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Deficit Reduction White Paper #2

Deficit Reduction White Paper #2
Comparison of Federal Deficit Reduction Recommendations
June 1, 2011

Since the president established the National Commission on Fiscal Responsibility and Reform in Feb. 2011, the nation’s deficit has gone from being a back page story to headline news. In recent months, the struggle to determine acceptable spending cuts for fiscal year 2011 almost caused the federal government to shutdown. Meanwhile, the support to raise the nation’s debt limit may hinge on the ability to include spending cuts or debt reduction recommendations. With this backdrop, President Barack Obama and House Budget Committee Chairman Paul Ryan each introduced their own proposals to reduce the deficit over the next 10 years. The summary below compares each plan.

 

President Barack Obama’s Proposal

Framework for Shared Prosperity and Shared Fiscal Responsibility

April 13, 2011

The president’s recommendation would reduce the deficit by $4 trillion in 12 years or less, with three dollars of spending cuts and interest savings for every one dollar from tax reform, similar to the Fiscal Commission’s proposal.

 

Chairman Paul Ryan’s Proposal

The Path to Prosperity

April 5, 2011

House Budget Committee Chairman Ryan’s budget resolution plan would reduce the deficit by $4.4 trillion during the next decade. Additionally, The Path to Prosperity vows to create nearly 1 million new jobs and reduce the unemployment rate to 4 percent by 2015.


 

Budget Process / Trigger Mechanisms

President’s Plan

Ryan’s Plan

Establish a “debt failsafe” that would trigger across-the-board spending reductions if, by 2014, the projected ratio of debt-to-GDP is not stabilized and declining toward the end of the decade. The trigger will ensure that deficits as a share of the economy average no more than 2.8 percent of GDP in the second half of the decade.

Establish a cap on discretionary spending for fiscal year 2012 and outline a path for enforceable statutory caps for the next decade.

Establish a binding cap on total spending as a percentage of the economy. Caps on the total size of government would be enforce by sequester.

Require any increase in debt levels to be accompanied by similar spending reductions.

Revenue

Taxes Generally

NCSL Policy

Principles for Fundamental Federal Tax Reform

The National Conference of State Legislatures (NCSL) advances the following set of principles to guide fundamental federal tax reform efforts because of the important implications reform will have on states. Congress and the administration must recognize that:

  • Federal and state tax systems are inextricably linked;
  • Any federal reform will have serious fiscal and administrative ramifications on the states; and
  • State legislators must be involved from the beginning of and throughout the federal reform process.
  • Any reform must avoid a national sales tax in any form, including a federal consumption based tax, which would seriously erode the sales tax base, a traditional revenue source for state governments.

 

President’s Plan

Ryan’s Plan

Calls upon Congress to undertake comprehensive tax reform with fewer loopholes and less complex.

Will not extend the “Bush tax cuts” for the wealthiest Americans.

Keep overall revenue as a share of the economy between 18-19 percent of GDP.

Broaden the tax base and reform the tax code by consolidating the current six brackets and cutting the top individual rate from 35 percent to 25 percent.

 Tax Expenditures

NCSL Policy

Tax-Exempt Financing/Bonds 

  • Preserve the flexibility of state and local government to use tax-exempt financing, including the use of public-private partnerships.
  • Maintain the tax-exempt status of state and local government bonds and lift existing restrictions on state and local government use of tax-exempt bonds.
  • Avoid provisions that weaken the fiscal integrity of state and local governments. This includes: the arbitrage rebate provisions, which essentially are a 100 percent tax on the interest income of state and local governments; the alternative minimum tax, which now taxes interest from otherwise tax-exempt bonds; volume caps, which have unduly restricted the use of bonds for projects that have increasingly become governmental responsibilities; and, restrictions on advance refunding which increases the cost of government.

 

President’s Plan

Ryan’s Plan

Reduce tax expenditures to ensure savings to lower tax rates and the deficit.

Eliminate large tax expenditures to be offset by lower tax rates.

 

Corporate

President’s Plan

Ryan’s Plan

Reform the corporate tax code for the first time in 25 years.

Lowering the corporate tax rate from 35 percent to 25 percent.

Eliminate or modify deductions, credits and special carve-outs in corporate tax code.

 

Discretionary

Discretionary Spending Generally

NCSL Policy

NCSL is concerned that excessive spending increases or tax cuts, given the need for continued fiscal discipline, may threaten funding for existing and future intergovernmental programs. NCSL urges the federal government to keep its existing commitments to state-federal partnership programs and, moreover, to consider the funding necessary to maintain these commitments in the future. Should programmatic cuts be required, all federal spending programs, including defense, entitlements, domestic discretionary, and international, should be scrutinized for savings. The federal government should not disproportionately cut domestic discretionary programs. The federal government should avoid establishing artificial firewalls dividing defense and domestic discretionary spending. Furthermore, Congress should respect the fiscal integrity of trust funds and not use those revenues for programs or tax reduction other than those for which the money was collected. Also the federal government should compensate the states for significant unfunded and underfunded federal mandates.

 

President’s Plan

Ryan’s Plan

Cutting non-discretionary spending similar to recommendations from the President’s Fiscal Commission. This would include capping 2012 spending at 2011 levels, return to 2008 levels in 2013, and then limit growth to half the rate of inflation.

Put non-security government spending to 2008 levels and enforce a five-year freeze.

Reduce federal workforce by 10 percent over three years along with a pay freeze for the next five years and reforms to government workers’ benefit packages.

Return Pell grants to pre-stimulus levels.

 

Transportation

NCSL Policy

Surface Transportation Federalism

The National Conference of State Legislatures (NCSL) calls on Congress to work closely with states to develop a shared, long-term vision for financing and funding surface transportation systems that will enhance the nation’s prosperity and the quality of life of all Americans.

The federal government plays a vital role in supporting a national surface transportation system that meets national defense needs, addresses fairly and equally the mobility needs of all Americans and facilitates interstate commerce. NCSL supports the continuation and preservation of a federal-aid surface transportation program. The federal program should direct spending to national priorities while allowing for state and insular area flexibility in local and regional variations. It is also essential that the federal-aid surface transportation program incorporate requirements and foster goals of other national policies that affect transportation decision making.

Recent federal reauthorizations have recognized the unique contributions of each transportation mode to the productivity of the states and the nation, and to the ability of this nation to compete globally in the emerging and existing international economies. These laws contemplate an integrated transportation system for the movement of both goods and people, with increased emphasis on adopting technologies that improve productivity. NCSL urges Congress to increase funding for federal-aid surface transportation programs and provide states enhanced programming flexibility and increased responsibility for meeting a multitude of national goals. The ability of states to maintain flexibility in decision making and comply with environmental and other mandates is dependent upon regulatory flexibility as well as adequate and reliable funding

President’s Plan

Ryan’s Plan

 

Consolidate highway programs to keep Highway Trust Fund solvent.

 

Defense

NCSL Policy

The federal government should not disproportionately cut domestic discretionary programs. The federal government should avoid establishing artificial firewalls dividing defense and domestic discretionary spending.

President’s Plan

Ryan’s Plan

Agree to cuts recommended by Department of Defense Secretary Gates due to waste and duplication in the security budget, which would ultimately provide savings of $400 billion.

Reduce inefficient spending per recommendations from Defense Secretary Robert Gates. Reinvest part of savings for combat capabilities and put the rest towards deficit reduction.

 

Mandatory / Entitlements

Health Generally

 

President’s Plan

Ryan’s Plan

Improving patient safety with the launch of the new public-private Partnership for Patients. The goals are to prevent patients from getting injured or sick while in the hospital and helping patients heal without complication.

“Clamp down” on states’ use of provider taxes to lower their spending while not providing additional health services through Medicaid.

Convert the Supplemental Nutrition Assistance Program (SNAP) into a block grant tailored for each state’s low-income population, indexed for inflation and eligibility beginning in 2015.

 

Medicare

NCSL Policy

Medicare Reform

NCSL supports full federal funding for Medicare-eligible individuals. In 1988, the congress included a provision in the Medicare Catastrophic Coverage Act that required states to pay the premiums, copayments and deductibles for certain low-income elderly individuals who were eligible for both Medicare and Medicaid. The federal government and program beneficiaries should bear the entire cost. If additional low-income individuals are made eligible for the Medicare program through program reforms, these individuals should be 100 percent federally funded. NCSL opposes increases in Medicare cost-sharing that will shift those costs to state governments through Medicaid. NCSL urges the Congress and the Administration to make the necessary changes in federal law to permit states to coordinate and integrate services provided to individuals who are eligible for both Medicare and Medicaid. When states adopt changes in Medicaid that result in Medicare savings, states should receive credit for those state-generated savings even when they do not directly result in Medicaid savings.

 

President’s Plan

Ryan’s Plan

Strengthen the Independent Payment Advisory Board (IPAB) created by the Affordable Care Act. Specifically, IPAB would ensure Medicare spending growth does not outpace the government’s ability to pay for it over the long run, specifically by setting a new target of Medicare growth per beneficiary growing with GDP per capital plus 0.5 percent.

Limit excessive payments for prescription drugs by leveraging Medicare’s purchasing power.

Younger workers will be offered a list of guaranteed coverage options from which recipients can choose a plan that best suits their needs, with no changes for those in or near retirement.

Provide additional assistance for lower-income beneficiaries and those with greater health risks.

Fix Medicare physician payment formula for the next ten years to ensure beneficiaries continue to receive access to health care.

 

 

Medicaid

NCSL Policy

Over the years, Medicaid has grown from a welfare program that provided assistance to a limited number of categorically eligible individuals to a health care program that is a critical component of the health care infrastructure of this nation. Medicaid provides back-up support to Medicare and to individuals who for whatever reason cannot find coverage through employer-based health insurance or through the individual insurance market. Despite our efforts, affordable, quality health care coverage remains elusive for many. We continue to have an underdeveloped infrastructure for the financing and delivery of long-term care services.

As both the states and the federal government struggle to balance their budgets and to support all the critical functions of government, it is important to discuss and review the state-federal Medicaid partnership. The National Conference of State Legislatures (NCSL) is committed to strengthening, sustaining and improving the state/federal Medicaid partnership and to exploring ways to:

  • Provide predictability in program financing and administration;
  • Increase flexibility for states with respect to the eligibility process and benefit design;
  • Improve the coordination between Medicaid and Medicare to improve the effectiveness of care provided by both programs.
  • Reform and improve the Medicaid prescription drug program;
  • Establish a viable and flourishing long-term care system;
  • Strengthen the employer-based health insurance system;
  • Increase the number of public/private initiatives to expand access to health care and to provide health care and ancillary services to support people with challenging health care needs;
  • Develop program cost containment strategies and mitigate long term costs;
  • Establish or expand primary preventive care systems that provide preventive care;
  • Enhance program and administrative accountability; and
  • Enhance beneficiary and provider responsibility.

 

President’s Plan

Ryan’s Plan

Promote simplicity, efficiency and accountability by replacing the current federal matching formulas with a single matching rate for all program spending that would reward states for efficiency and automatically increases if a recession forces enrollment and state costs to rise.

Convert the federal share of Medicaid spending into a block grant tailored to meet each state’s needs, indexed for inflation and population growth.

Improve the health-care safety net for low-income
Americans by giving state the ability to offer their Medicaid populations more options and better access to care.

 

Social Security

NCSL Policy

Mandatory Social Security Coverage of State and Local Government Employees

NCSL has long opposed further involvement of the federal government in the administration of public retirement plans including the expansion of mandated Social Security coverage to state and local employees not currently covered under the system. NCSL maintains that state and local governments should be allowed to affiliate their retirement plans voluntarily with Social Security, as was the case before passage of the Omnibus Budget Reconciliation Act of 1990. The imposition of mandatory coverage on state and local employees who are not currently required to contribute to the system constitutes a direct cost shift to states and will have a detrimental effect on state budgets, state retirement plans and the retirement savings of state and local employees. The extension of mandatory coverage to new categories of state and local employees does not solve the insolvency problem and creates new obligations for the system. NCSL's policy, "Mandatory Social Security Coverage of State and Local Government Employees," continues to oppose this mandate.

 

President’s Plan

Ryan’s Plan

Supports bipartisan efforts to strengthen social security in the long-term while also strengthening retirement security for the low-income and vulnerable. This cannot be accomplished from reduced basic-benefits for current beneficiaries or through slashing benefits for future generations.

Establish bipartisan reforms to ensure the program is solvent for current beneficiaries and make Social Security stronger for future generations.

In the event the Social Security program is not sustainable, the President, along with the Board of Trustees, must submit a plan for restoring balance to the fund.

 

Medical Malpractice

NCSL Policy

NCSL recognizes the importance of permitting aggrieved parties to seek full and fair redress in state courts for physical harm done to them due to the negligence of others. NCSL also understands the importance of having clear rules to govern the means and methods by which people can seek such redress. Our American federalism contemplates diversity among the states in establishing these rules and respects the ability of the states to act in their own best interests in matters pertaining to civil liability due to negligence.

NCSL regards the regulation of medical professionals as a purely state matter, not meriting federal intervention or preemption of state laws. All fifty states have statutes of limitations in place stating the timeframe during which it is appropriate for an action to be brought in negligence cases, and many states have established limitations on the amount of noneconomic damages that may be awarded in such cases. All states have evidentiary processes in place that provide for the full and fair adjudication of lawsuits. In sum, in the last decade alone, most states have taken up the issues surrounding medical malpractice and continue to handle the issues surrounding the filing and processing of these cases in ways that are consistent with existing state law, giving due consideration to factors that may be unique to a particular state.

President’s Plan

Ryan’s Plan

 

Ensure the cost of litigation is not passed on to consumers in the form of higher health-care premiums by capping non-economic damages in medical liability lawsuits.

 

Other Mandatory/Entitlement Programs

President’s Plan

Ryan’s Plan

Reform agricultural subsidies, “shore-up” the federal pension insurance system, and restore solvency to the federal unemployment insurance trust fund.

Restructure farm programs and increase farmer independence.