bipartisanship fetishists, but it won’t have a place in the final debt deiling compromise.
* The 2012 GOP hopefuls concede that they won’t voluntarily reveal their bundlers, and they are doing the absolute minimum disclosure required under federal law.
* Top GOP donors continue to beg Chris Christie to step in as a 2012 savior candidate, which says more about the quality of the current GOP field than anything else.
* New federal guidelines resulting from Obamacare mean virtually all insurance plans may soon be required to offer free coverage of birth control.
* Digby says the Obama administration deserves props for the proposal because it will provoke a major national backlash from the right, but she advises liberals to hang tough because it’s a fight they can win.
* Speaking of props, Obama throws his support behind the Respect for Marriage Act — the proposal to repeal DOMA, which defines marriage as between a man and a woman — though it has no chance of passing given GOP control of the House.
* Glenn Greenwald: “Still more work, but gay equality is increasingly becoming an administration bright spot.”
* Check out Joe Conason’s and Avi Zenilman’s new Web site, “The National Memo.”
* They have an interview with Bill Clinton in which he says Obama should take the 14th Amendment option on the debt limit.
* And Jonathan Bernstein has a smart take on the larger meaning of Michele Bachmann’s rough day, and what it says about her chances overall.
UPDATE: Link to NBC poll fixed.

The Morning Plum

Posted at 08:46 AM ET, 07/20/2011


* Republicans to their leaders: Make a deal already: In case you needed further proof that the ground is shifting big time in the debt ceiling debate, consider this number from the new Post poll: Fifty eight percent of Republicans say their leadership is not doing enough to srike a deal, and seventy-nine percent of independents say the same about GOP leaders, versus 62 percent who say it about Obama.
This mirrors Gallup’s finding earlier this week that 57 percent of Republicans, and 72 percent of independents, want their leaders to reach a compromise even if they disagree with its contents.
* Even Republicans favor tax hikes on the rich? As Chris Cillizza and Aaron Blake point out, another striking finding in the Post poll is that 54 percent of self-identified Republicans favor raising taxes on those over $250,000 to help shrink the deficit:
Those numbers suggest that the notion that any tax increase is anathema to the party base — a belief that seems to be guiding much of House Republicans’ negotiating strategy to date — may be misguided or, at least, overstated.
There are certainly signs of serious vulnerability for Obama in the poll. Disapproval of him on the economy is running very high, and the economy could ultimately reduce the debt ceiling standoff to a sideshow. But it’s now impossible to escape the sense that the public views the debt ceiling debate largely on the White House’s terms.
* Gang of Six proposal won’t be part of any deficit compromise:No matter how much gushing there is about the Gang of Six plan released yesterday, the fact is, as Harry Reid says, that there is not enough time for it to be part of any compromise that will raise the debt ceiling before the default deadline.
* Debate in Congress has drifted WAY to the right: Also key in the above link: Some of the $1 trillion in new revenues the Gang of Six plan would raise by closing loopholes would actually go towards reducing the tax rates of the wealthy and corporations. This, even though large majorities — and now a majority of Republicans — favor raising high-end taxes.
* House Dems’ opposition rising to McConnell escape-hatch proposal: Some House Dems think McConnell’s plan to transfer control of the debt ceiling to the President is a trap designed to make Obama absorb all the public blame for high spending, ensuring that he’s a one term president.
Whether that’s true or not, the McConnell plan will need House Dems to pass, given opposition to it among House GOPers, so this is a dynamic to watch.
* Dems win big in Wisconsin recall election: As expected, Dem state senator Dave Hansen trounced his GOP recall challenger by a large margin last night, winning the first test of whether any Wisconsin Dems will be recalled for fleeing the state and setting the stage for the final Dem push to take back the state senate.
“Tonight’s results provide an indicator of what’s possible in the coming weeks,” emails Kelly Steele of the labor-backed We Are Wisconsin. “We look forward to finishing the job in the critical elections that will play out over the upcoming weeks.”
* GOP no longer the party of Reagan: Dana Milbank on how Republicans honor their alleged hero Ronald Reagan more in the breach than the observance, given that he hiked the debt ceiling 16 times and raised taxes 11 times.
* Media getting it right on the debt ceiling: Kevin Drum offers an interesting explanation for why public opinion is shifting in favor of raising the debt ceiling: Media figures are finally getting serious about reporting on the default battle not as mere political theater but as a genuine threat to our economy and well being.
* False equivalence watch: Jonathan Chait says what must not be said in polite company: One party is far more to blame than the other for the debt ceiling impasse, and pundits who claim otherwise are concealing the truth from readers and making default more likely.
* Michele Bachmann, profile in courage: She has a new ad up in Iowa claiming that she’s showing “courage” by opposing a hike in the debt ceiling.
Of course, the reality is exactly the opposite: Her position is nothing but craven demagoguery, and the truly courageous position would be for her to tell 2012 GOP primary voters the truth about default, rather than taking the politically expedient route of feeding their delusions about it.
* Migraine story becoming a serious headache: Politico unearthes new details about her condition, and it seems clear that her initial explanation won’t be enough to fend off continuing media inquires.
* And Bachmann camp blames reporter for scuffle: Wow. So now Bachmann’s spokesperson is claiming her aides shoved around ABC’s Brian Ross because he “jumped on stage and rushed towards us,” an explanation that even the Los Angeles Times’s Andrew Malcolm finds laughable.
What else is going on?