Deficit Negotiations and the Supercommittee

Ron HaskinsOctober 19, 2011

2

The Unsustainable Fiscal Path, 2010-2080

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

2031

2032

2033

2034

2035

2036

2037

2038

2039

2040

2041

2042

2043

2044

2045

2046

2047

2048

2049

2050

2051

2052

2053

2054

2055

2056

2057

2058

2059

2060

2061

2062

2063

2064

2065

2066

2067

2068

2069

2070

2071

2072

2073

2074

2075

2076

2077

2078

2079

2080

2081

2082

2083

2084

0

10

20

30

40

50

60

70

Social SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial SecuritySocial Security

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Medicare, Medicaid, Exchange Subsidies,

and CHIP

Net InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet InterestNet Interest

Average Federal Revenue, 1970-2009

Year

Perc

ent o

f GD

P

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.

3

Spending and the Deficit as a Percentage of GDP in 2010, 2020, and

2050

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.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.

Defense Social Security Medicare, Medicaid, CHIP, and Exchange

Subsidies

All Other Noninterest Net Interest Deficit0

5

10

15

20

25

30

4.8 4.8 5.1

12.9

1.4

9.4

4.8 5.26.5

10.4

3.8

6.6

4.85.9

12.4

10.4

16.5

26.0

Perc

ent o

f GDP

2010

2020

2050

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

New Spending Economic Estimates Tax Cuts0

1

2

3

4

5

6

4.9

4.1

3.5

Co

ntr

ibu

tio

n t

o D

ebt

($ T

rill

ion

s)

Source: Pew, “10 Essential Fiscal Charts,” 2011

6

Causes of Increased U.S. Debt: Spending and Tax Cuts by Category, 2001-

2011

0.00

0.40

0.80

1.20

1.601.70

1.39 1.33 1.26

0.73 0.69 0.66

0.27

0.02

Spending on Tax Category

Co

ntr

ibu

tio

n t

o D

ebt

($ T

rill

ion

s)

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

Discretionary Only

Mandatory Only

All Spending Income Taxes Only

All Revenues Spending Cuts and Revenue Increases

05

101520253035404550 46

21

15

36

16

8

Source of Deficit Reduction

Pe

rce

nta

ge

Ch

an

ge

in

Sp

en

din

g

-

- +

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

DealGot 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

11

Impact of Debt Ceiling Deal on Increase in the Federal Debt, 2012-

2021

Extended Policy Baseline After Debt Ceiling Deal0

2

4

6

8

10

12

14

11.628

9.511

Incr

ease

to

th

e D

ebt

in T

rill

ion

s

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

13

Impacts of Debt Ceiling Cuts on Defense Spending, 2012-2021

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20210

100

200

300

400

500

600

700

800

900

1,000

712 724 738 753 769 786 806 826 847 869 891

700 650 661 675 689 705 722 739 756 773

CBO BaselineBaseline with Debt Ceiling Cuts, Round 1Baseline with Debt Ceiling Cuts, Rounds 1 and 2

Year

Sp

end

ing

(B

illi

on

s)

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).

14

Impacts of Debt Ceiling Cuts on NonDefense Spending, 2012-2021

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 20210

100

200

300

400

500

600

700

511 528 538 550 562 576 590 606 622 639 656

505467 478 489 500 511 524 538 552 564

CBO BaselineBaseline with Debt Ceiling Cuts, Round 1Baseline with Debt Ceiling Cuts, Rounds 1 and 2

Year

Sp

end

ing

(B

illi

on

s)

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

Increase the Payroll Tax by 1 Percentage Point in 2012

Increase the Payroll Tax by 3 Percentage Points Over 20 Years

Tax Covered Earnings Above the Taxable Minimum; Do Not Increase Benefits

Reduce PIA Factors to Index Initial Benefits to Prices Rather Than Earnings

Lower Initial Benefits to Top 70 Percent of Earners

Index Earnings in the AIME and Bend Points in the PIA Formula to Prices

Raise the Full Retirement Age to 70

Reduce COLA by 0.5 Percentage Points

0 20 40 60 80 100 120

30

50

90

100

50

60

30

30

Percentage Improvement in Actuarial Balance

Source: Congressional Budget Office, “Summary Figure 1,” in Social Security Policy Options, summary (2010).

18

Annual Average Real Growth in GDP and in Health Expenditures

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.

1960s 1970s 1980s 1990s 2000s0

1

2

3

4

5

6

7

8

9

7.7%

5.7%

6.5%

4.5%4.3%4.2%

3.2% 3.2%3.4%

1.5%

Average Annual Real Health Expenditure Growth

Average Annual Real GDP Growth

Per

cen

t G

row

th

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 ExpendituresItem 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

2002 2003 2004 2005 2006 2007 2008 2009 20100

10

20

30

40

50

60

70

35

40 51

56

55

5358

53 60

Year

Per

cen

t W

ho

Say

Def

icit

Is

To

p

Pri

ori

ty

Source: Pew Research Center for the People & The Press, various years.

22

Polls: Public Support for Sacrifice

Yes No0%

10%

20%

30%

40%

50%

60%

70%

36%

61%

Willing Not Will-ing

Some, But Not Others

Don't Know/

No An-

swer

-10%

0%

10%

20%

30%

40%

50%

60%

70%

27%

67%

5%

1%

Willing Not Willing Don't Know/No Answer-10%

0%

10%

20%

30%

40%

50%

60%

70%

52%

44%

4%

Source: Gallup, April 2011. Source: CBS News Poll, January 2011. Source: CBS News Poll, January 2011.

23

Polls: Willingness To Cut Specific Programs

Social security payments

Federal aid to education

Health care

Revenue sharing with states and cities

Federal highway financing

Federal jobs programs

Federal aid to cities

Spending for mass transportation

Pollution control

The food stamp program

Defense spending

Federal housing programs

Federally funded scientific research programs

Farm subsidies

Subsidies to business

Federal welfare spending

Space programs

Spending by the regulatoryagencies generally

Foreign military aid

Foreign economic aid

0 10 20 30 40 50 60 70 80

11

21

24

28

31

33

34

35

37

40

41

41

42

42

51

51

54

56

69

75

Percent Supporting Specific Cuts

Source: Harris Interactive Poll, January 17 – 27, 2011