Van Hollen Questions JSCDR Witnesses On Revenue, Previous Debt Reduction Plans

Washington, DC – Maryland Congressman Chris Van Hollen, Ranking Member of the House Budget Committee and member of the Joint Select Committee on Deficit Reduction (JSCDR), questioned witnesses Sen. Alan Simpson, Erskine Bowles, Sen. Pete Domenici and Dr. Alice Rivlin at today’s JSCDR hearing on previous debt proposals. A transcript of the exchange is below, and the video is here.

REP. CHRIS VAN HOLLEN: Thank you, Mr. Chairman and I thank 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 taken to date, including the Budget Control Act, have saved close to $1 trillion 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? 

ERSKINE BOWLES: We actually divided ours between security and non-security. 

VAN HOLLEN: Right, so you were 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 many of us view your general approaches here as balanced approaches, balanced frameworks, so I want to put the discretionary pieces to the side for a minute, because we’ve come close to achieving, in some cases, overachieving your targets. In Simpson-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 score-able 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? 

BOWLES: That’s absolutely correct. 

VAN HOLLEN: That’s right. And then on top of that, you had proposals through tax reform and the other things you talked about to generate another – about $1.2 trillion. Isn’t that right? 

BOWLES: That’s exactly right. 

VAN HOLLEN: All right, and so for, again, on the Budget Committee, when we’re comparing that to what we call the current policy baselines, compared to CBO, that’s about $2.1 trillion, $2.2 trillion tax cut compared to current law  – excuse me, a revenue increase. Compared to current law, it’s 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?

DR. ALICE RIVLIN: Right

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 the current progressivity of the tax code. Is that correct? 

BOWLES: Yes. 

SENATOR PETE DOMENICI: We worked very hard to do that in ours. 

VAN HOLLEN: Thank you. 

RIVLIN: Ours is slightly more progressive than the current. 

VAN HOLLEN: So at least the current progressivity of tax cut. Now, you’ve both in your written testimony suggested we may want to do two-step processes – down payment and then something else. Dr. Rivlin, Senator Domenici, you say specifically as part of that down payment you’d 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 picked out, you think they could be what we call rifle shots, is that right?

RIVLIN: Right, but it should be consistent with, our notion is you have a tax reform idea. 

VAN HOLLEN: Yes. 

RIVLIN: You move some of it forward. 

VAN HOLLEN: That’s right, but you’d have, and again on net your tax reform ideas would generate $2.2 trillion on a current policy baseline, correct? 

RIVLIN: Right. 

VAN HOLLEN: 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’re not operating at full potential, so I think all of us agree that we need to get the economy moving again. Dr. Rivlin you point out that your plan with Senator Domenici had about $680 billion in payroll tax relief and you said on one of the Sunday shows you would “go bigger” than some of the President’s job plans. Do you believe something like that is necessary at this time? 

RIVLIN: Yes, I think we’re in danger of slipping into stagnation and we should do something about it. 

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?

BOWLES: Yes, on the payroll tax, that was in the President’s proposal, I think it was about $240 billion out of a $447 billion. And it’s hard for me as a fiscal conservative to say this but I could support a continuation of the payroll tax deduction for, you know, for another year for employees. It’s very hard for me to understand how an approximately $600 deduction for the employer on a temporary basis is going 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 the deduction for the employee, if we could pay for it. 

VAN HOLLEN: Thank you. 

DOMENICI: Could I say on our end? 

VAN HOLLEN: Yes. 

DOMENICI: I’m for what we told you we’re for, but I wouldn’t argue if you followed his suggestion, as I see it, it’s still alive, and what he’s talking about, it certainly is better than nothing. 

VAN HOLLEN: Got it, thank you. Thank you, Senator Domenici. On health care, Dr. Rivlin you’ve testified many times in front of the Budget Committee and stated that you thought 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, why would you need a fail-safe mechanism? That is to say if you don’t achieve the goal we want in savings, you have to have GDP plus one, and if it’s not keeping track with the market, isn’t that just a cost transfer to Medicare beneficiaries? 

RIVLIN: Well, I think we’re 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 areas and in other places they don’t. We think this is a more, much more robust plan than Medicare Advantage. But the reason you want the fail-safe is so the Congress will absolutely know what they’re going to spend going forward on Medicare. It’s not going to grow faster than this. It’s a defined contribution, and we think that’s 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 on to lower-income people. It is, means-tested as we said before, cost-shifting on to people who can better afford it. 

VAN HOLLEN: Right, well I think that, if we’re confident that the market forces were going to work the way intended, then I don’t think there’d 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’s a defined support mechanism that’s set in law, 72%, 28%, so I’m not sure why we would be proposing something different for Medicare. Let me just close, Mr. Chairman, by saying we asked CBO to 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 premium support. It wasn’t the second-lowest bidder. It was more along the lines of what some other – like the Breaux plan did – which was marketplaces and just having competition among the managed care plans they said came out of score about $9 billion between 2014-2021, adding in this other mechanism achieved about, took you up to a total of about $25 billion, so it’s pretty clear at least from these numbers, and we can take a look at them that, we’re going to need to do other things. This is not a panacea, at least according to CBO’s numbers, for dealing with the Medicare challenge; we need to look for innovative ideas to confront the Medicare challenge.