[Joint House and Senate Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
OVERVIEW OF PREVIOUS DEBT PROPOSALS
=======================================================================
HEARING
before the
JOINT SELECT COMMITTEE
ON DEFICIT REDUCTION
CONGRESS OF THE UNITED STATES
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
NOVEMBER 1, 2011
__________
Printed for the use of the Joint Select Committee on Deficit Reduction
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JOINT SELECT COMMITTEE ON DEFICIT REDUCTION
JEB HENSARLING, Texas (R) Co-Chair
PATTY MURRAY, Washington (D) Co-Chair
XAVIER BECERRA, California (D) JON KYL, Arizona (R)
FRED UPTON, Michigan (R) MAX BAUCUS, Montana (D)
JAMES CLYBURN, South Carolina (D) ROB PORTMAN, Ohio (R)
DAVE CAMP, Michigan (R) JOHN KERRY, Massachusetts (D)
CHRIS VAN HOLLEN, Maryland (D) PAT TOOMEY, Pennsylvania (R)
Mark Prater, Staff Director
Sarah Kuehl,Deputy Staff Director
(ii)
C O N T E N T S
__________
OPENING STATEMENTS
Page
Hensarling, Hon. Jeb, a U.S. Representative from Texas, co-
chairman, Joint Select Committee on Deficit Reduction.......... 2
Murray, Hon. Patty, a U.S. Senator from Washington, co-chairman,
Joint Select Committee on Deficit Reduction.................... 3
WITNESSES
Bowles, Erskine, Co-Chair, National Commission on Fiscal
Responsibility and Reform...................................... 4
Simpson, Hon. Alan, Co-Chair, National Commission on Fiscal
Responsibility and Reform...................................... 6
Domenici, Hon. Pete, Co-Chair, Debt Reduction Task Force,
Bipartisan Policy Center....................................... 8
Rivlin, Dr. Alice, Co-Chair, Debt Reduction Task Force,
Bipartisan Policy Center....................................... 11
ALPHABETICAL LISTING AND APPENDIX MATERIAL
Bowles, Erskine:
Testimony.................................................... 4
Prepared joint statement..................................... 58
Domenici, Hon. Pete:
Testimony.................................................... 8
Prepared joint statement..................................... 62
Hensarling, Hon. Jeb:
Opening statement............................................ 2
Prepared statement with attached charts...................... 97
Murray, Hon. Patty:
Opening statement............................................ 3
Prepared statement........................................... 106
Rivlin, Dr. Alice:
Testimony.................................................... 11
Prepared joint statement..................................... 62
Responses to questions from committee members................ 90
Simpson, Hon. Alan:
Testimony.................................................... 6
Prepared joint statement..................................... 53
Upton, Hon. Fred:
Slide titled: Score of PPACA: 2014-2023...................... 108
(iii)
OVERVIEW OF PREVIOUS DEBT PROPOSALS
----------
TUESDAY, NOVEMBER 1, 2011
United States Congress,
Joint Select Committee
on Deficit Reduction,
Washington, DC.
The committee met, pursuant to call, at 1:37 p.m., in Room
1100, Longworth House Office Building, Hon. Jeb Hensarling [co-
chairman of the joint committee] presiding.
Present: Representatives Hensarling, Becerra, Camp,
Clyburn, Upton, and Van Hollen.
Senators Murray, Baucus, Kerry, Kyl, Portman, and Toomey.
Chairman Hensarling. The committee will come to order.
Before I recognize myself for an opening statement, I wish
to make a few preliminary remarks.
Number one, I wish to remind all of our guests that the
manifestation of approval or disapproval, including the use of
signs or placards, is a violation of the rules which govern
this committee. The chair wishes to thank our guests in advance
for their cooperation in maintaining order and decorum.
This is the fourth hearing of the Joint Select Committee on
Deficit Reduction, entitled ``Overview of Previous Debt
Proposals.''
I want to thank our witnesses. First, I wish to thank them
for their service to their country, all long-time, storied
public officials.
Senator Alan Simpson, who served as a Senator from Wyoming
for 18 years, served as chairman of the Veterans Committee, a
member of the Finance, Judiciary, and Aging Committee, and
obviously the co-chair of President Obama's National Commission
on Fiscal Responsibility and Reform.
Additionally, Erskine Bowles, who served as chief of staff
to President Bill Clinton and was appointed by President Obama
to also co-chair the National Commission on Fiscal
Responsibility and Reform.
Senator Pete Domenici, the longest-serving Senator in New
Mexico's history, although New Mexico is still a fairly young
State; a storied career as chairman of the Budget Committee;
serves as a senior fellow at the Bipartisan Policy Center.
Finally, Dr. Alice Rivlin, who was a vice chairman of the
Federal Reserve, director of the OMB in the first Clinton
administration, and the founding director of the Congressional
Budget Office, and served with Senator Domenici on the
Bipartisan Policy Center's Task Force for Debt Reduction.
Again, I want to thank each of our witnesses for their
work. There are many other fine organizations and think-tanks
that have added value to the process. This particular committee
chose to hear from these four individuals and these two bodies.
With that, the chair will now yield to himself for an
opening statement.
OPENING STATEMENT OF HON. JEB HENSARLING, A U.S. REPRESENTATIVE
FROM TEXAS, CO-CHAIRMAN, JOINT SELECT COMMITTEE ON DEFICIT
REDUCTION
Chairman Hensarling. What I do believe we will hear from
each of our witnesses is that America at least does indeed face
a legitimate debt crisis. Not only are we operating on borrowed
money, we are operating on borrowed time as well.
In that vein, I never tire of reminding not only myself but
the public and my colleagues that although we have a statutory
goal to reduce the growth of the deficit over 10 years by $1.5
trillion, backed up by a $1.2 trillion sequester should we
fail, more importantly we have a statutory duty to proffer
legislation that would significantly improve the Nation's long-
term fiscal imbalance.
What could not be clearer is that unless we offer
fundamental and structural reforms to our Nation's entitlement
programs, especially health care, we will not only end up
failing in our duty, we may fail our Nation as well.
Health-care costs, measured by GDP, roughly have doubled
since the time of my birth until I entered the workforce and
have risen about two-thirds since then and are growing at what
all acknowledge to be an unsustainable rate. Every agency and
think-tank that I am aware of, every academic study shows that
Medicare will go broke in 9 to 13 years. The President himself
has said, ``The major driver of our long-term liabilities--
everybody here knows it--is Medicare and Medicaid and our
health-care spending. Nothing comes close.'' I continue to
agree with the President.
Unfortunately, Social Security faces its problems as well.
My children will likely put more money into Social Security
than they take out--at best, generational unfairness; at worst,
a form of generational theft.
We have previously heard from the Congressional Budget
Office that tax revenues, upon the recovery of this economy,
will once again produce roughly 18.5 percent of GDP. We also
know that there are many tax increases that are already built
into current law. But spending, principally driven by our
health-care and retirement programs, is due to roughly double
in size, to 40 percent of GDP, over the course of a generation
from where it was just a few short years ago.
Certainly, we cannot tax our way out of this crisis. We
cannot solve it by simply tinkering around the edges of our
entitlement programs. For the sake of our economy, our jobs,
our National security, and our children's future, many people
say it is time to, ``go big.'' I agree, but going big is not
merely measured by slowing the rate of growth of the deficit
over the next 10 years. Going big must be measured in solving
the problem--in other words, fundamental and structural reforms
of our entitlement programs, giving every American the
opportunity for quality health care and quality retirement
security at a cost that does not harm our jobs and diminish our
children's future.
[The prepared statement of Chairman Hensarling appears in
the appendix.]
With that, I will now yield for an opening statement to my
co-chair, Senator Murray of Washington.
OPENING STATEMENT OF HON. PATTY MURRAY, A U.S. SENATOR FROM
WASHINGTON, CO-CHAIRMAN, JOINT SELECT COMMITTEE ON DEFICIT
REDUCTION
Co-Chair Murray. Thank you very much, Co-Chair Hensarling.
And I want to thank all of our colleagues and especially
our witnesses who have all come today. We really appreciate
your being in front of this committee today. And I want to
thank all the members of the public who are joining us, as
well.
We have all been working very hard over the past 2 months,
but with 23 days left to go until our deadline and with even
less time before we need to have a plan ready to be voted on,
we are now entering the critical final phase of this process.
And, as we all know, the consequences of failure are
unacceptable. The triggers that have been put in place would be
devastating for our National defense and for middle-class
families and the most vulnerable Americans that depend on this
country for things like education and housing and even
nutrition assistance for women and infants.
Markets, rating agencies, and businesses across the country
are watching closely to see if Congress can solve this problem.
And the American people are looking to us to break out of the
gridlock and partisan rancor that has dominated D.C. recently
and to deliver the kinds of results that they expect and they
deserve.
That is why members of this committee have been clear: We
need to find a way to come together around a bipartisan deal.
So I believe it is very appropriate that we are having this
hearing with these witnesses as we move into these final few
weeks.
Before us we have Democrats and Republicans who were able
to come together around big and balanced proposals that tackle
some of the most difficult challenges facing our Nation. The
two groups went about it in slightly different ways, and I
don't agree with each piece of each plan, but they provide
serious models for big and balanced bipartisan proposals.
And as I know we will hear more about it today, these
proposals achieved bipartisan support and came together only
because they were balanced, they included concessions from all
sides, and they required all Americans to share in the
sacrifices that this endeavor calls for. Neither of these
bipartisan proposals included only spending cuts, and they
didn't simply address entitlements or only raise revenues. They
put everything on the table. They made tough decisions, and
because of that, they were able to put together balanced
packages that garnered bipartisan support.
So, as this committee moves into the home stretch, hearing
more about the importance of a balanced approach is going to be
very helpful. As our witnesses today can address, a bipartisan
deal isn't possible if Members refuse to come out of their
partisan or ideological corners. It is not enough for either
side to simply say they want to reduce the deficit. Now is the
time when everyone needs to be putting some real skin in the
game and offering serious compromises.
Democrats have made clear that we are prepared to do that.
We have said we are very open to painful concessions and
compromises if Republicans are, as well. And we have put
forward serious ideas to reflect that. But these concessions
will only be made and only considered in the context of a
balanced deal that doesn't just fall on the middle class and
most vulnerable Americans. But that requires big corporations
and the wealthiest among us to share in the sacrifice.
The American people realize that. They overwhelmingly
support a balanced approach, which is why this is the kind of
deal every bipartisan group that has successfully tackled this
issue has made. It is the kind of solution I am looking forward
to hearing more about from our witnesses today, and it is the
kind of deal I hope that every member of this committee is
prepared to make.
So, again, I want to thank our witnesses for being here
with us to have this critical conversation. The bipartisan,
balanced plans that you have put forward provide a strong
foundation for this committee, and we look forward to hearing
your testimony and having a chance to ask our questions. So,
again, thank you to all of you for being here today.
[The prepared statement of Co-Chair Murray appears in the
appendix.]
Chairman Hensarling. Thank you, Senator Murray.
And now we will hear from our panel. I have no idea why you
are seated in this order, but we are going to start with you,
Mr. Bowles.
Each witness will be recognized for 5 minutes, at which
time members will have 10 minutes for questions.
Mr. Bowles, we are now prepared to receive your testimony.
STATEMENT OF ERSKINE BOWLES, CO-CHAIR, NATIONAL COMMISSION ON
FISCAL RESPONSIBILITY AND REFORM
Mr. Bowles. Thank you, Mr. Chairman. I am delighted to be
here. I am delighted to be in the company of these three great
Americans. And I want to thank you for inviting me to come.
Both Alan and I thought long and hard about what we wanted
to say today. We have submitted something in writing to you,
but, instead, I would like to just speak to you from a few
notes I have made.
I know most of you. I have worked closely with almost all
of you on both sides of the aisle. I have great respect for
each of you individually, but, collectively, I am worried you
are going to fail--fail the country.
When Alan and I first got into this, we thought we were
doing it for our 15 grandkids. I have nine, and he has six. But
the closer we got to the numbers, the more we realized we
weren't doing it for our grandkids, we weren't even doing it
for our kids; we were doing it for us. That is how dire the
situation is today.
I think that we face the most predictable economic crisis
in history. I know that the fiscal path we are on here in
Washington is not sustainable. And I know that each of you know
it and you see it, because it is as clear as day.
When Alan and I travel around the country and we talk to
people and we ask them, why do you think we have these
deficits, they tell us, oh, it's got to be waste, fraud, and
abuse, it's got to be foreign aid, oil company subsidies. And,
yes, all of those are a small part of the problem. But the big
problem really comes from four sources, and you know it.
The first is health care. We spend twice as much as any
developed country in the world on health care. And,
unfortunately, if you look at the outcomes, our outcomes don't
match the outlays. We rank somewhere between 25th and 50th in
things like infant mortality, life expectancy, preventable
death. And so the rapid growth of health care and the
unsustainable growth of health care is our number-one problem.
The second biggest problem today, I believe, is that we
spend in this country more than the next 14 largest countries
combined on defense. Admiral Mullen, Chairman of the Joint
Chiefs of Staff, who just stepped down, recently said that our
biggest national security problem is these deficits and this
debt because it will consume every dollar of resource we have.
We believe that we have to make reasonable cuts in defense.
Third, I believe that we have the most ineffective,
inefficient, anticompetitive tax system that man could dream
up. What we believe you need to do is broaden the base,
simplify the Code, eliminate or at least greatly reduce this
backdoor spending that is in the Tax Code, and use that money
to bring down rates and reduce the deficit.
And the fourth cause of the deficit is simply interest on
the debt. And if there is one thing I am familiar with, it is
the power of compound interest. And when interest rates go back
to normal, this country is going to experience the power of
compound interest.
This is a problem we can't grow our way out of. We could
have double-digit growth for decades and not solve this
problem. And, as the chairman said, it is not a problem we can
solely tax our way out of. Raising taxes doesn't do a darn
thing to change the demographics of a country or change the
fact that health care is growing at a faster rate than GDP. And
it is also not a problem that we can solely cut our way out of.
I think you all have proven that over the last year.
That is why our commission came up with a balanced plan of
$4 trillion of deficit reduction over the next decade. We
didn't make the $4 trillion number up because the No. 4 bus
rode down the street. Four trillion is not the maximum amount
we need to reduce the deficit, it is not the ideal amount, it
is the minimum amount we need to reduce the deficit in order to
stabilize the debt and get it on a downward path as a percent
of GDP.
We based this proposal on six basic principles. Those
principles are that we shouldn't do anything to disrupt a very
fragile economic recovery, so we made very light cuts in 2011
and 2012 and did not get spending back to pre-crisis levels in
2013, when we did get it back to pre-crisis levels in real
terms.
Secondly, we didn't want to do anything that hurt the truly
disadvantaged, so we didn't make any big cuts or any cuts in
things like food stamps or SSI or workers' comp. And we
actually did some things to improve Social Security, while
making it sustainably solvent.
Third, we do want to make sure this country is safe and
secure, but we have to realize, as Admiral Mullen said, that
our biggest national security problem is these deficits.
Fourth, we thought the President was right, or at least
half-right, in his State of the Union when he said America must
invest in education, infrastructure, and high-value-added
research if we are going to be competitive in a knowledge-based
global economy. What he left out is we have to do it in a
fiscally responsible manner. We live in a world of limited
resources; that means choices and priorities.
Fifth, as I said earlier, we believe we have to revise the
Tax Code, simplify the Tax Code to broaden the base, to reduce
the tax expenditures, and use the proceeds to reduce rates and
to reduce the deficit.
And, lastly, we have to be serious about spending cuts. We
have to cut spending wherever it is, whether it is in the Tax
Code, the defense budget, the nondefense budget, discretionary
budget, or the entitlement budget.
I believe if you all go big, if you are bold, and if you do
it in a smart manner, that the American people will support you
if you make these big, bold, smart decisions. I hope for the
country's sake you will.
Thank you very much.
Chairman Hensarling. Thank you, Mr. Bowles.
Senator Simpson, you are now recognized.
STATEMENT OF ALAN SIMPSON, CO-CHAIR, NATIONAL COMMISSION ON
FISCAL RESPONSIBILITY AND REFORM
Mr. Simpson. Senator Murray and Representative Hensarling,
it is a pleasure to be here.
I look at this panel, and I, too, know many of you. But at
this stage of life, I have been around the track a while in
this game. Never worked with finer people than Erskine and
Alice and Pete, and have been working through years.
We don't need charts when we go out. We don't use
PowerPoints. We just say, if you spend more than you earn, you
lose your butt. And if you spend a buck and borrow 42 cents of
it, you got to be stupid. Now, people do hear that. It is a
rather wretched thing to say. And then you say, today your
country is borrowing $4.6 billion and will borrow that tomorrow
and the next day and the next day. If that has any common sense
to the American people, it certainly has escaped us.
Now, my dad was a Governor and U.S. Senator. I know the
game of inside baseball, and I know many of you well. As we
wandered through this place a year ago, people came up and
said, ``Save us from ourselves.'' That is not a very smart
thing to say in the duties you have to perform. So this is the
toughest thing you have ever been in or ever will be in,
without question, what you are doing. You have my deepest
admiration and respect, all of you.
And you all know what you have to do. In your gut, you know
what you have to do.
So some will say, well, you and Erskine have nothing to
lose; you are not in the game. Well, that is true. But Dick
Durbin and Tom Coburn had a lot to lose--a couple of diverse
ideological allies. They had something to lose, and they
stepped right up to the plate and did it. They voted for our
report. There were five Democrats, five Republicans, and one
independent.
I used to take these people on when I was in the Congress.
I did not do this suddenly. I am the only living person that
had a hearing on the AARP. They went goofy, absolutely
ballistic. ``Why would you have a hearing on us? We do great
things.'' Well, that is enough of that.
So anyway, I have dealt with professional veterans, I have
dealt with extremists of the senior citizens, I have dealt with
emotion, guilt, fear, racism, I did immigration, Social
Security. I have done it all. And I never lost an election.
I dealt with Peter Rodino, a great Democrat, and Ron
Mazzoli. We did things. I took on the professional veterans. I
never heard anything out of Lloyd Bentsen and Bob Dole and Dan
Inouye when did we veterans stuff. It was always from some guy
that had never done anything, never even been in the military.
And in immigration I was called a bigot and a racist, and
yet that bill brought 3 million people out of the dark. I was
very proud of that. But it never got very far because the right
and the left said, this is a national ID card, heh, heh, heh.
That came from the right and the left.
People admire guts and courage. They may fight you, they
may vilify you, but they will admire you. I have been the toast
of the town one day and toast the next. I have been on the A
list and the Z list in this town when I was here. It is a funny
place. You are on the cover of Time one month, and 6 months
later you are doing it.
And just a quick note about Grover Norquist. If Grover
Norquist is now the most powerful man in America, he should run
for President. There is no question about his power. And let me
tell you, he has people in thrall. That is a terrible phrase.
Lincoln used it. It means your mind has been captured; you are
in bondage with the soul.
So here he is. I asked him, he said, my hero is Ronald
Reagan. I said, ``Well, he raised taxes 11 times in his 8
years.'' He says, ``I don't know, I didn't like that at all.''
I said, ``Well, he did it. Why do you suppose?'' He said, ``I
don't know. Very disappointing.'' I said, ``Probably did it to
make the country run.'' Another sick idea.
And let's just look at the AARP. Just this morning, I saw
that ad. That is the most disgusting--the most disgusting--ad I
have ever seen. I don't know what the people got paid,
especially the actors, but I can tell you this, they are well
paid. They said, ``We are 50 million. We are watching you. We
remember, and we vote.'' I tell you, that is a really ugly
thing.
But let me tell you about the AARP. Let's remember what
they will be when they do nothing. We asked them what they
would do to help, and they had said, we have two things we will
tell you. They never did. But let me tell you what will happen
with their view of the world, which is to do nothing to restore
the solvency of Social Security. In the year 2036, you are
going to waddle up to the window and get a check for 23 percent
less. And then I hope that they will remember the AARP. I
certainly will, and a lot of young people will too.
So anyway, it is a tough job, and you are going to have to
do it. People are out there who are going to say, I have helped
you forever, and now I never ask you for a thing, but here we
are. And that is going to put a lot of heat. Well, the market
will call the shots from now on. Won't need anything but that.
Interest rates will go up, inflation will go up by the failure.
And guess who gets hurt? The little guy. The vulnerable guy
that everybody babbles about day and night will be the one hit
with the hammer on the schnozz.
So remember the definition of ``politics.'' In politics
there are no right answers, only a continuous flow of
compromises among groups resulting in a changing, cloudy, and
ambiguous series of public decisions where appetite and
ambition compete openly with knowledge and wisdom.
Thank you very much.
[The prepared joint statement of Mr. Bowles and Mr. Simpson
appears in the appendix.]
Chairman Hensarling. Thank you, Senator.
Dr. Rivlin, you are now recognized.
Dr. Rivlin. I am going to defer to my colleague, Senator
Domenici, if that is all right, to go first.
Chairman Hensarling. Absolutely.
In that case, Senator Domenici, you are recognized. If you
could pull the microphone a little closer to you, Senator.
STATEMENT OF HON. PETE DOMENICI, CO-CHAIR, DEBT REDUCTION TASK
FORCE, BIPARTISAN POLICY CENTER
Mr. Domenici. Thank you, Mr. Chairman. I just wanted to
say, the reason she asked for that privilege is we have our
discussion with you planned in that order. And so we thank you
very much.
First of all, let me say to the two co-chairs and the
members of the committee, thank you for the opportunity to
discuss with you today both the economic and fiscal challenges
our Nation faces and our comprehensive plan to stabilize the
national debt.
More than 18 months ago, Dr. Alice Rivlin and I decided
that we should continue our decades-long work for a rational
Federal fiscal policy. Our only stipulation was that everything
is on the table. She and I agreed. We then invited 17 other
members to join us in what became the Bipartisan Policy
Center's Debt Reduction Task Force.
I tell you all of this because I think the history of the
men and women that worked on this is very important to show you
what kind of Americans we have out there who are worried about
the future and will step up to the table and do what is
necessary. The condition of their membership, those that joined
us, was that they, too, would agree that everything was on the
table.
Our task force ranged from Mayor Marc Morial of New Orleans
to former Oklahoma Governor Frank Keating. Imagine the
difference in the two. Some of you know. Yet they agreed. They
agreed that we were in trouble, and they agreed that we had to
solve the problem. We had liberals, conservatives, think-tank
budget policymakers, former members of Presidential cabinets,
people with business and labor experience. Our task force was
as diverse a group of serious American citizens as you could
get to address what we all believed is a looming crisis for our
Nation.
Last November, we issued our report. It has been much
discussed, and you and your staffs have seen it. Our
recommendations, after many days, were unanimous. And they were
controversial, as they should be, because they were also
serious. Individually, each of us might have preferred a
different mix of solutions, but each compromised to find a set
of policies that we could all support.
Since then, we have seen unemployment continue to exceed 9
percent, our economy continue to stagnate. At the same time, we
have endured a damaging fight over the debt-ceiling increase.
We have seen another series of the melodramas on annual
appropriations. And we have seen another year of deficits
exceeding $1 trillion and a debt that had ballooned to over $10
trillion--that is, the debt held by the public.
With spending projected to grow faster than revenues, we
will be forced to borrow more and more every year if we do not
change our policies. This fiscal projection is clearly
unsustainable. Now, everybody has to learn that word because
that is probably the best word to explain where we are. We are
an America with an unsustainable economic policy, and it will
ruin us sooner or later.
This unsustainable nature has been so attested to by the
Federal Reserve Chairman, Ben Bernanke; the head of the
International Monetary Commission; President Obama; and almost
all fiscal experts have used that word, ``unsustainable.'' You
are there trying to fix the unsustainable and make it
sustainable.
Righting our fiscal house will take three things: renewed
economic growth; cutting Federal spending, especially
entitlements, driven in large part by Medicare and Medicaid;
and pro-growth fundamental tax reform that yields significant
net new revenues.
The Medicare proposal that Alice and I present to you today
is the only reasonable bipartisan plan to fundamentally reform
that program, make it more efficient, and preserve it for
future generations.
We also present to you a comprehensive pro-growth tax
reform that clears out all the special interests that are in
the Code. We, like our friends who chaired the President's
commission--and I listened carefully to their recommendations
today--they recommended a fairer and simpler tax system. We
have one similar to it, but I would think that, if you look
carefully at it, it better solves the problem that we have
today.
Now, let me be blunt. A plan that does not fundamentally
restructure Medicare and other health entitlements will fail to
adequately address the debt crisis that we face. Both sides,
those who are against any fundamental health entitlement reform
and those who oppose any revenue increases, will be equally
complicit in bringing the Nation closer to the fiscal brink.
I hope you heard that. I said it, and it is not like me. I
don't usually say that about things. But I did say, if we don't
do this, those who are for fixing health care and those who are
for tax increases, and they say, ``We will do not one without
the other; we will do only one,'' then they are both complicit
in letting America destroy itself, letting this great democracy
destroy itself, because we don't want to make tough decisions.
Additionally, while not currently the largest driver of our
deficits, Social Security finances are unstable, and we must
soon take action to implement some small fixes that will keep
the system on solid ground for generations to come. And that
can be done. That is not so difficult. Citizens will understand
that.
What will happen if we continue to try to wriggle around
these facts? When the debt-ceiling-increase battle caused
short-term disturbances in the markets, when that happened, I
had hopes that the fiscal reality would push the President and
the Congress to real, fundamental action. Then, because of the
turmoil in North Africa and the European debt problems of the
highest order, investors rushed into quality, seen as the
American sovereign debt. So instead of seeing higher interest
rates for American debt, we have seen much lower interest
rates. Instead of the stock market collapse, Dow Jones has been
rising and going down steadily and on the upside during the
last month. That is not normal for the situation we are in, but
I just told you why it was.
So, are those of us who predict serious, perhaps
calamitous, consequences for our fiscal policies, are we wrong?
I think not. Right now, to borrow a phrase, American debt is
the best house in a truly terrible neighborhood. Yes, we have
rats, holes in the roof, and grass growing window-high, but
other houses for global investors to store their money are even
worse. And that accounts for us having lower interest rates.
However, it won't always be so. The neighbors might fix
their houses or the whole neighborhood might burn. Either way,
we will pay for our neglect with slower future growth. And that
is the death knell for those in middle America who have been
part of America's prosperity. Future growth and a less
prosperous country, far less able to play a leading role in the
world, is what we will present to the world if we don't fix
this problem.
I am told that the Joint Select Committee doesn't have the
time to truly do comprehensive reform. I believe it can create
time through a fast-track mechanism using section 404 of your
enabling legislation, and which we expand upon in the appendix
documents in your folder. And I can say to you, those in your
folder from us today, the five or six, make real sense and give
you answers to almost every problem that you have before you.
I am told that the wise exchange of short-term political
pain for long-term fiscal gain won't happen. I hope that is not
true. Without substantial new revenues and structural
entitlement reform, our fiscal ship is destined to capsize.
I am told that we need to put these kind of tax and
entitlement changes off until 2013, an odd-numbered,
nonelection year. Well, 2011 is an odd-numbered nonelection
year. And although I am not making a prediction, we might not
get to the next one unscathed. I am saying we might have the
calamity before that event.
I know that the JSC has enormous power. What I don't know
is whether or not they will use that power. Now, I have left
one remark that was very important--I left it out here, and I
want to find it so we can be sure that you understand--that
those who say they will not support tax revenues unless we have
entitlements, that is a good position if, in fact, you are
saying, I will do it if we get both. But both are complicit. If
they fail to act because each blames the other, they will both
be complicit if they don't both cooperate in participating in
this deficit reduction. Not one, not the tax raisers, not the
entitlement cutters, but both will be complicit and will have
caused America to suffer what we have described here today.
I thank you very much.
Chairman Hensarling. Thank you, Senator Domenici.
Now we will turn to Dr. Rivlin. You are recognized.
STATEMENT OF DR. ALICE RIVLIN, CO-CHAIR, DEBT REDUCTION TASK
FORCE, BIPARTISAN POLICY CENTER
Dr. Rivlin. Thank you, Co-Chairs Murray and Hensarling and
members of the committee.
I share Senator Domenici's views and those of Mr. Bowles
and Senator Simpson that this committee can change the course
of economic history for the better.
The United States faces two huge challenges at once:
accelerating growth in job creation and reducing future
deficits to stabilize the debt. There is no choice between jobs
and fiscal responsibility. Both are essential, and they
reinforce each other. This committee, with its extraordinary
powers, has the opportunity and the obligation to address both
challenges.
To achieve success, the committee will have to go well
beyond the minimum charge of $1.2 trillion in savings over the
next 10 years, because even savings of this magnitude would
leave the debt rising faster than the economy can grow. We
believe you should craft a grand bargain involving structural
entitlement and tax reform that would save at least $4 trillion
over 10 years. To do so, the committee should take full
advantage of the authority given to you in section 404 of the
act and write instructions to authorizing committees to produce
tax and entitlement reforms to be considered on a fast track.
A grand bargain would reduce the chances of a devastating
double-dip recession that could lead to a stagnant lost decade.
It would also reassure citizens and markets that our political
process is functioning in the public interest, not stuck in
partisan gridlock or overwhelmed by special interests.
I was privileged to serve on both the Simpson-Bowles
Commission and the Domenici-Rivlin Task Force. Both groups
worked hard to find a combination of policy changes that would
enhance growth and put the budget on a sustainable path. The
arithmetic of the problem, far more than political
considerations, drove them to similar proposals. Both concluded
that two major course changes were essential: structural reform
in health programs, especially Medicare, and comprehensive
reform of the individual and corporate income taxes that would
raise more revenue from a more pro-growth tax system. Both also
advocated freezes in domestic and defense discretionary
spending to encourage weeding out low-priority activities in
favor of more important ones.
The Budget Control Act capped discretionary spending. We
believe that further reductions in discretionary spending would
risk harming essential government functions. For the same
reason, we urge you to avoid the sequester. Instead, this
committee should focus on reducing the growth of health-care
spending and reforming the Tax Code. Our report offers solid
bipartisan proposals to do this.
Our proposal for Medicare reform, which we call ``defined
support,'' would preserve traditional Medicare for all seniors
who prefer a fee-for-service system. It would also offer an
array of comprehensive health plans competing with traditional
Medicare to deliver the same benefits. Plans could not refuse
any Medicare beneficiary and would be compensated on a risk-
adjusted basis. The Federal contribution would be determined by
competitive bidding on a regional exchange.
We believe that the competition on a well-regulated
exchange would lead providers and plans to deliver care more
cost-effectively and reduce spending growth. As a fail-safe,
the Federal contribution would be capped at GDP growth plus 1
percent. Excess costs, if any, would result in an increased
premium, but low- and moderate-income beneficiaries would be
protected from these increased payments. This bipartisan
proposal would preserve Medicare for our rapidly rising
population of seniors.
On tax reform, while growth in spending must be controlled,
we do not believe that the projected tsunami of retirees can be
absorbed by Federal programs without increasing revenues.
Stabilizing the debt by spending cuts alone would cripple
essential government functions and responses to human needs.
Moreover, as our colleagues have stressed, our current Tax
Code is riddled with exclusions, exemptions, deductions, and
other special provisions that distort economic activity, narrow
the tax base so much that rates are unnecessarily high. Our
proposed Tax Code would have only two individual rates, 15 and
28 percent, and one corporate rate, 28 percent. Most special
treatment of income or spending would be eliminated or phased
out. Capital gains, dividends, and so-called carried interest
would be taxed at ordinary rates. Credits would be allowed for
earned income, children, charitable contributions, mortgage
interest on primary residences up to a limit, and retirement
contributions. The exclusion of employer-paid health care from
taxable income would be phased out, which we regard as both a
tax and a health-care reform.
We believe, like our colleagues, that this simpler Tax Code
would be both fairer and more conducive to economic growth. It
would raise more revenue than current policy, but less than
current law, and do it in a more progressive fashion.
We fully appreciate the difficulty of the choices facing
this committee and hope you have the courage to restore fiscal
responsibility and avoid the truly dire consequences of
partisan gridlock.
Thank you very much.
[The prepared joint statement of Mr. Domenici and Dr.
Rivlin appears in the appendix.]
Chairman Hensarling. I thank you, Dr. Rivlin.
Thank you for the entire panel.
The chair will now yield to himself for 10 minutes.
I believe one of the things I have heard from all of the
panelists--and I have certainly heard the revenue message, and
we will go back to that--but I think I heard particularly you,
Senator Domenici, say that the number-one challenge that we
have with respect to our debt is health care. Is that correct?
And I think, Mr. Bowles, I heard you say something similar.
Is there a consensus among the panel that the number-one
challenge we face in our structural debt crisis is health care?
No one is diverting from that?
Dr. Rivlin, I have a question, then, for you.
Mr. Domenici. Mr. Chairman, I want----
Chairman Hensarling. Yes, Senator Domenici.
Mr. Domenici. I just wanted to ask if they would put up the
chart that is very explicit on this. You cannot miss it.
Chairman Hensarling. If you have a number for me, I would
be glad to have the staff put it up.
Mr. Domenici. We don't use this, so I don't know--somebody
said they would put it----
Chairman Hensarling. I bet you somebody enterprising will
be able to find that.
Mr. Domenici. They showed me just before we met.
Chairman Hensarling. ``Wake up, folks, it's health care.''
That appears to be how you entitled your slide. If the staff
can pull that one up, please.
Mr. Domenici. I would ask them if they could put it back.
Dr. Rivlin. There it is.
Chairman Hensarling. Well, that is one of them.
Dr. Rivlin. That is it.
Chairman Hensarling. That is it?
Mr. Domenici. That is these various governmental functions
versus GDP. And look which one, that blue line up there, that
is health care. Look at the lines underneath. Those are big-
ticket items that people think--but look at what is happening
to health care.
I am going to give you a word. If we do not produce a plan
that would permit CBO to say that the line has been bent--the
line has been bent--if that isn't in the plan, then you have
not caused in a major way a reform of health care. Because if
that line keeps going that way, you have solved nothing. So it
must start to bend someplace.
Chairman Hensarling. So you are not speaking of simply
slowing the rate of growth; you are talking about a plan that
actually bends the cost curve.
Mr. Domenici. That is correct. And that is what we do.
Chairman Hensarling. Dr. Rivlin, having the honor and,
actually, pleasure of serving with you and Senator Simpson and
Mr. Bowles on President Obama's Fiscal Responsibility
Commission, I was somewhat familiar with your plan, with House
Budget Committee Chairman Paul Ryan, on a Medicare premium
support system. And you now have what I believe you have called
a defined support system. And as I was listening to your
testimony, it includes an aspect of maintaining some facet of
the current fee-for-service aspect of Medicare.
But could you tell me why this form of defined support is
critical to saving us from the national debt crisis? And how
does it differ from your earlier premium support plan with
Chairman Ryan?
Dr. Rivlin. I think it differs in several respects. The
most important one is the one you noted, that it preserves
traditional Medicare for anyone who wants it. And I think that
is important. It is important to seniors, and it is important
to have--you should forgive the expression--a public option.
But in addition to traditional Medicare, it sets up
Medicare exchanges, where seniors would choose among an array
of plans that provided at least the same benefits as Medicare
and competed with each other and with traditional Medicare to
produce them in the most cost-effective way. We believe that
that would control the costs, that the costs would go up much
less rapidly. And that would be part of bending the curve, as
the Senator says.
We have, however, a fail-safe mechanism in there. If the
competition does not result in bending the curve enough, we
would say the defined support, the Federal contribution, would
not go up faster than the GDP grows plus 1 percent. And if it
did, there would be additional premiums for those choosing the
more expensive plan, but those premiums would not apply to low-
income people.
That is the plan in a nutshell.
Chairman Hensarling. Thank you.
A question for you, Mr. Bowles and Senator Simpson. And,
again, it was both an honor and a pleasure to serve on your
commission. I again want to say that I think you have
contributed mightily to the Nation's consciousness. And I hope
that whatever success that this Joint Select Committee
achieves, part of it will certainly be on your shoulders and
your previous good work.
Let me ask this question, having served alongside you all.
And there was much great work that was done on the Commission.
One of my personal reservations was that the Commission did not
adopt the Rivlin-Ryan premium support plan. I thought the work
particularly in Social Security--and if I have time, I want to
go back to what you do on the 75-year solvency.
But on Medicare, which is really a larger, long-term
challenge, we seemed on the Commission to apply much smaller,
short-term reforms. You did put the 1-percent-plus-GDP cap, if
I recall right, on total health-care spending, with a trigger
of expedited procedures, if I recall right, to go to both
bodies to fix the problem, but it wasn't a hard trigger.
So, two questions. Do you believe in the defined support
system policy that was just articulated by Senator Domenici and
Dr. Rivlin? And if you do, why didn't we adopt something like
that in Simpson-Bowles? I assume either, one, you didn't agree
with the policy or, two, you didn't have the votes. Or maybe
there is a third option.
Mr. Bowles. Probably both.
What we tried to do was to look at it on a realistic basis.
If you look at the cost of Medicare and Medicaid alone today,
it is about 6 percent of GDP, and it is growing like a weed.
And that excludes what it takes to do--the $267 billion to do
the doc fix, over $76 billion to repeal the CLASS Act. So it
really is a big portion of our cost. It is, as, again, was said
earlier, it is also, I believe, our biggest challenge from a
fiscal viewpoint.
As we looked at the Affordable Health Care Act which was
recently passed, it was the contention of the Democrats on our
commission that the cuts that were made to Medicare in the
Affordable Health Care Act, along with the pilot programs that
were set up, would reduce the rate of growth of health care to
GDP plus 1.
Chairman Hensarling. If I could interrupt, most of those
cuts on the provider side, if I recall.
Mr. Bowles. That is correct. That is correct.
We didn't think that would happen; we didn't think those
cuts were enough. So we did about $500 billion of additional
cuts over and above that, with the hope that those cuts would
slow the rate of growth of health care to GDP plus 1.
But assuming that that didn't happen, you know, to us,
there was no choice but to get the rate of growth to health
care to that level, and we said there were certain options that
would have to be considered at that point in time. And those
options did include a premium support plan, it did include a
robust public option, it did include even a single- or an all-
payer plan.
Chairman Hensarling. I see my time is about to run out
here. Let me quickly cover two other subjects.
With respect to both of your plans on raising revenue, I do
note that, as part of that, marginal rates are brought down in
both plans. Is that correct? The witnesses are saying ``yes.''
I have less than a minute remaining in my time. Also, I was
looking for certain common elements of your plans, one of which
is global chained CPI throughout the entirety of government
programs. And in the very short time that we have left, maybe I
could get a 30-second answer out of each of you, why you
thought that was a critical part of the solution.
Senator Domenici--okay, well, Dr. Rivlin, a brief answer on
chained CPI?
Dr. Rivlin. Yes, it is a technical change that economists
have, for quite a while, decided was a better way, a more
accurate way of measuring the cost of living for this purpose.
And it would affect all government programs, including the Tax
Code.
Chairman Hensarling. So the COLA would still be there; it
simply would rise at a different rate.
Dr. Rivlin. Oh, absolutely. It is just a technical change
in how you calculate the COLA and the index that is used for
other programs with COLAs, including the Tax Code, which
indexes the brackets.
Chairman Hensarling. Senator Simpson, I am technically out
of time, but could I get a quick answer on chained CPI?
Mr. Simpson. Everything we looked at, people had looked at
it. It is better. Although there are suggestions for something
else, CPI-I, but that is experimental. This one looks like
everyone would adopt it. And if we could do it government-wide,
it saves billions.
Chairman Hensarling. I thank you, Senator.
The co-chair will now yield to his co-chair, Senator
Murray, for 10 minutes.
Co-Chair Murray. Thank you very much.
And, again, thank you to all of you for your wise counsel
on a very serious challenge.
Let me just start, it seems both of your prospective
proposals would achieve deficit reduction of at least $4
trillion over the next 10 years through the use of a balanced-
approach framework that includes reductions in spending and
increases in revenue.
So let me just ask all of you, maybe by show of hands, do
all of you believe that to get a balanced program that
addresses the fiscal crisis, do we need both spending cuts,
including entitlement reform, and revenue increases? Show of
hands?
Mr. Simpson. No question, yes.
Co-Chair Murray. Okay. Well, let me start, then, with
Senator Simpson and Ms. Rivlin. Maybe both of you can answer
for your sides. Tell us why a balanced approach that includes
both reductions in spending and increases in revenue was
proposed by your committees.
Mr. Simpson. Well, we know you can't cut-spending your way
out of this, you can't tax your way out of it. If you get into
some of the rates that would happen if you are doing taxes or
whatever it is, it can't be.
And we tire of the phrase ``tax increase'' when we are
digging around in a $1.1 trillion stack of stuff called tax
expenditures, which really affect about 5 percent of the
American people. The little guy has never heard of half of
them. And we said, let's take those, let's take those. And when
you take one of those out, to call that a tax increase is a
terminological inexactitude. It would be called a lie, in other
words. And that is where that is. This is a fake, to say that
you get rid of a tax expenditure and it is a tax increase.
So we said we are not going to get into that business of
tax increase so that Grover won't have a stroke over in his
shop; we are just going to go around Grover and let Grover
rant. Because I will tell you one thing, if he and the AARP--if
we are in thrall to those two groups, we haven't got a prayer,
and neither have you.
Co-Chair Murray. Dr. Rivlin?
Dr. Rivlin. I agree, we were attacking expenditures in the
Tax Code, and they are almost identical with expenditures that
are called spending.
There is another reason, however, why you need a balanced
approach, and that, I think, is the demographics. This
government is going to have to absorb a doubling of the number
of people over 65 in the next couple of decades. That is an
awful lot of people. That isn't changing the role of
government; that is absorbing a lot more people, which we can't
do unless we have some more revenue.
We must bend the curve on health care. We must fix Social
Security. But we can't do it in such a drastic way that we can
absorb all of those people without some more revenue.
Co-Chair Murray. Okay.
Mr. Domenici. Madam Chairman?
Co-Chair Murray. Yes, Senator Domenici?
Mr. Domenici. Might I just say, I think you all know, at
least you, Madam Chairman, and a couple of other Senators there
know me and have known me for a long time. And I didn't come on
this committee trying to get anything--I didn't have any
preconceived percentages that we used to work on. I said, let's
start over.
And the truth of the matter is, even when you fix Medicare
in any reasonable way and bend the curve so that over 20 years
you really get some savings, the deficit is still too big
unless you decide to fill that gap with something. In other
words, you don't have a viable budget versus the economy
situation. So you have to look to the only thing that is left,
because you have done the others. And we did it that way.
Co-Chair Murray. I very much appreciate that response.
And, Mr. Bowles, let me ask you, in the guiding principles
and values that were established by your commission to guide in
the development of your recommendations, you state that
``growth is essential to restoring fiscal strength and balance,
and deficit reduction must not disrupt the fragile economic
recovery.''
CBO and many economists agree that the rate of economic
growth in the recovery projected for the remainder of this year
and through 2012 was considerably stronger when your commission
put out its recommendation than it is today.
So I wanted to ask you if you believe, first of all, that
the Commission was successful in adhering to those economic
principles, but also whether, given the weaker projections for
today, whether we should be doing more now for economic growth
and reducing unemployment.
Mr. Bowles. First of all, our commission, it was the number
one founding principle in our commission that we didn't want to
do anything that we considered to be overtly stupid, and we
felt it would be overtly stupid to do anything to disrupt what
is clearly a very fragile economy and in fact a very fragile
economic recovery.
Therefore, if you look at the cuts that we made in 2011 and
2012, you will see that those cuts are quite small. However, we
thought it was very important for us to get spending down, and
so we did make significant cuts in spending in 2013, and those
spending cuts do get us back to 2008 levels or pre-crisis
levels of spending.
When we came forward with that provision, lots of people
thought, you know, that we were being too conservative. They
said the recovery is real, that if you look at things like back
in December, as you asked about, there was an increase in
factory production, existing home sales were going up, retail
sales were going up, it looked like banks were starting to lend
to small businesses, unemployment was starting to come down,
and investor sentiment was strong, and therefore people said at
that point in time the recovery is real.
We, on the other hand, felt while the recovery may be real,
it was very, very fragile, and the reason we thought it was
fragile, and I think that has been proven to be right over
time, is that we were very concerned about demand. Demand comes
from three basic sources. You know, the consumer is still two-
thirds of GDP, and in our cases we looked at consumer debt or
household debt, it was still about 120 percent of household
income, it was about $13 trillion outstanding. Over half of it
was at floating rates. And if you think that a rise in food
prices and gas prices took a bite out of consumer demand, you
wait until interest rates go up. So we didn't see the consumer
who had suffered a decline in their home value and a loss of
income driving the economic recovery.
Second leg of growth would come from business. It is a fact
small businesses can't grow and can't create jobs without
capital, and banks simply weren't lending to small businesses,
and so we didn't see that the small business community would be
able to lead us out of the recovery, and with big businesses
who had plenty of capital, their capital was basically on
strike because they didn't have confidence in the direction the
country was going or didn't know which direction the country
was going in, and lastly, it is hard to see business really
lead us out of a recovery when the construction industry is
really on its backside.
The third level of economic growth would come from
government. We didn't foresee an additional big stimulus
package coming out of Washington to add growth to the economy,
and if you look at what State and local governments were doing,
they were actually cutting spending and laying people off,
trying to balance their budgets. So we didn't see where the
growth would come to drive the economic recovery.
Myself, I believe we are in a structural contraction which
will lead to a prolonged period of relatively slow growth and
relatively high unemployment.
Co-Chair Murray. Dr. Rivlin, your plan also addressed the
concern of accelerating the recovery and phasing in some kind
of deficit reduction, and I think you also were worried about
the demand. Can you talk to us about what you did in your
proposal?
Dr. Rivlin. Yes, we were very worried about inadequate
demand, and so we not only phased in the deficit reduction
slowly, but we called for a 1-year, both sides, employer and
employee, payroll tax holiday on the grounds that that was
needed to stimulate demand upfront before we could safely phase
into the deficit reduction that we were calling for. That was
at a time when the economy was somewhat stronger; it seems to
us even more necessary now.
Co-Chair Murray. Did you have anything besides the payroll
tax to stimulate jobs in your plan?
Dr. Rivlin. No. We put that in as a kind of symbol of how
concerned we were, a full year payroll tax holiday for employer
and employee is, I think, $650 billion. That is a lot. Now, you
could do it different ways. But we put it in to symbolize the
fact that we were really worried about inadequate demand.
Mr. Domenici. Madam Chairman, I might comment on that.
Frankly, I was very surprised in looking at the group of people
that were on this debt reduction group, when it came to this
issue, they were as worried as on any issue I had seen because
they were really fearful that the economy was not going to
recover. Frankly, we don't know what will make it recover, but
Alice has appropriately told you what came about, how we came
about what we did, and it is a lot of money. I guess some of us
said that it might have been a much better thing to have done 2
years ago than whatever we tried to bring jobs. This might be a
better way than anything we did, so we said let's suggest it.
Co-Chair Murray. Okay, appreciate that very much. My time
has expired, so thank you very much.
Chairman Hensarling. The co-chair now recognizes Senator
Kyl from Arizona.
Senator Kyl. Thank you. First to Senator Domenici and
Senator Simpson, it is great to see you both again, and to all
four panelists, thank you for the, what, thousands of hours
that you have put in on these subjects, and it has been helpful
to everyone. Senator Simpson, you never disappoint. This is a
serious subject but a little levity sometimes can help, and I
appreciate that.
You talked about eliminating so-called tax expenditures,
and I just have one quick question for you, a comment on taxes,
and then I would like to talk about entitlement reform. If you
eliminated the so-called tax expenditures, the biggest four of
which on the personal side are deductions for medical expenses,
charitable contributions, mortgage interest payments, and
payments of State and local taxes, and you don't reduce
marginal tax rates commensurately, the roughly one-third of
Americans who itemize would have a higher effective tax burden,
would they not? In other words, they would pay more in income
taxes?
Mr. Simpson. Well, we, in getting rid of the 1 trillion 100
billion suggested that the $100 billion would go toward
reduction of the debt and the rest of it would come out, and we
would give the people of America what they have been asking
for, broaden the base, lower the rates, get spending out of the
code, and we said we will give three rates: 0 to 70 grand you
pay 8 percent, 70 grand to 210 you pay 14, and everything over
210 you pay 23, and take the corporate rate to 26 from 36. But
if you want to put something back, go ahead. The issue being if
you want it, pay for it. So then you could go to rates of 12
and 18 or whatever you want to do. We said give--on home
mortgage interest deduction, give them a 12\1/2\ percent
nonrefundable tax credit, that helps the little guy. If you
want to do charitable contributions, give them a 12\1/2\
percent nonrefundable tax credit. We realize those things,
municipal bonds. But at some point you just say, look, you were
told to bring home the bacon, the lobbyists got you what you
wanted, and now it is over, the fun and games is over.
Senator Kyl. So do I understand of the $1.1 trillion, $1
trillion of that would go for rate reduction?
Mr. Simpson. That is correct.
Senator Kyl. And only $100 billion for debt reduction?
Mr. Simpson. That is correct, Jon, and it is good to see
you, we served together, but let me just say, if you want to
put something back, and they are wonderful things, earned
income tax credit, you can get the violin out if you want to
talk about what you are doing.
Senator Kyl. Let me not take the time to do all that.
Mr. Simpson. No, I don't want to do that.
Senator Kyl. Let me just make one observation, and then I
do want to get to the entitlement spending. Both the Fiscal
Commission and the Bipartisan Policy Center have suggested that
one of the options here is to tax capital gains and dividends
at ordinary income tax rates.
Now, you started the testimony by noting that you wouldn't
want to do anything to disrupt a fragile economic recovery,
sort of along the line of first do no harm, and my own
observation is I think you could do great harm by effectively
doubling the capital gains and dividends taxes because those
represent areas of capital formation and investment in our
economy.
Let me just make a quick observation here. The government
receives capital gains revenues when taxpayers sell appreciated
assets. The technical terms are called realizations. Now,
Congress tried taxing capital gains at the same rate as
ordinary income before--this was back in 1986--and the
resulting capital gains revenues were dismal. In fact, they
shrunk and remained depressed for a decade until Congress
lowered the capital gains rate in 1997. Higher capital gains
taxes mean fewer realizations, a higher cost of capital, less
activity in the capital markets, and less economic growth.
The health care bill that was passed last year already
increases capital gains and dividends rates by another 3.8
percent, and that means that the very lowest capital gains rate
under your suggestion would be 26.8 percent, the highest would
be 32.8. In other words, more than double the existing rate,
and even the Joint Committee on Taxation would say that a rate
that high will actually lose, not gain, revenue, and that
doesn't even account for the negative impact on economic
growth.
Other economists, ones who testified before our Finance
Committee, said letting the top capital gains and dividends
rate drift up to 20 percent will erase the theoretical revenue
gain from increasing the tax rate and will lower both economic
growth and wages. If the rate is pushed even higher, more
revenue and GDP will be lost, and wages will be even lower.
So I would just ask you all, as we continue to visit about
these things, to think about this. Your views are important to
the committee, but in this one respect I think it could be very
counterproductive by lowering economic growth, not really
raising revenues, and it would make our deficit problem worse.
Now, let me turn to entitlements here because, Dr. Rivlin,
I think you said something very important in response to
Representative Hensarling's questions, and I want to make sure
that I have this right. First of all, I think it would be
useful for you to explain the benefits of a defined support or
a premium support such as you recommend. If you could do that
generally. But also correct me if I am wrong, but I understood
you to describe the plan laid out in your submitted testimony,
which is a little different than the original Domenici-Rivlin
in that at least there are two attributes. First of all, you
would actually--do you actually set the contribution, the
Federal contribution level first by the second lowest bid,
which would include fee for service but have the fail-safe, as
you described it, that in no event would it go up more than GDP
plus 1 with a sort of means tested premium support in the event
that it did so? If that is not accurate, please tell me how I
am wrong.
Dr. Rivlin. Senator, you have it exactly right. We have
improved this plan, I think, over our original one. It is now
more like the bipartisan plan in the Breaux-Thomas proposal of
the late 1990s, and one of the complaints that we got about the
way we did it originally was it didn't reflect the actual costs
of health care. When you do it by a bidding process, then it
does reflect the actual cost.
Senator Kyl. And also, as you are describing the benefits
of this, talk about how you select the second lowest bid
because I think that is a very clever way to do this.
Dr. Rivlin. Well, that is arguable. There are different
ways of doing it, but we thought----
Senator Kyl. I thought it was.
Dr. Rivlin [continuing]. Selecting the second lowest bid
gave--it wasn't the lowest, which might well be flukishly low
for some reason, but people then who wanted to go to the even
lower bid, the one that wasn't selected could do so and could
get some money back.
Senator Kyl. They would pocket the difference between the
second bid and the one----
Dr. Rivlin. Right.
Senator Kyl. And if they wanted to be no dollar out of
pocket, they would take the second lowest bid plans.
Dr. Rivlin. Right.
Senator Kyl. And of course anybody could offer plans at
that level, and if somebody offered a plan that was more
expensive, perhaps it had a different set of benefits or
whatever, then they could pay for it, but the Federal premium
support would only be at that second lowest bid.
Dr. Rivlin. That is right. So it gives you a way of making
the competition real, and we believe that would bring the costs
down.
Senator Kyl. I agree with that. Now let me go back to my
first question there. Discuss the benefits of that premium
support concept generally because I think it is not necessarily
well understood. And then the final question I will ask is,
that is not all that you would recommend. You also recommend--
and this is really a question for all of you, but additional
changes to the existing system that we have in order to
potentially reduce expenditures, things like combining the part
A and part B, increasing premiums under certain circumstances.
I have forgotten whether you get into the co-pay issue or not.
But could you also discuss whether some of those things are
useful to do even if we do the premium support, but in any
event, certainly if we don't do it.
Dr. Rivlin. Yes, and I think also the things that Erskine
Bowles mentioned, that the pilot programs and attempts to find
better ways of delivering care and government support and
private support for innovations and testing those things and
putting them out in the public domain, that is all a very good
thing to do, and we think it will pay off in the end, and it is
not incompatible with our defined support plan because once you
have those innovations out there in the public domain, the
private sector is going to pick them up, Medicare will use
them, things will get better.
Senator Kyl. Hopefully reduce costs.
Mr. Domenici. Mr. Chairman, Madam Chairman, might I just
follow up with Senator Kyl with one observation? On this one
that you are speaking of on Medicare, the first thing that we
did was to note the objection to a new system, and it was
generally right upfront that you are abolishing Medicare, and
so this new plan starts with the premise, we will have both
programs, and you can choose, and that put us on a completely
different path with our members than before, and it is very
different than anything you all have considered, excuse me, you
all in the House have considered heretofore when you took this
subject up.
Senator Kyl. An important observation. Thank you.
Mr. Bowles. Actually, I didn't say it, Senator, but in our
plan we did try to address this issue. Our belief was the
current benefits structure encourages overuse, and there are
currently a hodgepodge of different co-pays and deductibles and
premiums. We wanted more cost sharing in our plan, we wanted
people to have some skin in the game, we wanted to get rid of
first dollar coverage for that reason. So we went to one
deductible on part A and part B of $550. We had a 20 percent
payment up to $5,500, and then a 5 percent co-pay up to $75,000
and capped out at that level. We also on Medigap, we had no
Medigap would be available for the first 500 and then 50/50 up
to $5,000.
Senator Kyl. All of those I think are very useful
suggestions, and I appreciate them all. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The co-chair now recognizes the gentleman from California,
Congressman Becerra.
Representative Becerra. Thank you, Mr. Chairman. To all of
you, thank you very much for your service to this country and
for the work you have done to give us some templates that we
can use to try to resolve this issue for not just the Congress
but for our country.
I enjoy always hearing from the four of you because you
have shown us that you can be big, you can be bold, and you can
be balanced and still try to move the country forward, so I
thank you for that, and as I said to both Alan and Erskine on
many occasions, I thank you so much for attacking those sacred
cows that too often get in the way of Congress being able to
deal with those things that are most important. I honestly
think, and I served on that Commission with you, as I said
before, I thought you put all the elements in place. I would
have put the mixture of those elements differently, but I
compliment you today, as I did back then, and I applaud you for
what you did in putting together the template of what could be
a solution for the country.
I think I heard you all say this, but I want to make sure
about this. While we are still suffering through these
difficult economic times and back when we were going through
this with the Commission, and Director Rivlin, I know that you
and Senator Domenici were also going through this as well when
you were coming up with your plan, times were tough. Well, they
are still tough, and I suspect all of us back when we were
going through the work of these two Commissions thought that
the country, the economy was doing far better.
Is it still your premise that we should really concentrate
on getting the economy back on track, getting Americans back to
work before we go too heavily into trying to find these savings
by making cuts in some of these important investments that we
have? And I will open it up to anyone to answer. Director?
Dr. Rivlin. It is a timing question, Mr. Becerra. We
believe that drastic cuts in spending right now would be
damaging to the economy, as would tax increases right now. We
need to let the recovery happen and indeed stimulate it with
proposals that we have been talking about. But that doesn't
mean putting off the deficit reduction. One of the best things
we could do for the growth of the economy right now is for this
committee to legislate long-run reduction in the deficit on the
entitlement and tax side right now. We can't wait until after
2013 or some other time to do that. The markets and the public
have got to see that it is going to happen, that we are
serious, and that it is in law. Then it doesn't have to take
effect right away, but it has got to be in the law.
Representative Becerra. So let it play itself through, get
it done, let it play itself out, you have time for it to take
effect long term as you see the economy begin to recover?
Dr. Rivlin. Right. But don't wait to legislate it.
Representative Becerra. Got it, got it.
May I ask a question regarding revenues? You all tackled
the issue of revenues, you did it in somewhat different ways,
but for the most part you did something that I thought was very
important. You tried to also show the public that while we
would increase real revenues, we would ultimately try to reduce
the rates and give people a fair taxation system, and so that
while we were still able to generate revenues, which we need,
you are able also to tell the public that they are going to
have a system that works better for them, and so that they
could understand the simplicity and the fairness of it.
In both plans I believe, and we have had a little
discussion on this, you equalized the taxation for capital
gains and dividends to ordinary income or, in layman's terms,
an asset, an investment in stocks or bonds would now be taxed
at the same rate that the income earned by a hard working
American would be taxed at, so they would be treated equally.
You also found ways to reduce the rates overall for all income
groups, and you went after what I know in the Bowles-Simpson
Commission became known as tax earmarks, those tax expenditures
which I believe, Senator Simpson, you mentioned totaled over a
trillion dollars. And so you came up with a mix. Again, you
tackled some sacred cows, and you came up with a mix.
Is it still your sense that that type of a mix can work for
this committee? Open it up to anyone.
Mr. Domenici. Sir, I will say absolutely, and I would say
to my friend Senator Kyl when he talks about capital gains, if
you look at my record, I have voted in favor of capital gains
for my 36 years in the Senate, but I didn't have a chance to
lower the rates like we are lowering them at the same time that
you were looking at capital gains. In this case that is what
happened. We lowered the rates.
Now, I heard from the best experts this country could put
before me when I was chairing that the best way to effect
growth in this country is to lower the rates on all people.
That was the best instrument of growth. They didn't say except
for capital gains. They said it is the best instrument for
growth, and we lowered it all substantially, so we put back
into the code the instruments of growth which is the lowering
of the rates on middle America and all Americans, which we did
in ours and they did in theirs. Theirs is a little stronger in
terms of, as Al explained it, they have come down lower so you
can put back some things.
I would tell you, we also included in this, so you don't
forget, we put in the medical expenses, which is the largest
tax expenditure. It is bigger than homeowner interest rates. We
phased that out over a long term. That is a very difficult one,
but we did it in ours, and you all should know that is part of
the reason we got the rates we got.
Representative Becerra. And, Erskine, I think you called
the tax expenditures backdoor spending through the Tax Code?
Mr. Bowles. It is, Congressman. It is just spending by
another name. I was flabbergasted, I was appalled to see that,
you know, having listened to all the talk about earmarks all
these years which are in the appropriations bills, there are
about $16 billion worth of annual earmarks a year. There are
$1.1 trillion worth of annual earmarks in the Tax Code. And it
is just spending by another name. It is somebody's social
policy. And if you were to eliminate them and use 92 percent of
the proceeds to reduce rates and only 8 percent of the proceeds
to reduce the deficit, you could reduce the deficit by about
$100 billion a year, so a total over a 10-year window of about
a trillion dollars, and you could take rates to 8 percent up to
$70,000, 14 percent up to $210,000, and have a maximum rate of
23 percent. You could take the corporate rate to 26 percent,
and you could pay for a territorial system so that $1 trillion
that is captured overseas could be brought back to this country
to create jobs over here. I believe that would create dynamic
growth in this country and produce revenues far beyond what we
have forecast. So I am very excited about broadening the base
and simplifying the code. I think it makes a lot of difference.
Representative Becerra. And I would love to focus on a
couple more areas of spending. I know that when we talk about
spending you also were willing to tackle this issue of the
discretionary side of the budget, the kind of spending we
typically talk about, but most people don't recognize that 65
percent of all the spending increases that occurred over the 10
years, the last 10 years came out of just one department, the
Department of Defense, mostly because of the war, but because
of the growth in some of our military projects and contracts
and so forth. I know that you tried to tackle that some and I
appreciate the work that you did there.
With the limited amount of time that I have, I would like
to touch on health care, and I appreciate what each of the
Commissions tried to do on health care, but let me just pose
one question. Perhaps you can help us with this. We could do
any number of things to try to reduce the cost of Medicare and
Medicaid for the American public, but at the end of the day if
we do nothing to try to help lower the cost of health care
overall, not just within the public sector, within Medicare/
Medicaid, we will simply have shifted the expense of health
care in Medicare/Medicaid to those who use health care through
Medicare/Medicaid, to our seniors and our disabled because the
reality is that today the cost of health care under Medicare is
growing slower than the cost of health care in the private
insurance market. We went through that in the Bowles-Simpson
Commission, how it is really strange, we are talking about the
crisis in health care. The reality is if you were to get rid of
Medicare and send seniors over to the private sector insurance
market, they would actually end up paying more because the cost
of private insurance is growing at a faster clip than is
Medicare/Medicaid. So the issue is, how do we corral the cost
of health care which it could hit Medicare/Medicaid, so that
way we don't end up just shifting costs from the people, the
taxpayers, to the actual beneficiaries, in this case our
seniors who are now retired.
So if you can give that some thought, that would be very
instructive. I know that the health reform of last year meant
to do that, to try to help corral the cost in the private
sector, but if we don't do something about overall health care
costs, simply telling seniors that they will end up paying more
in Medicare doesn't help with our health care costs.
Thank you for your service to this country and your time.
Chairman Hensarling. The time of the gentleman has expired.
The co-chair now recognizes Congressman Upton of Michigan.
Mr. Upton. Well, thank you, Mr. Chairman, and I certainly
want to agree with each of you that these deficits are
unsustainable. I appreciate your candor, your service, your
hard work. Believe me, we know a little bit about your work
because we together have spent hundreds of hours as well over
the last number of weeks, and you underscore my respect for
each of you as truly great Americans.
As you may know, my home State of Michigan, Dave Camp's as
well, we have had 34 consecutive months of double digit
unemployment, and as I talk to people back home, as I was again
this past weekend, people know we are in a rut. Senator
Simpson, they know exactly what you are talking about. And
they, in fact, are relying on us to try and get our car out of
the ditch and back in first gear.
I put a chart, I can't see it very well up here, but I
think you have a chart I think in front of you that scores the
President's health care plan from 2014 to 2023, and that 10-
year outlay plan shows that spending, the effects on the
Federal deficit will be almost $2 trillion in additional
spending over the next 10 years.
[The chart appears in the appendix on p. 108.]
Representative Upton. And each of you noted in your various
proposals that the Federal budget is on this unsustainable
path, and you identified health care as one of the most
important items that this committee and the Nation should be
focusing on.
So as you see from this chart, that the exchange subsidies
are certainly the primary driver of this dramatic expansion of
Medicaid. CMS actually certified that because of the
President's proposal, nearly 25 million more Americans will be
on Medicaid after 2014 because of that expansion, which means
that more than one in four Americans will be, in fact, a
Medicaid beneficiary.
So based on that and the statements that you have made
about the budget crisis, do you believe that we should revisit
the expansion of the Medicaid program in the President's
proposal? Erskine? Sorry that you start on that end.
Mr. Bowles. No, no, I am very happy to answer any question
that you ask. You won't smell any fear on us out here.
Mr. Simpson. Go right ahead.
Mr. Bowles. We had great questions that if the affordable
health care plan could actually slow the rate of growth of
health care to GDP plus 1. Because we had those questions, we
did believe it would solve the problem of providing more people
health care, but we didn't think it solved the problem of how
to control the cost of health care, and therefore we made the
$500 billion worth of additional cuts to both Medicare and
Medicaid and certain other Federal health care programs in
order to--and hoping that that would slow the rate of growth.
If it didn't slow the rate of growth, then what we said is
there has got to be an overall cap on all of these areas of
spending, of Federal health care spending, and you are going to
have to look at some options like a premium support plan, like
the robust public option, like a single payer plan.
Representative Upton. Alice? Or, I am sorry, Alan.
Mr. Simpson. We just knew that whatever you call it, if you
want to use the negatives or call it ObamaCare or any kind of
care you want to, it won't work. It can't work because all you
have to do is use common sense. You have this imploding of
people, you have diabetes, you have one person in America
weighs more than the other two, you have got guys who choose to
do tobacco, who choose to do booze, who choose to do designer
drugs, and all of them will be taken care of. You have got
preexisting conditions in 3-year-olds. What happens through
their 60 years or 50 years of life? All you have to do is
forget the charts and know that if you torture statistics long
enough, they will eventually confess, and know that this
country cannot exist on any kind of situation where a guy who
could buy this building gets a $150,000 heart operation and
doesn't even get a bill. Now, that is nuts, and that is where
we are in America. There is no affluence testing, you have got
to raise co-pays, you have got to knock down providers, you
have got to deal with physicians, you have got to have
hospitals keep one set of books instead of two. That would be a
start.
Representative Upton. Alan, what did you do about Medicaid?
Because originally you all had, as I understand it, you were
going to convert it into a block grant for the States, and it
is my understanding that you dropped that proposal; is that
right?
Mr. Bowles. We were never going to convert it into a block
grant for the States. One of the things that--we felt that was
too big of a shift, too unproven of a theory. What we did
advocate is testing it in 10 States. It is on the theory that
one size doesn't fit all, that Governors can cover more people
with less cost if they have control of the funds. So we said
let's test it in 10 States. If it does prove to be something
that does lower the cost of health care and still provides
coverage to people who need it, then we could support it, but
you ought to test it first. I think that is what you would do
in the business world, I think that is what you would do in
most places.
It is now being tested in Rhode Island. It is working very
well. I understand Washington State is actually asking if they
can test it. So I do think it is one of the things that will
prove out over time.
Representative Upton. So beyond those tests did you ask for
any other reforms on the Medicaid side?
Mr. Bowles. Yes, we did.
Representative Upton. And they were?
Mr. Bowles. As an example, having run the public hospital
in North Carolina for the last 5 years, you know, you can see
the gaming that goes on in the Medicaid program by the
payments, since it is a shared cost program, that is
approximately 50/50 between the States and the Federal
Government, you know, the docs would up the amount they would
charge in order to cover higher fees charged by the State. They
would both come out even, but the taxpayers would end up with
about a $50 billion bill for that. So we cut out that kind of
gaming in the State Medicaid programs.
Representative Upton. Now, Alice, one of the proposals that
you all recognized on the Medicaid side was this program called
the per capita cap, which for those in the audience would
actually, each State would receive an allotment determined by
the number of folks in the specific categories for Medicaid
based on the State population number for those numbers, and
then that would be increased each year by GDP plus 1 beginning,
I want to say, in 2014, 2015. Do you--are you a part of that
proposal? I know way back when. Are you still supporting that
idea?
Dr. Rivlin. We looked at a number of ways to reduce the
rate of growth of costs in Medicaid. One was splitting the
responsibility between the Federal Government and the States.
Medicaid is really two programs. It is acute care, which is
largely for children and their mothers, and it is long-term
care, and one of the things we looked at was split the
responsibility for those two between the Federal Government and
the States. We thought that would help make it clearer who is
responsible for what, and not have the matching program that
results in a certain amount of gaming. We also wanted to get
rid of the kind of gaming that goes on in Medicaid, as Mr.
Bowles has suggested, and one thing we were very clear about
was the dual eligibles, those who were eligible for both
Medicaid and Medicare. There is some impediments to their
getting into managed care and management of their usually
multiple diseases, and we wanted to fix that.
Representative Upton. And what did you do in terms of added
State flexibility to allow the States to be able to have
greater control over what services were eligible?
Dr. Rivlin. That is certainly a possibility. We did not,
frankly, come down very clearly. We offered a menu of options
on what to do about Medicaid. I think it is the hardest
problem, much harder than Medicare, and we thought we had a
good plan for Medicare. We offered a menu for Medicaid.
Representative Upton. On Medicare, both Ways and Means and
Energy and Commerce have jurisdiction over this issue, and I
know that as many of us have looked at this, we have felt that
it is the toughest entitlement to try and curb the cost curve
downwards. We have heard a little bit about A and B, putting
them together, the deductibles, the co-pay. It is my
understanding that both of your groups also increased the age,
is that right, for eligibility?
Dr. Rivlin. No, we did not. We didn't even do it for Social
Security. But we certainly did not for Medicare.
Mr. Bowles. We have it as one of the options out in the 10-
year window. It is not in the first 10-year window.
Representative Upton. And when you looked at all the
options that you considered, what was the one that was the
first--what was the priority order that you came up with in
terms of where you thought we--what we ought to do to reform
Medicare?
Mr. Bowles. We did not prioritize outside of a 10-year
window. We said that drastic steps are going to be taken, those
drastic steps must include looking at things like Alice and
Paul's premium support plan, it has to look at a robust public
option, it has to look at things like block granting Medicaid
to the States, it has to look at things like a single payer
plan, it has got to look at things like raising the eligibility
age for Medicare. That is what we--those are the options we saw
that would have to be considered if, in fact, you can't slow
the rate of growth to GDP plus 1.
Chairman Hensarling. Before yielding to the next panel
member, Senator Simpson, I think I have been informed that you
have to depart in 20 minutes, if that is----
Mr. Simpson. Mr. Co-Chairman, I could wait a few minutes
after that. I have to get to Dulles to catch a 5:30 flight to
Denver so I can get out of town before they find out I have
been here.
Chairman Hensarling. Well, certainly Senator, we sincerely
appreciate your participation today, and you will be excused
from the panel whenever you need to depart.
Mr. Simpson. Let me share with the co-chairs that Erskine
Bowles has a remarkable thing to present to you, and if I do
have to leave early, I would have given him my time. It is very
important that you hear what I think is a solution for you that
only he, in his brightness, can propose. You can do anything
you want with it, but I think it will get you somewhere where
we think you want to get, and Erskine, as I say, if I leave,
whatever time you would have allowed to me, but I want to hear
from my colleague who came to the Senate when I did, Max, and I
will stick around to about 25 or 20 of. Thank you so much.
Chairman Hensarling. Thank you, Senator, and the co-chair
notes that Mr. Bowles now has your proxy.
Mr. Simpson. Yes, he does.
Chairman Hensarling. And the co-chair will yield to the
gentleman from Montana, Senator Baucus.
Senator Baucus. Thank you, Congressman Hensarling. Everyone
wants to reform the Tax Code. I don't know anyone who doesn't.
But it is in the eyes of the beholder, what is reform to one
might not be reform to the other. You have mentioned the $1.1
trillion in tax expenditures. I think it is important for
everyone to know that only about $200 billion of those are
itemized deductions. The rest are other tax expenditures, which
include the employer-provided health insurance, for example,
the retirement income provisions, R&D tax credit, there is a
whole host of others in addition to itemized deductions. So if
the proposal is to repeal them all in return for lower rates
and deficit reduction, people have to realize what that means.
A lot of people have relied on those provisions, employees have
because that is in-kind income that is not taxed generally, as
well as the R&D tax credit to make America strong, and
retirement provisions so people can save for the future.
Now, the question that comes to my mind is how quickly do
you recommend we tackle all of that? We have a November 23rd
deadline, and I think one of you suggested, I think it was Mr.
Bowles, you suggested that this be delegated to maybe the tax
writing committees so that we do tax reform with some kind of a
kicker at the end, penalty if the committees in the Congress
don't act, et cetera. I would like you to comment on that. I am
also waiting for the Bowles solution at the end of this
presentation. I hope it includes something that addresses what
I am talking about.
Address revenue. When you gave your presentation, Mr.
Bowles, I might say we are all big fans of all four of you. You
have worked so hard. When each of the four of you were
speaking, you could hear a pin drop. You spent so much time on
this subject and so conscientiously, so thoughtfully, people
know that. But when you, Mr. Bowles, mentioned one of your four
principles, as I recall, one of them was tax reform, but you
didn't say much about revenue, how you raise revenue.
My understanding is that the Commission suggested something
in the neighborhood, I have forgotten exactly what it was,
maybe a trillion dollars in new revenue to be offset with the
spending cuts, and is that true? It is my understanding that
you need to make permanent middle income tax cuts but not the
upper income. You, in effect, propose raising revenue on the
current policy basis of about $1 trillion. Does that sound
about right?
Mr. Bowles. Well, you know, you were on our commission and
you attended a few of our meetings, so I think you probably
know exactly what we did. What we did was, we did in the
baseline extend the Bush tax cuts for everyone except the top 2
percent.
Senator Baucus. Right.
Mr. Bowles. And then we reformed the Tax Code by broadening
the base and simplifying the code and by eliminating the tax
expenditures in our zero option plan, and in the zero option
plan all of the tax expenditures did disappear, and 92 percent
of the money went to reduce rates and 8 percent went to reduce
the deficit. None of it went to additional spending.
Senator Baucus. Right. So I think the answer to Senator
Kyl's question would be about $100 billion for deficit
reduction; is that correct?
Mr. Bowles. That is about $100 billion a year
approximately.
Senator Baucus. How can that be enough revenue when there
is such spending cuts recommended in your plan? I think you
have a two-to-one ratio of revenue raised to spending cuts.
Mr. Bowles. I think it was even more than that, Senator. I
think it was, depending on how you counted, we had about a
trillion dollars worth of additional revenue coming in, and we
had about $3 billion worth of spending cuts, and we were
working----
Senator Baucus. $3 trillion.
Mr. Bowles. Excuse me?
Senator Baucus. Trillion.
Mr. Bowles. Trillion, excuse me. And we were working
towards that number. We were trying to get it to be no more
than one-third revenue and two-thirds spending cuts, and we
tried to get it to be one-quarter and three-quarters.
Senator Baucus. Going back to my first question, do you
recommend that we here try to enact all those, cut all those
tax expenditures and set rates or delegate it to the tax
writing committees?
Mr. Bowles. Well, we do recommend that you delegate it to
the tax writing committees and set up a framework in this
Commission. I don't think you can possibly rewrite the tax law
between now and November 23rd and get it scored nor do I think
you can rewrite the entitlement legislation and get it scored
by November 23rd, but you can provide instructions to the
appropriate committees.
Senator Baucus. To raise how much revenue?
Mr. Bowles. To raise about a trillion dollars worth of
revenues.
Senator Baucus. Which is included in the reform with
broadening the base and lowering the rates?
Mr. Bowles. Yes.
Mr. Domenici. I wonder if you would yield to me for one
minute?
Mr. Bowles. Sure.
Mr. Domenici. Mr. Chairman, could I just offer a
suggestion?
Senator Baucus. Certainly.
Mr. Domenici. We felt ourselves extremely confronted by the
problem of shortness of time for such a big job of reforming
the Tax Code. Some of us were here when Bob Packwood was the
chairman in the Senate and that effort took place. It took much
longer than you need, but it took 2 or 3 years, 2\1/2\, 3 years
or more. What we did in our testimony and what we have sent to
you in a packet is we have taken Section 404 of the law that
created you, which is a section that we think intentionally
gave you an extreme amount of authority and more flexibility
than we have been talking about, and that flexibility we think
permits you to set up a direction with specific things you
asked the tax writing committee to do, and that they have to do
it by a date certain, which could be 3 months from now, 4
months.
Senator Baucus. I appreciate that.
Mr. Domenici. You would go to the committees. It is not
reconciliation. It is an instruction.
Senator Baucus. We want tax reform in the worst way, all of
us do. We are trying to figure out the best process and the
best way to do it.
Second, I would like to ask about defense spending. It is
my understanding that the Fiscal Commission recommended roughly
$800 billion in defense cuts. When I compare that with the
sequestration, which is about $800 billion, a little bit more,
not much, the Budget Control Act in August cut about 350,
referring to some accounting. Does that mean that you suggest
another $450 billion in defense cuts?
Mr. Bowles. We recommended about $1.7 trillion worth of
discretionary cuts in outlays. It was about $2 trillion in
budget authority from the President's proposed discretionary
budget. I think he proposed, Senator Baucus, $11.7 trillion in
discretionary spending. We proposed to cut it to $9.7 trillion,
and the cost of the way the budget authority plays out slower
in the form of outlays, it worked out to about $1.7 trillion.
We said that should be split proportionally between security
and non-security spending. We also recommended that there be a
firewall between security and non-security spending over a
period of time so that the future Congresses wouldn't come back
and load it all up on the nondefense side and not on the
defense side.
Senator Baucus. Right, right. In the same vein I think the
Commission recommended a cap on something called Overseas
Contingent Operations.
Mr. Bowles. Yes, we did.
Senator Baucus. There is currently not a cap; is that
right?
Mr. Bowles. [Witness nods.]
Senator Baucus. Isn't it true--you may not know this; you
probably do--that the Appropriations Committee transferred $9
billion over to Overseas Contingent Operations to escape the
limitation?
Mr. Bowles. I don't know about that.
Senator Baucus. That is going on. So you therefore would
suggest a cap to help minimize that? I think your cap is $50
billion?
Mr. Bowles. We were trying to keep the OCO from being a
slush fund.
Senator Baucus. Thank you. That is what I am getting at.
Yes, Alan?
Mr. Simpson. May I say that whatever you do, and that will
be so appropriate, just do a plan. You don't have to worry
about, you know, who is doing this or the timetable and so on
because let me tell you why the rating agencies don't mess with
Germany or France or Great Britain, because each of those
countries have a plan. All these people are waiting for is a
plan. You can decide how many teeth you want to put in the jaw,
but just do a plan, and you will see dramatic effects around
the world with the rating agencies.
Senator Baucus. I agree with you very much. One question on
the premium support, we don't have much time here. A concern
some have is this, that with the election, to put it in rough
terms, it would be a death spiral. That is that people
currently on, the insurance companies will package sales of
policies to the most healthy, so the most healthy people will
buy these new policies, leaving the less healthy in Medicare,
and the more that happens, the more the sicker people are in
Medicare, so Medicare, the more it happens, Medicare costs just
go up, up, up because the sickest are there. I am sure it is
something you gave a lot of thought to. But some have raised
this question. I am curious.
Dr. Rivlin. Some have raised it, but we don't think it is
true of our plan. We think we have avoided that possibility by
the rules that we put in, any plan on the exchange would have
to accept anybody, and they would be compensated on a risk-
adjusted basis. I mean, they got more for people who are older
and sicker, therefore they have no incentive to not serve those
people.
Senator Baucus. Again, I just want to thank you all very
much. You have offered a tremendous contribution to this
country, all of you. Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The co-chair now recognizes the gentleman from Ohio, Senator
Portman.
Senator Portman. Thank you, Mr. Chairman, and thank you to
the four patriots who are sitting before us, trying to avoid
what Erskine Bowles talked about today and in the Budget
Committee testimony as the most predictable economic crisis our
country has ever faced, and I appreciate the discussion today.
We talked about a lot of the same issues that this group of 12
has been grappling with, revenues, of course, but also
spending.
I would like to focus, if I could, on some of the issues
that we have talked about, but maybe with a little different
angle. If you wouldn't mind putting up that Bipartisan Policy
Center chart, again, whoever is in charge of the charts, that
is the one that Senator Domenici asked to be put up earlier.
This is the chart that shows that health care spending as a
percent of our GDP is set to just about double in the next 25
years. So just take my word for it, you don't need to see it;
no, if you guys can put that chart up, I would appreciate it
because it is the backdrop to this question.
Erskine Bowles said current benefits encourage
overutilization. He talked about some of the things that could
be done, including higher co-pays, higher premiums, talked
about part A and part B being combined, having a single
deductible that is a little higher. He also said that in the
Simpson-Bowles proposal that you all recommended reducing--
there it is--reducing health care spending over a 10-year
period by $500 billion, and I assume to Senator Simpson and Mr.
Bowles that that refers to the GDP plus 1, that is what that
would mean, $500 billion, given this enormous growth or, to use
your words, unsustainable growth in health care expenses.
And let me ask you about a couple of ways to get there that
we haven't talked about yet. One is means testing. It seems to
me this is one where Republicans and Democrats alike ought to
be able to come together. I could give you some interesting
statistics, a two-earner couple retiring today will pay about
$119,000 in lifetime Medicare taxes and receive about $357,000
in lifetime Medicare benefits. That is 119 in taxes for 357 in
benefits, which goes to the advertisement that you talked
about, Al. So that is about three bucks in benefits for every
dollar in taxes. If you multiply this by the 77 million
retiring baby boomers, it is not hard to see why we have an
unsustainable program.
Now, we can talk about this in terms of being sure, as Dr.
Rivlin just said, that those at the lower end of the income
scale are taken care of, but at the same time I think it is
difficult to justify giving upper income seniors benefits that
so far exceed what they paid into the system. Can you all just
comment on that? We haven't talked about that specifically. How
do you feel about means testing, particularly on the part B and
part D premiums?
Mr. Simpson. Well, you have to, you follow the nomenclature
here, you never want to use the word ``mean'' in anything
especially. You call it affluence testing, and then you get
juice, and that is what you should do. You are going to have to
start affluence testing some of these benefits. There is no
possibility of people who, as I say, literally, and you know
them in your own community, who use these systems and pay
nothing.
Senator Portman. How about co-pays?
Mr. Simpson. Co-pays have to go up, and you have to
affluence test in that. These are my personal views.
Senator Portman. Could we see a show of hands from the
panel because the photographers love this, how many are for
affluence testing?
Mr. Simpson. It would be when they ask the Republicans for
nine bucks worth of spending and one buck worth of revenue, and
all hands shot up like robots. You don't want to get into that.
Senator Portman. But this worked.
Mr. Simpson. I do favor that affluence testing, I think I
always talked about it, Bob Kerry and I have talked about it,
Max remembers Bob Kerry and I and Danforth and Bradley were all
involved in that years ago when we were here. You have to
start, and it will be called un-American, cruel, evil, breaking
the contract, I can hear the music and the violins in the back
already, and it won't work anymore.
Senator Portman. Okay. Let me go to a tougher one. I don't
know if we have----
Dr. Rivlin. Can I chime in on that? We already do have in
the part B premiums some----
Senator Portman. And in part D now.
Dr. Rivlin. And part D, and we are certainly in favor of
increasing that.
Senator Portman. Okay. Erskine, you talked a little bit
about, again, some other ideas, and I am going to put you on
the spot here, my friend, because one was raising the age. How
do you feel about raising the eligibility age, given the
statistics on longevity? Eligibility age on Medicare I am
talking about.
Mr. Bowles. We actually did not have that in our plan. As I
have thought about it since that time, you know, under the
Affordable Health Care Act, we provide subsidies for people who
have really chronic illnesses and for people who have limited
incomes to get so that they can afford health care insurance in
the private sector, and that didn't exist before the Affordable
Health Care Act, and that means that people 65, 66, 67 would
still be able to get health care insurance.
So as I think about it, I could support raising the
eligibility age for Medicare since we have other coverage
available through the Affordable Health Care Act.
Senator Portman. Let's go to tax reform for a second if I
could. All of you are talking about broadening the base, and
Chairman Baucus, and I am sure Chairman Camp is going to
address this, too, something they are very interested in,
simplifying the code, being able to do so by reducing marginal
rates and getting rid of some of the underbrush. One thing we
haven't talked about is corporate reform. As you all know, we
have the second highest corporate tax rate among our trading
partners. Japan is slightly higher, and they are intending to
take theirs down. The average of all the developed countries,
the OECD countries, is 26 percent, we are at 35 percent, but in
fact we are not because you have to add State taxes on to that,
and the average is about 6 percent, which happens to be Ohio's
rate, so you are talking about 41 percent, and we do not have a
territorial system, we have a worldwide system, which also puts
us at a disadvantage, we are told, by all of our companies.
Could I see a show of hands on this, do you all support
getting the corporate rate down to a competitive level? I would
define that as 25, 26 percent and territoriality, does
everybody agree with that?
Senator Portman. Oh, Alice. I almost got Alice.
Dr. Rivlin. Well, if you are pinning us down to a rate, I
mean, we did take the rate down to 28 in ours.
And, actually, we didn't do territoriality. And the reason
was interesting. Simpson-Bowles had strong representation from
big, multinational corporations on it. They spoke very
eloquently for territoriality. Our business representation was
more small business. They were not enthusiastic about
territoriality. So we left it out.
Mr. Bowles. Yeah, we did. We took the corporate rate to 26
percent, and we went to a territorial system to pay for it.
Senator Portman. Pete?
Mr. Domenici. I support ours, the one we have been
describing. We didn't come down as far as them, but 28 is ours.
I think the problem we have with the public on that is it
is discussed in isolation by the commentators. They just say we
are lowering taxes on fat cats, corporations. But when it is
part of an overall plan, they got a big----
Senator Portman. Yeah, I am talking about not lowering the
tax, so it would be revenue-neutral, so there would be no
reduction in the taxation. In fact, you would get growth from
that, based on all the economic analysis that we have seen,
which would add more revenue that was not revenue from
increasing taxes but revenue from growth and other feedback
effects.
Mr. Domenici. I don't disagree. I was just giving you an
explanation that I have heard.
Senator Portman. Yeah. I appreciate it.
With regard to balance, because that has come up here--the
co-chair talked about balance, you all talked about ratios and
balances--what is the right balance? I think, first, can--you
talked about this earlier, in terms of where you all were
headed and where you ended up. Could you or Senator Simpson
give us a sense of what you believe is the right balance here
between revenue that is generated, again, through tax reform,
but new revenue, on the one hand, and, on the other hand,
reductions in spending? What is the right balance?
Mr. Bowles. We thought it was no less than two-thirds, and
we worked toward three-quarters coming from spending, as
opposed to one-quarter or one-third coming from revenue. If you
look at the projections for 2020, it had spending, I think, at
about 25 percent and revenue at 19 percent. And we didn't want
to see revenue go above 21 percent. And, obviously, we wanted
to see if we could drive spending down to where revenue was so
we could balance the budget at some point in time.
Senator Portman. Yeah. Well, that is interesting, because
you are right, you know, we are now at about a historical
average of about 18.4 percent on revenue. And we are lower now
with the recession, but even under CBO's statistics showing
that the tax cuts would all continue, we get back up to that 18
percent in the next several years.
One final--well, I see my time has expired. Listen, again,
I want to thank you all for your help today and the help you
have given us up to this point, all of you who have made
contributions to our efforts, both individually and as part of
your groups. And we are going to need your help going forward.
Thank you.
Chairman Hensarling. The time of the gentleman has expired.
The co-chair now recognizes the gentleman from South
Carolina, Congressman Clyburn.
Representative Clyburn. Thank you very much, Mr. Chairman.
Let me add my voice of thank-yous to all four of our
panelists here today, and thank them so much for their service.
I want to start with a statement. I have asked--and it has
been put up--for a chart to be put up here, looking at a bar
graph that I suspect a lot of us have seen in the last week or
so and we talked about when Dr. Elmendorf was before this
committee. It shows the widening wealth gap that is existing
within our country today, and it covers basically the last 30
years.
Now, we have 3,143 counties in the United States. Of those
3,143 counties, 474 of them, 15 percent of those counties, more
than 20 percent of their citizens have been living beneath the
poverty level for the last 30 years.
And it is kind of interesting because I didn't think about
this through the weekend because, about several months ago, I
joined with Congresswoman Emerson on trying to focus on these
counties and trying to direct resources to these counties. Back
when we did the American Recovery and Reinvestment Act, the
stimulus bill, in the rural development section of that bill we
were successful in getting that bill to focus on these counties
by directing the expenditure of at least 10 percent of those
funds into those counties where 20 percent or more have been
beneath the poverty level for the last 30 years. So when this
report came out from CBO a couple weeks ago, it focused my
attention once again to those communities.
Now, when I first came on this panel, I said that I wanted
to focus on the human side of this deficit. So what I would
like to ask today is whether or not it is feasible to do $1.5
trillion reduction in deficit by cuts only. What will that do
to that bottom 20 percent that has seen only 18 percent growth
in their income over the last 30 years and those communities
where 20 percent or more of their population have been beneath
the poverty level for the last 30 years? What would it do to
those communities and those people if we were to reduce this
deficit only by cuts that have been proposed?
I would like to hear from all four of you on that.
Mr. Bowles. Yeah, I am delighted to go first on that.
As you know, Mr. Clyburn, if you go east of I-90 and you
are in North Carolina, we have more counties that fall into
that category than any other place in the Union. If that part
of the North Carolina was a State by itself, it would be the
poorest state in the Union. So, as you know, I had many of our
universities, from Fayetteville State to Elizabeth City State,
that operated and served the people in those communities.
I think if you think about what you have already done, if
you look at the continuing resolution, you took about $400
billion of cuts through the continuing resolution. And then if
you think about--I always think about what you all are working
on now with the Budget Control Act in two parts, and the first
part was $900 billion in cuts. So you had another $900 billion
in cuts that have already been done.
So you have done about $1.3 trillion worth of cuts already
before you guys start on what you are doing.
Representative Clyburn. Right.
Mr. Bowles. I have always thought it has to be some
combination of revenue and cuts in order to get to the $4
trillion number that we focused on. I do think it is important
for all of you to think about the fact that these deficits are
just eating the budget alive. And they don't leave any money
left over to do the kind of economic development work in these
poor counties that you want to see done if these deficits
continue to grow and interest on the deficits continue to
occur.
What we tried do was to make sure in the analysis, in the
plan that we put forward that we didn't make any cuts in the
income support programs like SSI and food stamps and workers'
compensation. In addition, we tried to make sure that on things
like Social Security that we actually upped the minimum payment
to 125 percent of poverty to help those people who really
needed it. And we gave people a 1 percent bump-up per year
between 81 and 86, because that is when every Democrat and
Republican economist that came to see us said that is when
people need it the most.
So we tried to be sensitive to those people that were most
disadvantaged while we did make the kind of cuts we had to make
in order to put our fiscal house in order.
Mr. Simpson. We have enjoyed our time with you during our
work. And you have been very cordial and listened to us, and I
appreciate that deeply.
Representative Clyburn. Thank you.
Mr. Simpson. The irony to me is that if we don't get there
and the strike comes, the tipping point--Dick Durbin always
asks, where is the tipping point? I don't know where it was,
but I do know that it will come swiftly. And it will come by
the ratings and the markets. It won't come by anything that any
chart has ever disclosed before.
And, at that point in time, interest rates will go up and
inflation will go up. And the very people who will be hurt the
very worst in that procedure are the very people you speak of
with such passion. This is a tremendous irony to me. By doing
little or nothing and the tipping point comes, the little guy
is going to get hammered worse than ever he is or she is now.
That is the irony--the strange, hideous irony.
Representative Clyburn. That is true, Senator. But wouldn't
you say that, if we were do it, let's do a $1.5 trillion
deficit reduction and let's do it on the backs of those same
people, then what happens to that chart in the next 30 years,
where we have a 275 percent increase in income for those people
who are in the upper 1 percent and if you are in the upper
quintile you saw an increase of around 56 percent and the lower
quintile only 18 percent?
So let's just say, let's do it. Let's cut the deficit by
$1.5 trillion. Let's do it by cutting Medicare, Medicaid,
cutting Pell Grants, cutting education, cutting health care.
And we will have saved the markets, but what will we have done
to these 474 communities? That is my question.
Dr. Rivlin. I think that is not a question that we should
answer, because you shouldn't do that.
And there are two points. And I think we are all making the
same two points. One is, we need to cut the deficits, but not
by hurting vulnerable people. You should avoid doing that. And,
secondly, that the importance of avoiding a double-dip
recession and a lost decade of growth is extreme and will hurt
those people most if you don't avoid it.
Mr. Domenici. I am the last here, and you have heard almost
anything humankind can think of, but I would suggest to you
that the answers that were given are really relevant and
important.
And one of the reasons that our group did not get as big of
reductions in appropriated accounts as other plans was because
we came upon the idea that we were going to have to come up
with some revenue and we ought to have a budget that was
understanding in this area, or it would, quite properly, be
attacked with equal vigor to destroy it as we were trying to
create a country that was strong again. And so we did take care
of the problem you talk about.
But I would tell you from my own experience as I leave the
scene, one time I asked a very wise man, ``What do we do to
help poverty?'' And the person said, ``I can tell you in one
word.'' And I thought, you must have direct ties with the Holy
Spirit. And he said, ``Educate.'' He said, ``Would you like it
again? Educate.''
Representative Clyburn. Absolutely.
Mr. Domenici. And that is what he said, is that people must
get educated. Well, that won't solve the bread on the table,
but any plan you have in mind should obviously look at whether
the poor people are getting educated or not.
Representative Clyburn. I appreciate that.
Mr. Domenici. And that is the first step out, has got to be
that.
And, secondly, the country has to grow or there is nothing
to split, there is nothing to give to our people. So whatever
programs you are talking about have to have growth in them.
That is why all our tax plans are growth tax plans. Theirs is;
ours is. We call it that. And we asked experts, and they say,
your tax plan will cause far better growth than the plan we are
under now.
That is why we cut corporate taxes. And people shouldn't
immediately say, what do you cut the fat cats for? They aren't
making as much here to give to our people in wages because they
are going elsewhere because our taxes are too high. So it is
not what people say. The reality is competition. We can't force
them to stay in America if our taxes are too high.
So I think education and a fair tax for corporations
belongs on this litany, maybe not first but somewhere.
Chairman Hensarling. The time of the gentleman has expired.
Representative Clyburn. Thank you.
Chairman Hensarling. The co-chair now will recognize the
gentleman from Michigan, Congressman Camp. And before I do, I
just wish to thank him for arranging for the Joint Select
Committee to use the Ways and Means Committee room. And your
chair is very comfortable. Thank you.
Representative Camp. Thank you.
Well, I also want to thank our witnesses for being here and
for all of your hard work and your testimony today.
I do have a question. Mr. Bowles, in the Simpson-Bowles
plan, you recommended that the United States move to a
territorial tax system. And I agree with that recommendation
because I think our current system is one that really means
that our companies and workers aren't competitive. Do you share
that view, and is that why you recommended moving to that
system?
Mr. Bowles. Yes. I have read your--I guess it is what this
committee put out, the Ways and Means Committee put out, and I
was very much in favor of what you put out.
Representative Camp. Do you believe that--in our proposal
or draft discussion we have out there, there are ways to move
to a territorial system that does not create incentives for
companies and employers to move jobs to other parts of the
world, or their investment or their R&D. But, also, I think it
is possible to craft a plan that could get that policy wrong.
In the Commission's meetings, our discussions, you were
focused on moving to a territorial plan that did not make our
companies less competitive. And do you think that can be done
in the context of a revenue-neutral territorial plan?
Mr. Bowles. Yeah, I do. And I think, you know, if you
encourage--if you stay on a worldwide system and you almost
force companies to leave those dollars overseas, then,
naturally, if they are going to have to pay a big tax on those
dollars to bring them back, I think the likelihood is more
probable that they are going to create the jobs somewhere else
rather than here.
And that is one of the principal reasons I support a
territorial system, in addition to the fact that everybody else
in the world has gone to it with the exception of us.
Representative Camp. You also really recommended a complete
overhaul of our Tax Code. And I appreciate the model that you
set up, where you tried to lower rates in exchange for doing
away with various provisions or exceptions in the Code. And I
think that really has shifted the debate on what tax reform
might mean.
Your reform proposal would raise revenue compared to the
current policy baseline, but you didn't do it by raising taxes.
A lot of people get those two things confused. And why did you
choose that route of raising revenue really through reform
rather than imposing new taxes?
Mr. Bowles. Because I felt like, based on my experience in
the business world and the economists that I talked to, that it
would create dynamic growth in this country and create jobs and
opportunities for people. And I felt it just made sense to get
the spending out of the Tax Code and to use that money more
efficiently, more effectively by lowering rates and reducing
the deficit.
Representative Camp. All right. Thank you.
Dr. Rivlin and Senator Domenici, in your plan, you have had
the government's share of our GDP around 21 percent, I believe.
Is that correct?
Dr. Rivlin. Yes.
Representative Camp. And that is basically $1 out of every
$5 of our economy would come to Washington, D.C. And that is
more than the highest levels of revenue we have seen in the
history of the Nation. And I think there has been only one time
where the government's take has really gotten anywhere close to
that level, and that was during the Internet bubble because
there were enormous capital-gains revenues associated with
that.
Did you perform an analysis of the impact on the economy
and on job creation of having government's revenue of GDP reach
that level?
Dr. Rivlin. No, not ourselves. We examined other people's
research on this. I don't read the record as having much
evidence at all, of a connection between the exact proportion
of the Federal Government's revenue and economic growth.
The reason ours went up was, as I have stated earlier in
the hearing, we didn't see how, in this very new situation of a
much older population and the tsunami of the baby boom, we
didn't see how we could fulfill our obligations to those
people, and perform the other services of government without
having the government in that range.
It has been there before; it is not a disaster. This is not
taking on new government responsibilities. It is just saying,
we have a lot more older people and we have to take care of
them. And that is going to mean slightly higher government
spending than we had in the days when the population was a lot
younger.
Representative Camp. Senator?
Mr. Domenici. Yes. Let me just say, I, too, in my past
life, have used percentages like that. I have learned that on
many of them there is no reality attached to the number. Nobody
can tell you that 20 percent, 19 percent is better than 19.5 or
20.6. If you have the rest of the policies right, things will--
in our kind of economy, we will get growth.
The problem we have in this country has been expressed over
and over here today, and that is that the population is growing
older, the population has less workers per retiree, and so you
have a--when we looked at the 19 or 18.5 that was used as the
historically significant number, we didn't have these
demographics, we didn't have this kind of problem.
So we solved it by trying our best to use the Tax Code to
generate some extra revenue in the manner we have suggested
here. And, at the same time, we have taken on the
responsibility of some of the programs that are going to sink
us if we sit by and say, we have to have 18.5 percent, and that
is all on the revenue side, and then what are we going to do
about the exploding costs of the programs? And I think we have
solved it in a pretty reasonable manner. If you want to just
say, let that one go out there, we will fix it someday, we
can't fix Medicare to match the 21, much less the 18.5 that was
historically right.
So that is my answer. I think there is no absolutely
positive evidence that any of these numbers are absolutely
right. They are right, they are in the range, but if you do the
other policies correct, we will survive with 21 percent, I am
sure.
Representative Camp. You also had two new tax structures in
your proposal. One was what you described as a debt-reduction
sales tax, or what most people would consider to be the value-
added tax. The other was the tax on sugared drinks, or
beverages.
Did you do an analysis about the cost of those two new tax
structures, the implementation of two new tax structures on our
economy and what that might mean?
Dr. Rivlin. Well, you are right that we did have the debt-
reduction sales tax. We didn't call it a VAT, but you are
right, it is analogous to that. I think that the Senator and I
and the members of the group all believed that it would be
sensible for the United States to move part of its tax burden
off the income tax and onto a broad-based consumption tax. But
this is not the moment to do that. And we realized that and
eventually took it out, though we still believe in it, and
revamped our income tax proposals to make up part of the lost
revenue.
The sugared drinks, you know, that is not going to change
the economy. Whether it, at the margin, discourages people from
drinking too much soda, I don't know. But we had some sentiment
for doing it.
Mr. Domenici. I would say, on the last one, sir, we didn't
look at the economic significance of it. You have been chairman
of a committee, and I understand you are now of a very
significant--sometimes you are just outvoted and you have to do
things that aren't necessarily the greatest.
Representative Camp. Yeah, I get that part.
Mr. Domenici. You got that.
Representative Camp. All right. Thank you. Thank you very
much.
I yield back.
Chairman Hensarling. The gentleman yields back.
The co-chair now recognizes the gentleman from
Massachusetts, Senator Kerry.
Senator Kerry. Thank you very much, Mr. Co-Chair.
First of all, I want to thank each of you for your
extraordinary service, not just in this effort, which is
important, but over the years. And we are particularly
appreciative to this contribution to the dialogue. And I hope
it will be a contribution to more than a dialogue, but to a
result from this committee.
I just want to spend a few moments on some of the context
that brings us here.
Administrator Bowles, you opened up with a comment that
caught my attention--two comments. One, you said, this is the
most predictable economic crisis in history that we are looking
at coming at us, even as you pegged the minimum figure of $4
trillion, which is what you think we ought to do. But then you
said you are worried that you are going to fail. And I want you
to speak to that for a moment.
Mr. Bowles. You all have done a great job of stopping the
leaks coming out of your committee for an extended period of
time, but over recent days I have been able to put together
some of the proposals that you all are considering. And I have
also listened to some of the back-and-forth that has been in
the press.
And I have heard people talk about simply settling for $1.2
trillion worth of deficit reduction, maybe $1.5 trillion, but
more of the talk is at $1.2 trillion; doing it across the
board, which is never the smart way to make any kind of--to
control any of your budgets in any way, shape, form, or
fashion. And I have even heard talk that if you end up doing
$600 billion out of defense and $600 billion out of nondefense,
that the day after the sequester takes place that you will have
people in the House and the Senate be working to get around the
sequester.
I think that would be disastrous. I think people would look
at this country and say, you guys can't govern. I think people
would look at it and say, you know what, they are really not
going to stand up to their long-term fiscal problems, and this
is not going to be a powerful country in the future. And they
would think that we were well on our way to becoming a second-
rate power. I think it would be a disaster.
Senator Kerry. So I want to sort of build on that a little
bit. We all know that the figure we should hit in order to
stabilize the debt, which is the mission and ought to be the
mission of the Congress, is $4 trillion.
What is the impact in the marketplace, what would the
impact be on a discounting of our debt, a write-down, if we hit
$1.2 trillion or $1.5 trillion? Aren't we going to just be back
here almost immediately with the very same issues sitting on
the table?
Mr. Bowles. You could lose the $1.2 trillion to $1.5
trillion by an increase in interest rates back to the normal
rate very quickly. You wouldn't be accomplishing very much if
you did that.
And plus, you know, the effect it would have on how people
would look at this country would really be devastating. I can
tell you, when we went through this whole debt default fiasco
before August, I can tell you, globally, countries lost a lot
of respect for America, and they lost confidence in us that we
would really stand up and address our long-term problems.
Senator Kerry. Now, Pete, I am sorry that Al had to leave,
but you and I had the great pleasure of working together on a
number of different issues, and I trust your judgment. And
while we are not wearing partisan hats, hopefully, here, you
are a Republican. And I would like you to share with us, sort
of, your perception as a long-time legislator.
When, in your memory, has a committee in Congress ever had
the right to put together a proposal that would be voted on by
expedited procedure in both Houses of Congress with a 51-vote
majority without amendment?
Mr. Domenici. The answer is never.
But I would tell you, when we passed effectively in the
Senate the bill that created the Budget Committee, it was an
impoundment and budget act, as you recall. It was to
deauthorize the authority of the President to impound and, at
the same time, to create a Budget Committee. Senator Robert
Byrd, the expert extraordinary on the Senate, spent weeks on
end trying to figure out a way that you could assure the
passage of bills that pertained to the budget and not destroy
the filibuster rule. And, in the end, he quietly gave in.
And the Budget Act, if you go look at it, it is a big,
thick bill, but, nonetheless, if you read it and do what I did,
I decided that it meant that I could take a reconciliation bill
to the floor of the Senate and it could not be filibustered.
And I defeated Robert Byrd because his own writing said he had
found a way, without changing the rules of the Senate, to get
around filibuster and give authority to a committee.
So we gave the Budget Committee in the Senate the authority
to act without filibuster. But nothing as powerful as this
committee.
Senator Kerry. And what would be the implication--I would
like to ask all three of you. You answered this, to some
degree.
Director Rivlin, you have headed up the CBO, you have
headed up the OMB, as well. What would be the implications, in
your mind, of the United States of America not meeting what
everybody understands is the financial challenge facing us,
sort of, stabilizing the debt and beginning to get on a long-
term fiscal path? How would the world view this, particularly
given the fragility of Europe right now and their efforts on
Greece, Italy, Spain, et cetera?
Dr. Rivlin. I think it could be devastating. I agree with
Erskine and would be even stronger. I think we could face a
long period of stagnant growth, another recession, which would
be worse than the one we are slowly climbing out of.
It is very hard to predict when this might happen or what
the course might be. But, certainly, in the last few months, we
have seen dramatically in Europe that sovereign debt of quite
solid-seeming countries can go down very fast. And that could
happen to us. And we could just lose the confidence of our
trading partners and ourselves.
I think the problem is, if we are seen by our own citizens
as not being able to face up to problems and solve them, we are
in deep trouble.
Senator Kerry. And, importantly--I think it has been put on
the table here clearly today, and I am sort of trying to
reiterate this because I think it is important--it is possible
to put revenue on the table to the tune of $1 trillion-plus,
whatever, with tax reform, is it not? You do not have to raise
the tax rates. In fact, you could do the tax reform with
specific instructions to the tax committees to hold the rates
down, lower the rates, get a lower range, broaden the base,
correct?
Dr. Rivlin. Right.
Mr. Domenici. We actually went out of our way to get some
experts together, the best experts in this town--and I think we
know who they are--and asked them, does that section 404 give
the kind of authority that you just alluded to, to direct to
the committees that they perform the following and report it
back? And that bill would carry with it in the Senate the same
prerogatives that the original bill carried when you were
created.
Senator Kerry. Now, Pete, you and I met, and we talked
about your concept with respect to health reform. And I
appreciate the contribution of it, and I have been trying to
work through how we might be able to do some of those things.
There are some issues, I think, about how you guarantee the
coordination of the lowest health-care plan and still get
coverage in certain areas, but I don't want to get stuck on
that for the moment. What I want to do is, sort of, deal with
the bigger issue here.
I assume all of you would agree that you can do structural
reform in Medicare, in the entitlements, that is not
necessarily just the premium support approach. Is that
accurate?
Mr. Domenici. That is accurate.
Senator Kerry. Director Rivlin?
Dr. Rivlin. Oh, certainly. There are several approaches. We
like that one.
Senator Kerry. And, for instance, the age thing that
Senator Portman asked about, that is structural reform, isn't
it?
Dr. Rivlin. I actually wouldn't think of raising the age as
structural reform.
Senator Kerry. What would you think of? Give us some
thoughts about structural reform that you think would
conceivably alter it, whether it is dual-eligible, Part A, Part
B. Are there other components? Or, how about this, that you
begin to move the entire system off of fee-for-service where
possible, where it works you would leave it, but you move into
a value-based payment system?
Dr. Rivlin. Yes. And that is roughly what we are proposing.
Mr. Bowles. Senator Kerry, I have a lot of opinions about
health care. I think the current system doesn't make any sense,
to pay twice as much as any other developed country for health
care and have our results rank somewhere between 25th and 50th.
You know, we have 50 million, roughly, people who don't have
health-care insurance. You know, I just ran the public health-
care system in North Carolina; it reports to the president of
the university. And if you don't think those 50 million people
get health care, you are crazy. They get health care, they just
get it in the emergency room at five to seven times the cost it
would be in the doctor's office. And that cost doesn't
disappear; it just gets cost-shifted to those of us who have
health-care insurance and in the form of higher taxes.
You know, we have got to have real structural reform in
health care. I believe all people ought to have health care,
but I don't think anybody should get, on the government's
checkbook or the taxpayers' checkbook, a Cadillac plan. I don't
think anybody ought to get first-dollar coverage, because I
think we ought to make sure that people have skin in the game.
And if you are going to have everybody have coverage, then
you have to have everybody have a medical home. And if
everybody is going to have to have a medical home, then you
darn well got to make sure that education institutions like
mine are producing more primary-care doctors and more nurse
practitioners and more physician's assistants and not so many
specialists.
I think if you want everybody to have prescription drugs,
then I don't know why in the world you wouldn't have Medicare
negotiate with the drug companies for prescription drugs if the
taxpayers are going to pay for them. And I don't know why
anybody who was getting drugs from the taxpayers ought not to
have generic drugs.
If you don't think that hospitals and doctors practice
defensive medicine, you are absolutely crazy. They do. So we
have to have some kind of real tort reform.
And you are absolutely right, we have to go to paying for
quality, not quantity.
And at the end of the day, you know, nobody likes this, but
without talking about death panels and that kind of crazy
stuff, you are going to have to do something about the end-of-
life scenario.
Those kinds of things have to be done if you are really
going to address health care.
Senator Kerry. Well, I thank you all.
And I apologize to the chairman----
Chairman Hensarling. The time of the gentleman has expired.
The co-chair now recognizes the gentleman from
Pennsylvania, Senator Toomey.
Senator Toomey. Thank you very much, Mr. Co-Chair.
And I also want to add my voice in thanks to the folks who
have come here today for the work you have done. It has been
enormously helpful.
Let me touch on a couple of the issues and develop a few a
little bit further, if I could.
One, obviously, we all know, as a given, that the Federal
revenue is ultimately a function of our economy. But I think it
is worth noting, and I think you will all agree, that the
growth in Federal revenue is related to the growth of the
economy, but, in fact, Federal revenue will grow faster, as
long as the economy is growing, than the growth of the economy.
And since Dr. Rivlin is the professional economist on the
panel, I wonder if you would just confirm that, as a general
rule, if we have strong economic growth, we will have even
faster Federal revenue growth.
Dr. Rivlin. That used to be true, Senator, before we
indexed the tax system. It is much less true now. If you have
strong growth, Federal revenue will go up a little faster than
the economy, not much. We gave away that tool, actually, with
the indexing.
Senator Toomey. All right. So we could have a discussion
about how much that magnitude is, but, even now, there is some
additional growth faster than GDP growth.
One of the things that came out from our discussion with
CBO about this is that one-tenth of 1 percent of additional GDP
growth, on average, over 10 years they estimate results in
about $300 billion of additional revenue to the government.
Now, this is not perfectly linear, and I understand that, but,
very roughly, if that were to be roughly true, less than half a
percent of average greater economic growth would result in,
coincidentally, about $1.2 trillion, which is the statutory
goal here. I am not suggesting that that is an alternative to
our doing the work that we do, but I think it underscores how
important it is that whatever we do attempts to create an
environment to maximize growth.
My own view from the beginning has been that the most
constructive thing we can do to maximize economic growth is
major reform of both the corporate and the individual tax
codes. I don't think there is any dispute about that. But I
wanted to drill down a little bit.
For instance, if we--there are many approaches one could
take. Let's look at the individual side for a moment. And for
the sake of argument, if we were to reduce the value of all the
deductions that are currently available to individuals and we
had an equivalent reduction in rates, for sake of argument,
everybody agrees that would be very pro-growth. Is that right?
There is a consensus on that?
My understanding, from both Mr. Bowles and Senator Simpson,
was that when you folks looked at this exercise of reducing
deductions and credits and write-offs, lowering rates, you did
it with roughly a 10-to-1 ratio. For every dollar that was
dedicated to lowering rates, there was a dollar dedicated to
deficit. I think you had suggested that it was, like, 92 to 8?
Mr. Bowles. Yeah, that is correct. Yeah.
Senator Toomey. So 10 to 1, 11 to 1, that was about the
ratio. Do you recommend that we take an approach like that,
where we would, on the individual side, do that kind of
simplification, lowering of rates, and have a ratio comparable
to that?
Mr. Bowles. I think you will run into some of the problems
that Senator Baucus brought up. That is why we presented two
options. If you go with the zero plan and get rid of all of the
tax expenditures, then you do create enough resources that you
can use only 8 percent of the resources and still generate a
trillion dollars' worth of additional revenue that could go to
reduce the deficit.
However, if you are going to go back and not get rid of all
of these tax expenditures but you are going to keep some of
them--like, some of the Democrats will want to keep the Earned
Income Tax Credit, they will want to keep the child tax credit,
some of you may want to go to a credit for mortgage--to help
people with their mortgage debt, some people might want to go
to a credit for charitable contributions.
So anything you keep gives you a smaller pie to work with.
So if you are still going to come up with a trillion dollars of
deficit reduction, then that 1-to-10 ratio won't work anymore.
Senator Toomey. Okay.
Does everybody on the panel agree that if any package were
to include net tax revenue it ought to come in the context of
reform that actually lowers marginal rates?
Dr. Rivlin. Yes.
Mr. Domenici. Yes.
Mr. Bowles. Yes.
Senator Toomey. Okay.
Let me move over to health care for just a second. I am
glad, I think, again, that there was a consensus, I think it
was unanimous, that it is our health-care costs that is driving
the deficit and debt crisis that we have.
It has been my view, and I wonder if anyone disputes this,
that, in fact, it is our Medicare plan that essentially drives
the entire health-care sector. And while there is, obviously, a
significant private-sector component, to a large degree it is a
reaction to, and it acts in the context of, what Medicare does.
And so Medicare is the real driver of the entire health-care
picture.
Do you agree with that?
Mr. Domenici. Yes.
Dr. Rivlin. Yes. And there are instances in which Medicare
has actually done significant reforms and the private sector
has followed.
Senator Toomey. Right.
Mr. Bowles. And I only agree with part of it. You said that
Medicare was the only--I am not sure you said ``only,'' but
Medicare is one of the drivers of our deficit problem. It is
not the only driver. I think it is the number-one problem----
Senator Toomey. What I said was that health care is, and I
meant to say is the primary driver.
Mr. Bowles. Yeah.
Senator Toomey. Senator Kerry talked about structural
reform. It seems, in my view, meaningful structural reform
means getting away from fee-for-service. To me, that is the
heart of Medicare, that is the heart of the design. And because
we use this terminology and assume that everyone knows it, I
will take a crack at describing what I think of as fee-for-
service, and tell me if I have characterized it right.
But, essentially, what we have is a committee here in
Washington that specifies the price it will pay for every
conceivable medical procedure, the circumstances under which it
will pay it, the people who are permitted to perform it, where
they are allowed to perform it, in which venue. And it is a
completely, you know, government-controlled mechanism, which
also, by the way, doesn't account for whether the outcome is
successful or not and whether the procedure needs to be
repeated.
Is that a fair characterization of fee-for-service?
Mr. Bowles. I think what I said earlier in answer to
Senator Kerry was that I think we are going to have to move
from paying for quantity to paying for quality. And I think you
are saying something very similar.
Senator Toomey. Well, I am. I think, at the heart of this,
this necessarily creates all kinds of inefficiencies,
misallocations, perverse incentives. And the solution has to be
to get away from this.
I guess my last question for everybody, are all of you
confident that----
Mr. Domenici. Before you proceed----
Senator Toomey. Senator?
Mr. Domenici [continuing]. I did want to make an
observation, that we recognized that Medicare had some very
significant problems of the type you are alluding to, and that
is why we are here suggesting that it be changed.
Senator Toomey. Right.
Mr. Domenici. At the same time, we have explained why we
said, as we move----
Senator Toomey. Right.
Mr. Domenici [continuing]. We don't move so quickly with
getting rid of one and establishing the other that we lose both
or lose all reform.
Senator Toomey. One of the things that concerns me is that,
as long as we leave a significant fee-for-service component in
place, I worry about whether the reforms are capable of
defeating the mechanism and the misallocations and the, sort
of, perverse effects of that fee-for-service.
So I would ask this. Do you think it is possible to devise
a plan that would transition completely away from fee-for-
service, some kind of premium support model that is defined to
ensure that the most vulnerable people have the coverage that
they need?
Mr. Domenici. Well, I will say, for the time being and for
the foreseeable future, it seems to me you cannot do that. You
have to go with some transition. You wouldn't get the other
done.
That was the question, whether you can get it done. I am
not an expert. I didn't sign on for this job to be an expert on
Medicare. That is why I don't answer some of your questions.
But I am saying, practically, I don't think it could be done
now under this circumstance. We have to do something----
Senator Toomey. Well, I am not suggesting that so much, but
I appreciate the response.
Dr. Rivlin?
Dr. Rivlin. Well, I agree with the Senator. I think that
the idea--we believe that, actually, competition on a well-
designed exchange between comprehensive health plans,
particularly capitated plans, they would win out in a fair
competition.
There are parts of the country, especially rural parts of
the country, where it probably isn't feasible right now to do
that. And that is why we think there ought to be a transition,
and that it is much less scary for seniors to say, ``If you
like what you have, you can stay with it, but you are going to
be offered something which is likely better.''
Mr. Bowles. Yeah. And I would say, if you look at some of
the pilot projects in the Affordable Health Care Act, they have
some good examples in there of experiments that are going on
today to do just what you are talking about.
Senator Toomey. All right. Thank you all very much.
Chairman Hensarling. The gentleman yields back.
The co-chair now recognizes the gentleman from Maryland,
Congressman Van Hollen.
Representative Van Hollen. Thank you, Mr. Chairman.
And I want to join my colleagues in thanking all of you for
your terrific service to our country in many different
capacities.
Mr. Bowles, thank you for recognizing that actions the
Congress has already taken to date, including passage of the
Budget Control Act, has already achieved projected savings of
close to a trillion dollars in discretionary funds, which isn't
far from the targets that all of you set in your work, the
major difference being you actually had a higher part of that
coming from defense cuts. Is that not the case?
Mr. Bowles. We actually divided ours between security and
nonsecurity.
Representative Van Hollen. Right. And so you were at about
$1.2 trillion in discretionary. Half of that is $600 billion. I
think the figures will show that your proposals took more than
has been taken to date from the defense side of the equation.
But I want to--I think many of us view your general
approaches here as balanced approaches, balanced frameworks. So
I want to put the discretionary piece to the side for a minute
because we have come close to achieving, in some cases
overachieving, your targets.
In Simpson-Bowles, as you mentioned, Mr. Bowles, you had
about $500 billion gross cuts in Medicare and Medicaid. You
actually took some savings out of that. Net, it was around $400
billion.
But on the revenue, I just want people to understand,
because what you had in both your plans was genuine--what us
budget geeks call genuine CBO-, Joint Tax Committee-scorable
revenue. And, as you mentioned, Mr. Bowles, your baseline
assumed as part of your deficit projections that we would have
about $800 billion, which is equivalent to about the amount of
money that would be generated from allowing the rates for the
folks at the very top to lapse, correct?
Mr. Bowles. That is absolutely correct.
Representative Van Hollen. That is right. And then on top
of that you had proposals, through tax reform and the other
things you have talked about, to generate another about $1.2
trillion. Isn't that right?
Mr. Bowles. Right. We--that is exactly right.
Representative Van Hollen. All right. And so, again, on the
Budget Committee, when we are comparing that to what we call
the current policy baselines, compared to CBO that is about a
$2.1 trillion, $2.2 trillion tax cut compared to current law.
Of course it is a--excuse me, revenue increase. Compared to
current law, it is a tax break.
And looking at your testimony, Dr. Rivlin and Senator
Domenici, you come in about the same place, $2.2 trillion on a
current law baseline, correct?
Mr. Domenici. Right.
Dr. Rivlin. Right.
Representative Van Hollen. All right. So let me just ask
one other question with respect to tax reform. I take it, from
looking at both your reports, that you would want tax reform to
be done in a way that maintains at least the current
progressivity of the Tax Code. Is that correct?
Mr. Bowles. Yes.
Mr. Domenici. We worked very hard to do that in ours.
Representative Van Hollen. Thank you.
Dr. Rivlin. Ours is actually slightly more progressive than
the current.
Representative Van Hollen. Right. So at least the current
progressivity of the Tax Code.
Now, you have both, in your written testimony, suggested we
may want do two-step processes, downpayment and then something
else. Dr. Rivlin, Senator Domenici, you specifically say, as
part of that downpayment, you would include about $450 billion
of what you call tax expenditure savings.
I assume, therefore, that you see that as something you
could do for deficit-reduction purposes, not necessarily at the
same time as tax reform. And I think, if I look at the ones you
have picked out, you think that they could be what we call
rifle shots. Is that right?
Dr. Rivlin. Right. But it should be consistent with--our
notion is you have a tax reform idea.
Representative Van Hollen. Yes.
Dr. Rivlin. You move some of it forward.
Representative Van Hollen. That is right. And, again, on
net, your tax reform ideas would generate $2.2 trillion on the
current policy baseline, correct?
Dr. Rivlin. Right.
Representative Van Hollen. Okay.
Let me talk a minute about jobs and the economy, because
the Congressional Budget Office has said that about a little
over one-third of our current deficit today is as a result of
the fact that we have a very weak economy, we are not operating
at full potential. So I think all of us agree that we need to
get the economy moving again.
Dr. Rivlin, you pointed out that your plan with Senator
Domenici had about $680 billion in payroll-tax relief. And I
think you said the other day on one of the Sunday shows you
would, ``go bigger'' than the President's job plan.
Do you believe that something like that is necessary at
this time?
Dr. Rivlin. Yes. I think we are in danger of slipping into
stagnation, and we should do something about it.
Representative Van Hollen. Mr. Bowles, would you agree that
it would be a bad idea this coming year to have every working
American see an increase in their payroll tax relative to last
year?
Mr. Bowles. Yeah, on the payroll tax that was in the
President's proposal, I think it was about $240 billion out of
a $447 billion?
Representative Van Hollen. That is right.
Mr. Bowles. And it is hard for me, as a fiscal
conservative, to say this, but I could support a continuation
of the payroll-tax deduction for, you know, another year for
employees.
It is very hard for me to understand how an approximately
$600 deduction for the employer on a temporary basis is going
to be enough to get them to hire a full-time, permanent
$30,000-a-year employee. So I don't think I would support the
payroll-tax deduction for the employer. I could see supporting
it for the employee if we could pay for it.
Representative Van Hollen. Okay. Thank you.
Just----
Mr. Domenici. Could I say----
Representative Van Hollen. Yes?
Mr. Domenici [continuing]. On our end, I am for what we
told you we are for, but I wouldn't argue if you followed his
suggestion. As I see it, it is still alive. And what he is
talking about is certainly better than nothing.
Representative Van Hollen. Got it. Thank you. Thank you,
Senator Domenici.
On health care--and, Dr. Rivlin, you have testified many
times in front of the Budget Committee and stated that you
thought that the Affordable Care Act introduced a number of
very important innovations. I agree with you that we need to do
more in terms of modernizing the Medicare system to focus more
on the value of care and the quality of care versus the
quantity of care.
I do have a question with respect to your version of the
premium support plan, the most recent one. And that is, if you
are confident in the market forces driving down the prices and
if your argument is that Medicare is driving those market
forces, then why would you need a fail-safe mechanism? In other
words, why would you need to say, if you don't achieve the goal
we want in savings, you have to have GDP plus 1? And if it is
not keeping track with the market, isn't that just a cost
transfer to Medicare beneficiaries?
Dr. Rivlin. Well, I am not absolutely certain how the
markets will work. We have seen even in the limited market that
is Medicare Advantage that in some places they work well and
come in under the fee-for-service and in other places they
don't. We think this is a much more robust plan than Medicare
Advantage.
But the reason you want the fail-safe is so the Congress
will absolutely know what they are going to spend going forward
on Medicare. It is not going to grow faster than this. It is a
defined contribution. And we think that is very useful.
And as for the cost-shifting, there might be some cost-
shifting, but then you could arrange it so that it is not cost-
shifting onto lower-income people--it is means-tested, as we
were saying before--it is cost-shifting onto people who can
better afford it.
Representative Van Hollen. Right. Well, I think that,
again, I mean, if we are confident that the market forces were
going to work the way intended, then I don't think there would
be a need for a backup. I do know that Members of Congress and
folks who are on the Federal Employees Health Benefit plan, for
example, they bid, different plans bid, and there is a defined-
support mechanism that is set in law, 72 percent-28 percent. So
I am not sure why we would be proposing something different for
Medicare beneficiaries.
Let me just close, Mr. Chairman, by saying we asked,
actually, CBO to take a look at some of these ideas, including
one where we just had competition among the managed-care plans
and another one where we threw in the wrinkle of premium
support. It wasn't the second-lowest bidder. It was more along
the lines of what some other plans did, which was just
marketplaces. And just having competition among the managed-
care plans they said came out a score of about $9 billion
between 2014-2021. Adding in this other mechanism achieved
about--it took you up to a total of about $25 billion.
So it is pretty clear, at least from these numbers--and we
can take a look at them--that we are going to need to do other
things, that this is not a panacea, at least according to CBO's
numbers, for dealing with the Medicare challenge, that we need
to look at a lot of these other innovative ideas that are out
there, including some of the things that have been talked about
today.
Thank you, Mr. Chairman.
Chairman Hensarling. Thank you.
The gentleman yields back.
All time for Member questions has concluded.
However, I would note, prior to Senator Simpson's
departure, he did mention, Mr. Bowles, that you had something
you might want to present. Without objection, I would certainly
yield you a couple of minutes if I understand you have
something else you wish to present to this committee.
Mr. Bowles. I can do it very quickly. I tried to think, if
I were sitting in your shoes or I was the go-between as I was
in the what became the Simpson-Bowles plan, if it was possible
for you all to get to the $3.9 trillion deficit reduction,
given where your positions are today, and I think it is, I
think you can get this done, and I will just go through briefly
the arithmetic. And, again, you have got to flesh out the
policies, but if you look at where I understand the two sides
now stand, and this is from just listening, which is what you
have got to do if you are the guy in the middle, you know, the
proposals for discretionary spending, and these are all above
what the $900 billion and the 400 that was in the continuing
resolution, so this is in addition to the $1.3 trillion worth
of spending cuts that have already been done, but you all are
between $250 and $400 billion of additional cuts on
discretionary, so I assumed that we could reach a compromise of
an additional $300 billion on discretionary spending cuts.
On health care you are somewhere between $500 and $750
billion of additional health care cuts. I assumed that we could
get to $600, and I got there by increases in the eligibility
age for Medicare that I discussed with Senator Kerry when he
was talking to me. That is about $100 billion. That would take
you from the 500 where the Democrats are to $600 billion, and
it happens to come not on the provider side, which I think
would kind of balance that out.
On other mandatory cuts, you are somewhere between 250 and
400, so I settled on 300 there, and we had enough cuts in our
plan to get you to 300 on the other mandatory. Interest will
obviously just fall out at approximately 400 billion, the
savings there. You agreed actually on CPI in your two plans of
approximately $200 billion. The total of that is $1.8 billion.
That left me a little short.
That gets me to revenue. And on revenue I took the number
that the Speaker of the House, I had read had actually agreed
to, and I was able to generate $800 billion through revenue
from the Speaker's recommendation, and if you did that without
dynamic scoring, but you did it, and, you know, on dynamic
scoring I am kind of on the Reagan plan, trust and verify,
which we talked about earlier. If it actually comes, great, you
will use it to reduce rates or you will use it to reduce the
deficit. But if you add the $800 billion there and you do that
slightly on a more, make it so the code is slightly more
progressive after you have done it than before, then I think
you have really got something that you might be able to work
with the Democrats on.
That would give you an additional total of $2.6 trillion
added to the 1.3 you have already done. That is $3.9 trillion
in deficit reduction, and I think that would create a lot of
excitement with people in the country, and I think it would go
a long ways toward building up confidence that we really could
stand up to our problems.
Chairman Hensarling. Thank you, Mr. Bowles. You certainly
created some excitement with the press, I think. I would say,
don't necessarily believe everything you read and hear about
the proceedings of this committee.
I do want to thank every single member of the panel on
behalf of the Joint Select Committee for Deficit Reduction, not
just for your presence here today away from your businesses and
your families, but, frankly, more important, the entirety of
what you have lent to the body of work to try to really address
a very real crisis that we face. I do thank you for that. Your
testimony was certainly sobering and helpful, and not the least
of which was timely.
I do want to remind all members that they have 3 business
days to submit questions for the record, and I would ask our
witnesses to respond promptly to the questions. Members should
submit their questions by the close of business on Thursday,
November 3rd.
With no other business before the committee, without
objection, the joint committee stands adjourned.
[Whereupon, at 4:35 p.m., the joint committee was
adjourned.]
A P P E N D I X
Additional Material Submitted for the Record
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