NAM Public Affairs Conference“Fiscal Shock”
April 15, 2013
Hazen MarshallThe Nickles Group, LLC
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Current Budget State of Play
• Budget Control Act sequester + FY13 minibus appropriations bill = a political yawn
• House, Senate, and President produce budgets messaging/negotiating documents
• What happens between now and August recess?
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Comparing House, Senate, and President’s Budgets
• Claims of how much “deficit reduction” has been enacted in recent years are subjective…depends on the starting point.
• Claims of how much a budget plan will reduce future deficits are even more subjective…depends on the baseline.
• Focus instead on the actual results a budget produces – not the change from some subjective starting point.
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House Budget
-$1.225 trillion
Senate Budget
-$5.198 trillion
President's Budget
-$5.270 trillion
Comparing the House, Senate, and President's BudgetsTotal Deficits 2014-2023
Sources: H.Con.Res. 25, S.Con.Res. 8, OMB
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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
-$528
-$125
-$69 -$54 -$54-$97
-$122-$91 -$93
$7
-$744
-$576
-$528-$487 -$475
-$498 -$503 -$501-$519
-$439
Comparing the House & President's BudgetsDeficit Path - 2014-2023
House Budget deficit/surplus President's Budget deficit
Billi
ons o
f dol
lars
Sources: H.Con.Res. 25, OMB
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House Budget
$40.241 trillion
Senate Budget
$41.164 trillion
President's Budget
$41.231 trillion
Comparing the House, Senate, and President's BudgetsTotal Revenues 2014-2023
Sources: H.Con.Res. 25, S.Con.Res. 8, OMB
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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
18.0%
19.1% 19.1%
18.9% 18.8% 18.7% 18.7%18.9%
19.0%19.1%
17.8%
18.6%
18.8% 18.8% 18.9%
19.2%
19.4%
19.7%19.8%
20.0%
Comparing the House & President's BudgetsRevenues as a Share of GDP
House Budget revenues President's Budget revenues 40-year average
<--17.9%
Sources: H.Con.Res. 25, OMB
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House Budget
$41.466 trillion
Senate Budget
$46.362 trillionPresident's Budget
$46.502 trillion
Comparing the House, Senate and President's BudgetsTotal Spending 2014-2023
Sources: H.Con.Res. 25, S.Con.Res. 8, OMB
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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
21.2%
19.8%
19.5%
19.1% 19.1% 19.2% 19.3% 19.2%19.4%
19.1%
22.2%
21.8%21.6%
21.3% 21.2%21.5%
21.6% 21.7%21.9%
21.7%
Comparing the House & President's BudgetsSpending as a Share of GDP
House Budget spending President's Budget spending 40-year average
<--21.0%
Sources: H.Con.Res. 25, OMB
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House Budget
$14.211 trillion
54.8% of GDP
Senate Budget
$18.230 trillion
70.4% of GDP
President's Budget
$19.030 trillion
73.0% of GDP
Comparing the House, Senate, and President's BudgetsDebt Held by the Public in 2023
Sources: H.Con.Res. 25, S.Con.Res. 8, OMB
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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
77.2%74.1%
70.4%66.9%
64.4%62.4% 60.5% 58.7% 56.9%
54.8%
78.2% 78.2% 77.7% 76.8% 75.9% 75.3% 74.9% 74.4% 73.9% 73.0%
Comparing the House & President's BudgetsDebt held by the Public as a Share of GDP
House Budget debt held by the public President's Budget debt held by the public 40-year average
<--39.2%
Sources: H.Con.Res. 25, OMB
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Tax Reform• Budget battles in the 112th Congress prevented serious tax reform
discussions as both parties waited to “win” the November 2012 elections.
• Behind the scenes, however, Congressional tax committees held hearings and laid the foundation for a tax reform effort…work which continues this year.
• Congressional Republicans insist on revenue-neutral tax reform for both individuals and businesses. The President insists on revenue-neutral corporate tax reform, but wants an additional $800 billion to $1 trillion from upper-income individuals.
• These divergent goals lead most observers to conclude that the fate of tax reform is tied inextricably to a larger budget agreement.
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Tax Reform - House• House Republicans are pursuing tax reform that would:
– Lower the top individual and corporate tax rates to 25% and broaden the tax base,– Shift to a territorial system of taxation for U.S. multinationals, and– Maintain revenue growth consistent with historical norms of 18 to 19 percent of GDP
• The Ways & Means Committee and it’s Chairman Dave Camp (R-MI) have done more than anyone else to advocate and prepare for tax reform with the release of three detailed tax reform discussion drafts:– International– Financial products (derivatives)– Small business / pass through entities
• Chairman Camp and Ranking Member Sander Levin (D-MI) have also formed bipartisan working groups that are tasked with examining various areas of the tax code and soliciting input from stakeholders, academics, practitioners, and the general public.
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Tax Reform - Senate• In the Senate, Finance Chairman Max Baucus (D-MT) and
ranking member Orrin Hatch (R-UT) are hosting tax reform meetings for their members and discussing options.
• The recently-passed Senate budget resolution called for an additional $1 trillion in new revenue from tax reform that “simplifies the tax code, increases fairness, generates economic growth, and improves the competitive position of U.S. businesses.”
• Interestingly…Chairman Baucus did not vote for the Senate budget…
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Tax Reform - President• In February 2012 Treasury released “The President’s Framework for
Business Tax Reform”, which suggested:– Lowering the corporate rate from 35% to 28%,– Continuation of the worldwide system of taxation for multinationals
including the imposition of a new “minimum” tax on foreign income, and– Consideration of a business-level tax on large pass-through entities.
• The President’s new budget released last week called for “revenue-neutral” business tax reform, and included $95 billion in specific business tax increases that could be used to reduce rates.
• Altogether, the President’s budget included $1.1 trillion of net new tax increases over ten years.
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Tax Reform – Major ExpendituresIndividual & corporate, revenue loss over ten years:• Health insurance/expenses $1.301 trillion• Retirement plans $1.032 trillion• Mortgage interest $640 billion• Capital gains preferential rate $331 billion• Charitable deduction $319 billion• State & local tax deduction $292 billion• Accelerated depreciation $274 billion• Deferral foreign income $220 billion• Municipal bond interest $178 billion• Domestic manufacturing deduction $75 billion