Living Within Our Meansand Investing in the FutureThe President’s Plan for EconomicGrowth and Deficit ReductionSeptember 2011OFFICE OF MANAGEMENT AND BUDGETBUDGET.GOV
Living Within Our Meansand Investing in the FutureThe President’s Plan for EconomicGrowth and Deficit ReductionOFFICE OF MANAGEMENT AND BUDGETBUDGET.GOV
THE MESSAGE OF THE PRESIDENTTo the Congress of the United States:This continues to be a time of challenge for our country. We face an economic crisis that has left millionsof our neighbors jobless, and a political crisis that has made things worse. Millions of Americans arelooking for work. Across our country, families are doing their best just to scrape by—giving up nights outwith the family to save on gas or make the mortgage, or postponing retirement to send a child to college. These men and women grew up with faith in an America where hard work and responsibility paidoff. They believed in a country where everyone gets a fair shake and does their fair share; theybelieved that if you worked hard and played by the rules, you would be rewarded with a decentsalary and good benefits. If you did the right thing, you could make it in America. For decades now, Americans have watched that compact erode. They have seen the decks too oftenstacked against them. And they know that Washington has not always put their interests first. Toooften, our Nation’s capital has been consumed by partisanship. Too often, the needs of special interestsor politics have been put ahead of what is best for the country.That is what must change. The American people work hard to meet their responsibilities. Now, as the Nationfaces an economy that is not growing and creating jobs as it should, so must its leaders. While the continuedrecovery of our economy will be driven by the businesses and workers across our land, policymakers inWashington can take steps to help Americans right now and set the most favorable conditions we can forgrowth and job creation for years to come. We can live within our means and invest for the future.That is why last week I presented to the Congress and the American people the American Jobs Act, toprovide a jolt to the economy and give companies confidence that if they invest and hire, there will becustomers for their products and services. This jobs bill will put more people back to work and moremoney in the pockets of those who are working. It will create more jobs for construction workers, morejobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide atax break for companies that hire new workers, and it will cut payroll taxes in half for every workingAmerican and every small business. It will create jobs for people to rebuild our aging infrastructureand repair and modernize at least 35,000 schools. Moreover, the proposals in the American Jobs Act arethe kind of proposals that have been supported by Democrats and Republicans in the past.I am committed to paying for this jobs bill. The Budget Control Act that I signed into law last monthwill cut annual Government spending by about $1 trillion over the next 10 years. It also charges theJoint Select Committee on Deficit Reduction with finding an additional $1.5 trillion in savings. Aspart of this jobs bill, I am asking the Congress to increase that amount so that it covers the full costof the American Jobs Act. In addition, I believe that the Congress should seize the opportunity thatthis new Committee presents and do much more so that we can put the country on a sustainablefiscal path, which is critical for our long-term economic growth and competitiveness.For this reason, I am sending to the Congress this detailed plan to pay for this jobs bill and realizemore than $3 trillion in net deficit reduction over the next 10 years. Combined with the approximately$1 trillion in savings from the first part of the Budget Control Act, this would generate more than$4 trillion in deficit reduction over the next decade. This would bring the Nation to the point wherecurrent spending is no longer adding to our debt and where our debt is no longer increasing as ashare of our economy—an important milestone on the way to restoring fiscal discipline and movingus toward balance. i
This plan is a balanced one that asks everyone to do their part. It includes nearly $580 billion in cutsand reforms to mandatory programs, of which $320 billion is savings from Federal health programssuch as Medicare and Medicaid. These changes are necessary to maintain the promise of Medicare aswe know it.The plan also realizes more than $1 trillion in savings over the next 10 years from our drawdownsin Afghanistan and Iraq. And the plan calls for the Congress to undertake comprehensive tax reformthat lowers tax rates, closes loopholes, boosts job creation here at home, cuts the deficit by $1.5trillion, and observes the Buffett Rule—that people making more than $1 million a year should notpay a smaller share of their income in taxes than middle-class families pay. To assist the Committee inits work, I also included specific tax loophole closers and measures to broaden the tax base. Togetherwith the expiration of the high-income tax cuts from 2001 and 2003, these measures would be morethan enough to reach this $1.5 trillion target.They include cutting tax preferences for high-income households, eliminating tax breaks for oil andgas companies, closing the carried interest loophole for investment fund managers, and eliminatingbenefits for those who use corporate jets.In sum, the plan I am sending to the Congress today is a blueprint for how we can reduce this deficit, paydown our debt, and pay for the American Jobs Act in the process. I have little doubt that some of theseproposals will not be popular with those who benefit from these affected programs. And some of thesechanges are ones that we would not make if it were not for our fiscal situation. But we are all in thistogether, and all of us must contribute to getting our economy moving again and on a firm fiscal footing.After all, we are all connected. No single individual built America on his or her own. We built ittogether. We have been, and always will be, “one Nation, under God, indivisible, with liberty and justicefor all.” We have always been a people with responsibilities to ourselves and with responsibilities toone another. This means that as Americans work hard to find a job, keep their businesses afloat andgrow, and provide for their kids, their representatives in Washington must meet their responsibilitiesand make the tough choices needed to get our economy back on track.This plan lives up to a simple idea: as a Nation, we can live within our means while still making theinvestments we need to prosper. It follows a balanced approach: asking everyone to do their part, so noone has to bear all the burden. And it says that everyone—including millionaires and billionaires—has to pay their fair share.These may be tough times for our country, but I have a deep faith in the American spirit, and weare tougher than the times we live in and bigger than the politics we have recently seen. If we allput partisanship aside and roll up our sleeves, I have no doubt that we can meet the challenges ofthe moment and show the world once again why the United States of America remains the greatestcountry on Earth. Barack ObamaThe White House, September 19, 2011.
TABLE OF CONTENTS PageThe Message of the President ��������������������������������������������������������������������������������������������������������������������iList of Tables ���������������������������������������������������������������������������������������������������������������������������������������������� vList of Charts ��������������������������������������������������������������������������������������������������������������������������������������������� vIntroduction ������������������������������������������������������������������������������������������������������������������������������������������������1The American Jobs Act ������������������������������������������������������������������������������������������������������������������������������7Mandatory Savings ����������������������������������������������������������������������������������������������������������������������������������17Health Savings �����������������������������������������������������������������������������������������������������������������������������������������35Tax Reform �����������������������������������������������������������������������������������������������������������������������������������������������45Summary Tables ��������������������������������������������������������������������������������������������������������������������������������������53 iii
LIST OF TABLES PageTable S–1. Bridge between OMB Mid-Session Review Baseline and Deficit Assuming Enactment of Recommendations to the Joint Select Committee �������������������������������55Table S–2. Bridge between OMB Mid-Session Review BEA Baseline Deficit and Adjusted Mid-Session Review Baseline Deficit �����������������������������������������������������56Table S–3. Bridge between CBO August Baseline Deficit and Deficit Assuming Enactment of Recommendations to the Joint Select Committee ��������������������������������57Table S–4. Bridge between CBO August Baseline Deficit and Adjusted CBO August Baseline Deficit �������������������������������������������������������������������������58Table S–5. Joint Committee Recommendations ���������������������������������������������������������������������������������59Table S–6. Deficit Reduction since January 2011 ������������������������������������������������������������������������������65 LIST OF CHARTS PageChart 1. Annual Deficits as a Percent of GDP ��������������������������������������������������������������������������������66Chart 2. Debt Held by the Public as a Percent of GDP ������������������������������������������������������������������67 v
INTRODUCTION At the beginning of this year, our economy was to get the Nation’s fiscal house in order. Thefinally gaining some traction after enduring President insisted on new transparency anda historic recession and coming back from the accountability in budgeting, for instance,brink of a depression. During the previous six bringing the costs of overseas contingencyquarters, real gross domestic product (GDP) operations (OCO) onto the budget. Thehad grown at an average rate of 3 percent and, President signed into law statutory pay-as-over the previous 12 months, the private sector you-go legislation, a key ingredient in previoushad created 1.3 million new jobs. The financial years of fiscal responsibility and budgetsystem was no longer in crisis. The credit and surpluses. In March 2010, the Presidentcapital markets were functioning, and the cost of signed into law the Affordable Care Act, whichstabilizing the financial and automobile sectors will cut the deficit by more than $200 billionwas amounting to a fraction of initial estimates. in its first 10 years and more than $1 trillionYet we also learned that the recession was in its second, as well as addressing the centraldeeper than many experts first thought: revised driver of our long-term debt: rising health careestimates showed that the economy contracted costs. And, this summer, he signed into lawat a 7.8 percent annualized rate in the last the Budget Control Act of 2011 (BCA), whichquarter of 2008 and first quarter of 2009, the represents a major down payment on deficitsteepest six-month period of contraction on reduction by capping discretionary spendingrecord. Then, this past spring, a trio of world and reducing it to its lowest level as a shareevents created strong headwinds to continued of the economy since the middle of the laststrong growth: uprisings in the Middle East century. Now that the economy is no longersent oil prices skyrocketing; an earthquake in in freefall, it is time to redouble this effortJapan prevented American auto companies to put the Nation on the path toward fiscalfrom getting the parts they needed to keep our sustainability.factories churning; and a widespread debt crisisin Europe roiled markets across the globe. The President’s recommendations to the Joint Select Committee on Deficit Reduction Taken together, this has meant that economic build on what we have accomplished so fargrowth and job creation, while remaining and address the twin challenges that thepositive, have not been strong enough to country now faces. In the short term, wesignificantly bring down a persistently high must reinvigorate the economic recovery withunemployment rate. measures to boost economic growth, and most critically, to spur job creation by passing the At the same time, our country must address American Jobs Act—and we must pay for theseyears of fiscal irresponsibility. When the measures over time. In the medium and longPresident took office, he faced an annual term, we must reduce the deficit and stabilizedeficit of $1.3 trillion and projected deficits of the debt as a share of the economy in order totrillions more in the years thereafter. Driving put the country on firm fiscal footing. Takenthese deficits were decisions made over the together, the plan would produce net savingsprevious eight years not to pay for two tax cuts of more than $3 trillion over the next decade,and a Medicare prescription drug benefit. The on top of the roughly $1 trillion in spendingsharp decline in receipts along with the steep cuts from the BCA—for a total savings ofincrease in automatic outlays to help those more than $4 trillion over the next decade.in need and the efforts needed to jumpstart This would bring the country to a place, by theeconomic growth also added to these deficits. middle of this decade, where current spending is no longer adding to our debt, debt is falling Even as the President has focused on getting as a share of the economy, and deficits are at athe economy going again, he also has worked sustainable—if not preferable—level. 1
2 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE To win the future and thrive in a competitive, deficit reduction plan that would place theglobal economy, the United States must focus country on firm fiscal footing by the middle ofon both job creation and deficit reduction. We this decade and jumpstart economic growthmust get our economy growing and people and job creation.working, and at the same time, live withinour means so that we can invest in the things THE AMERICAN JOBS ACTthat will power economic growth for decadesto come: education, innovation, clean energy, To create jobs, the President on September 8thand infrastructure. To do this, we must pursue unveiled the American Jobs Act—a plan madea balanced approach that looks at all parts of up nearly entirely of the kind of proposals thatthe budget and that does not put too much of a have been supported by both Democrats andburden on any one part of society. Republicans, and that the Congress should pass right away to get the economy moving Pursuing a balanced approach is what the now. The purpose of the American Jobs Act isPresident did in his 2012 Budget released simple: put more people back to work, put morein February, in the Framework for Shared money in the pockets of working Americans,Prosperity and Shared Fiscal Responsibility and do so without adding a dime to the deficit.released in April that built on the Budget toidentify $4 trillion in deficit reduction, and in a First, the American Jobs Act will providesimilarly sized plan presented to congressional tax cuts to help America’s small businessesRepublicans during negotiations this summer. hire and grow. The American Jobs ActUnfortunately, partisan divides precluded would cut payroll taxes in half to 3.1coming to agreement on a balanced package percent up to their first $5 million in wages,that included revenue increases. providing broad tax relief to all businesses but targeting it to the 98 percent of firms Instead, the President signed into law the with wages below this level, and it wouldBCA, which put in place a down payment completely eliminate payroll taxes next yeartoward deficit reduction and a structure to for any business that increases its payrollaccomplish even more. With approximately $1 by hiring new workers or increasing wagestrillion in deficit reduction achieved over the for existing workers. The Act would alsonext decade through the use of discretionary extend 100 percent expensing through 2012,spending caps, it took a substantial step allowing all firms—small and large—to taketoward bringing down our deficit. Yet, with an immediate tax deduction on investmentsdiscretionary spending projected to reach in new plants and equipment.historically low levels, we need to look atother parts of the budget for savings so that Second, this jobs bill will put workers backwe pursue deficit reduction in a balanced way. on the job while rebuilding and modernizingThis is not only critical to future economic America. Specifically, the President isgrowth, but if the Committee fails to achieve proposing tax credits to hire veterans, includingat least $1.2 trillion in deficit reduction, then those with a service-connected disability, whoa sequester would be triggered that could have have been unemployed for more than sixdevastating consequences for both defense and months. He supports investing $35 billion tonon-defense programs. prevent up to 280,000 teacher layoffs and to keep police officers and firefighters on the job. The Administration believes that the And to upgrade the Nation’s infrastructure, theCongress can and should enact sound policies President is proposing a $30 billion investmentand not rely on an automatic sequester in modernizing public schools and communityto reduce our deficits. Accordingly, the colleges; an immediate $50 billion investmentAdministration believes that the Committee in America’s roads, rails, and airports; a $10should use its unique standing to put forward billion investment to establish a Nationalan ambitious, comprehensive, and balanced Infrastructure Bank; and an expansion of
INTRODUCTION 3high-speed wireless networks to 98 percent of specifies that if the Joint Committee meetsAmericans. In addition, the President is calling the increased deficit reduction target, thefor a $15 billion investment in a national specific offsets in the American Jobs Act willeffort to put construction workers on the job be turned off. Thus, whatever the outcome ofrehabilitating and refurbishing hundreds of the Joint Committee’s efforts, the deficit willthousands of vacant and foreclosed homes and not increase if the American Jobs Act is signedbusinesses. into law. Third, the American Jobs Act puts forward DEFICIT REDUCTIONpathways back to work for Americanslooking for jobs. It accomplishes this by The President is asking the Joint Committeeundertaking the most significant reforms to take into account the costs of the jobsto the Nation’s unemployment system in 40 bill and make sure that it proposes enoughyears to help those without jobs transition deficit reduction to cover these costs, the $1.5to the workplace. Also, the Act will extend trillion it is charged to identify in the BCA,unemployment insurance, preventing 6 and additional deficit reduction that will putmillion people looking for work from losing the country on a fiscally sustainable path. Intheir benefits and offers employers a tax total the plan, together with the spendingcredit of up to $4,000 for hiring workers cuts already enacted in the Budget Controlwho have been looking for a job for over six Act, would cut the deficit by more than $4months. And the President’s plan will provide trillion over the next decade, with nearly $2hundreds of thousands of low-income youth of spending cuts for every $1 raised throughand adults with opportunities to work and to tax reform. As a result of this plan, the deficitachieve needed training in growth industries would fall from 8.8 percent of GDP this yearthrough a new Pathways Back to Work fund. to 2.3 percent of GDP, while the Budget would be in what economists call “primary balance” Fourth, the American Jobs Act will put by the middle of the decade. The debt undermore money in pockets of every American this plan would be on a declining path as aworker and family. The Act will expand the share of the economy over the next decade,payroll tax cut passed last December by falling from a high of 77 percent of GDP incutting workers payroll taxes in half next 2013 to 73 percent of GDP in 2021.year. This provision will provide a tax cut of$1,500 to the typical family earning $50,000 To reach these amounts, the President isa year. putting forward a balanced approach that both asks for shared sacrifice from all Americans Taken together, these measures will provide and draws from across the budget. This shoulda needed boost to our economy and do so in a include additional spending cuts in mandatoryway that maximizes the impact of every dollar programs, modest adjustments in importantinvested and puts a premium on creating or entitlement programs such as Medicare andretaining jobs. Moreover, the American Jobs Medicaid, capping spending on OverseasAct will not add a dime to the deficit. It includes Contingency Operations (OCO), and reformingspecific offsets that will, in combination, more our tax code so that we ask our biggestthan fully pay for its cost. These offsets are part corporations and wealthiest Americans to payof the larger deficit reduction plan detailed in their fair share.this volume, but have been specifically madepart of the American Jobs Act to ensure that it Specifically, the President is proposing $257is paid for. This is accomplished by a provision billion in cuts and reforms to a wide range ofin the American Jobs Act that increases the mandatory programs from Federal retirement$1.5 trillion Joint Committee deficit reduction to agricultural subsidies, reform of thetarget by $450 billion to cover the full cost Pension Benefit Guaranty Corporation, newof the jobs creation provisions. The bill then program integrity initiatives, and getting rid
4 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREof unneeded Federal real property to reduce carried interest loophole for investment fundthe deficit. managers, and eliminating benefits for those who use corporate jets. In health care programs, the President isrecommending a series of reforms that build Tax reform should draw on these specificon the historic savings in the Affordable proposals, together with elimination ofCare Act. Overall, these proposals will save additional inefficient tax breaks. The$248 billion in Medicare over 10 years and President’s preference would be to incorporate$73 billion in Medicaid and other health these specific tax measures into comprehensiveprograms—and more than a trillion dollars tax reform that lowers rates and reducesin deficit reduction in the second decade. They complexity. However, they could also beaccomplish this in a way that does not shift passed on a standalone basis to help reducesignificant risks onto the individuals these the deficit in a balanced way. Either approachprograms serve, slash benefits, or undermine would significantly improve the country’sthe fundamental compact they represent to fiscal standing, represent an important stepour Nation’s seniors, people with disabilities, toward more fundamentally transforming ourand low-income families. Even though these tax code, and serve as a strong foundation forreforms can and will save money, they also will economic growth and job creation.strengthen these vital programs and ensurethat they are robust and healthy to serve If the Joint Committee is unable to undertakeAmericans for years to come. comprehensive tax reform, the President believes the discrete measures he has proposed In OCO, the Administration believes that should be enacted on a standalone basis.the Joint Committee should reflect theAdministration’s current policy of drawing All together, the President’s plan would, asdown our troop presence in Afghanistan and of 2014, cut the debt as a share of the economythe transition from a military to a civilian-led and put the country on a sustainable fiscalmission in Iraq. Accordingly, the funding level course. However, the President believes thatmatched to this plan caps OCO over the 10- we must lock in that path and make sureyear budget window for a savings of more than future policymakers do not roll back what we$1 trillion. accomplish now as well as encourage further action if actual results turn out worse than Finally, the President is calling on the expected. That is why he is including in hisCongress to undertake comprehensive tax plan a debt cap which will ensure that ourreform that meets five key principles: 1) Nation’s debt is on a declining path as a sharelowers tax rates, 2) ends inefficient tax breaks, of our economy. 3) cuts the deficit by $1.5 trillion, 4) increasesjob creation and growth in the United States, If by 2014, budget projections do not showand 5) observes the Buffett Rule that people that the debt-to-GDP ratio has stabilizedmaking over $1 million should not pay lower and is declining in the second half of thetaxes than those in the middle class. decade, the debt cap will trigger an across- the-board spending reduction, including To advance tax reform, the President is spending through the tax code. The triggeroffering a detailed set of specific tax loophole will ensure that deficits as a share of theclosers and measures to broaden the tax base economy average no more than 2.8 percentthat, together with the expiration of the high- of GDP in the second half of the decade.income tax cuts, would be more than sufficient Consistent with prior fiscal enforcementto hit the $1.5 trillion target for tax savings. mechanisms put in place by PresidentsThese measures include cutting tax preferences Ronald Reagan, George H.W. Bush, andfor high-income households, eliminating tax Bill Clinton and agreed to by Republicansbreaks for oil and gas companies, closing the and Democrats under the BCA, the trigger
INTRODUCTION 5would not apply to Social Security, low- not act now, it will be more difficult to takeincome programs, or benefits for Medicare action in the years to come. Moreover, if we doenrollees. The cap would not apply during not act now, we will fail to get our economy outan economic downturn or interfere with of its rut and millions of Americans back toour Nation’s ability to respond to a national work and put our Nation on firm fiscal footing.security emergency. Rather, it is in place asinsurance against future political inaction or For all that we have been through, thean unfortunate turn of events. United States of America still has the capacity to meet big challenges. We have not lost the ability to shape our own destiny.CONCLUSION We remain the wealthiest nation on Earth. We have the best workers and universities There are those who will oppose some of these as well as the most daring innovatorsproposals, whether it is savings in Medicare and entrepreneurs. Our problems todayand Medicaid or revenue increases of any lie not with the character of our country,kind. There are powerful and vocal interests but with the state of our politics. Gridlockwho will vigorously object to any changes to and partisanship are nothing new intheir programs. The President believes that we Washington, but the American people haveneed to put aside politics as usual. We cannot never been more fed up with this city thanafford the finger-pointing and kicking the can they are today. At this moment, we need todown the road. If we are all willing to sacrifice come together as Americans and do the worka little to put our fiscal house in order, then of the American people. That is the promiseno one will have to sacrifice a lot. While there of the Joint Committee and the opportunitywill be some worthy programs that will be cut before it. The Administration hopes theseand some revenue that will be raised from the recommendations assist the Joint Committeewealthiest two percent of Americans, if we do in its vital work.
THE AMERICAN JOBS ACT While our economy is no longer at the of rules for everyone from Wall Street to Mainbrink of the second Great Depression, there Street. It will create the jobs of the futureare still millions of Americans who have by helping small business entrepreneurs, bynot yet felt the effects of the recovery. Too investing in education, and by making thingsmany have spent months looking for a job the world buys.to no avail. Others are doing their best justto scrape by—giving up a night out with the The planks of the American Jobs Act are thefamily to save on gas, spending less at the kind of proposals that have been supported bygrocery store, or postponing their retirement both Democrats and Republicans, and it willto send a child to college—and know that be fully paid for with specific offsets.they have no room for error. These men andwomen believe in the promise of America: Tax Cuts to Help America’s Smallthat if you work hard and play by the rules, Businesses Hire and Growyou will be able to provide for your familyand give your children a brighter future. Growing the economy and spurring jobFor too long, that promise has come up creation by America’s businesses, especiallyempty for too many Americans. They are the small businesses which are so importantmeeting their responsibility, and now those to our economic health, is the President’s topin Washington must meet theirs by ending priority. That is why, over the course of thethe political games, doing what they can to last year, he pushed for additional measureshelp the economy grow, providing the tools to jump-start our economic recovery and helpand assistance our businesses and workers small businesses: tax credits for businessesneed to succeed, and restoring some of the that hire unemployed workers, and taxfairness and security that has made America cuts and expanded access to credit for smallthe engine and envy of the world. businesses. In December, the President signed into law a bipartisan measure that Policy pursued in Washington cannot provided tax cuts that also gave businessessolve our problems, but there are specific two powerful incentives to invest and createsteps we can take immediately that will jobs: 100-percent expensing on the purchase ofmake a real difference in the economy and equipment, and an extension of the researchin people’s lives. That is why the President and experimentation tax credit.sent to the Congress the American Jobs Act.The American Jobs Act will put more people With the President’s jobs and growth plan,back to work, put more money in the pockets he builds on those steps that have been soof those who are working, and do so without critical to America’s families and businessadding a dime to the deficit. It will create owners by providing new tax cuts for millionsmore jobs for construction workers, more jobs of small businesses to provide incentives forfor teachers, more jobs for veterans, and more investments and hiring. These tax cuts wouldjobs for the long-term unemployed. It will be available to all businesses, regardless ofprovide a tax break to companies that hire size, but are designed to target their impactnew workers, a tax break for small business toward the smallest businesses.owners, and a middle-class tax cut for 150million workers. Provide a payroll tax cut to businesses, with a focus on small employers. The Moreover, this jobs bill will help the country President’s plan will extend the payroll taxnot just recover from this economic crisis, but cut to firms by cutting in half their payroll taxalso rebuild the economy the American way: on the first $5 million in payroll. Next year,based on balance, fairness, and the same set instead of paying 6.2 percent on their payroll 7
8 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREexpenses, firms would pay only 3.1 percent. provision that he signed into law in 2010,The President’s plan would provide tax cuts which rewards firms for making investmentsfor all of America’s six million firms, with by allowing them to deduct the full value offocused relief for the Nation’s five million those investments from their tax obligationssmall firms with fewer than 20 employees. through 2012. Extending 100-percentThe Congressional Budget Office (CBO) expensing for an additional year would putestimates that every dollar in payroll tax an additional $85 billion in the hands ofcuts for employers increases economic output businesses in 2012. Most of this relief would beby $0.40 to $1.20 over the next five years. recouped by the Treasury as businesses regainUnder the President’s plan, a typical company their strength. An analysis of the 100-percentwith 12 employees and an annual payroll of expensing provision in the December tax deal$392,000 would get a tax cut of $12,200 next by the Treasury Department found that thisyear. Because of the additional employee- policy would lower the average cost of capitalside payroll tax cut, its workers would get tax for business investment by 75 percent and incuts that averaged $1,000. There has been 2011, businesses have cited the benefits ofbipartisan support for a payroll tax cut for such policies.employers as a means to spur job growth. Help entrepreneurs and small Establish a complete payroll tax businesses access capital and grow. Theholiday for new jobs or wage increases. President also supports administrative,In addition to the 3.1 percent payroll tax cut regulatory and legislative measures—for all firms, the President’s plan provides a including those developed and recommendeddirect incentive to encourage firms to hire by the President’s Jobs Council—toadditional employees or raise wages for help small firms start and expand. Thistheir current employees. The American Jobs includes changing the way the GovernmentAct would completely refund payroll taxes does business with small firms. Thepaid on added workers or wage increases for Administration recently announced acurrent workers above the level of last year’s plan to accelerate Government paymentspayroll. To focus the benefit of this tax cut to small business contractors to help puton small businesses, payroll tax relief would money in their hands faster. The Presidentbe capped at $50 million in new wages. has also charged his Chief InformationFor example, under the President’s plan, Officer and Chief Technology Officer toa warehouse with a payroll last year of $7 stand up a one-stop, online portal for smallmillion that hires 40 new workers this year businesses to easily access Governmentand adds $2 million in payroll would get a full services. As part of the President’s Startuprefund on the 6.2-percent payroll taxes paid America initiative, the Administration willon the added $2 million in payroll—for a tax work with the Securities and Exchangecut of $124,000. (That tax cut would come on Commission to conduct a comprehensivetop of the maximum 3.1-percent payroll tax review of securities regulations from thereduction of $155,000 on its base payroll.) perspective of these small companies toThis tax holiday would be augmented by reduce the regulatory burdens on smalltargeted tax cuts for hiring the long-term business capital formation in ways thatunemployed as well as veterans who have are consistent with investor protection,been out of work six months or more. CBO including expanding “crowdfunding”has identified this type of job creation tax opportunities and increasing mini-offerings.cut as one of the most effective ways to help In addition, the President’s plan calls foraccelerate job growth. the Congress to increase guarantees for bonds to help small businesses compete Extend 100 percent business expensing for infrastructure projects and removethrough 2012. The President is proposing burdensome withholding requirements thatan extension of the 100-percent expensing keep capital out of the hands of job creators.
THE AMERICAN JOBS ACT 9Putting Workers Back on the Job While Prevent teacher layoffs and keep policeRebuilding and Modernizing America officers and firefighters on the job. As many as 280,000 education jobs are on the chopping The President’s plan will put Americans block in the upcoming school year due toback to work in key areas that are central continued State budget constraints. These cutsto America’s future competitiveness. It will could have a significant impact on children’srepair and modernize classrooms across the education, through the reduction of school days,country and make sure that teachers who increased class size, and the elimination ofhave been laid off because of budget cuts key classes and services. The President’s plancan be brought back to work. It will take on will support State and local efforts to retain,the fact that the American Society of Civil rehire, and hire early childhood, elementary,Engineers awarded the United States a ‘D’ and secondary educators (including teachers,for the overall condition of its infrastructure. guidance counselors, classroom assistants,Both to modernize the Nation’s roads, afterschool personnel, tutors, and literacyrailways, airports, and schools and to put and math coaches). The President’s planhundreds of thousands of workers back on will invest $30 billion to ensure that schoolsthe job, the President is proposing a strategy are able to keep teachers in the classroom,that combines immediate investments in preserve or extend the regular school day andinfrastructure with innovative reforms to school year, and also support important after-ensure that the best projects get financing. school activities. The President’s plan alsoThese investments in infrastructure would includes $5 billion to support the hiring andnot only put people to work now, but also retention of public safety and first responderyield lasting benefits for the economy, personnel. By supporting such jobs, the planincreasing growth in the long run. In fact, aims to keep communities safe from crime andwe know that investments in infrastructure able to maintain critical emergency responsehave a substantial multiplier effect— capabilities.creating economic growth and jobs now andlaying the foundation for the future as well. Modernize at least 35,000 schools.The Administration is proposing to: The President’s plan calls for substantial investments in our school infrastructure, Offer tax credits and career readiness modernizing and upgrading America’s publicefforts to boost veterans’ hiring. The schools to meet 21st Century needs. The cost ofPresident believes we have an obligation maintaining more than 100,000 public schoolsto make sure our veterans are able to is substantial for already overstretchednavigate this difficult labor market and districts. The accumulated backlog of deferredsucceed in the civilian workforce, and that maintenance and repair amounts to at leastis why he is proposing a plan to lower $270 billion. Schools spend over $6 billionveteran unemployment and ensure that annually on their energy bills, more than theyservicemembers leave the military career- spend on computers and textbooks combined.ready with a new Returning Heroes Tax For children in the Nation’s poorest districts,Credit of up to $4,800 for unemployed these deferred projects too often meanveterans, and a Wounded Warriors Tax overcrowded schools with crumbling ceilingsCredit of up to $9,600 that will increase and a lack of the basic wiring infrastructurethe existing tax credit for firms that hire needed for computers, projectors, and otherunemployed veterans with service-connected technology. The President’s plan will investdisabilities. The President also plans to form $30 billion in enhancing the condition of oura Department of Defense-led task force Nation’s public schools—with $25 billion goingto maximize the career-readiness of all to K-12 schools, including a priority for ruralservicemembers, and enhancing job search schools and dedicated funding for Bureauservices through the Department of Labor of Indian Education funded schools, andfor recently-transitioning veterans. $5 billion to community colleges (including
10 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREtribal colleges). The range of critical repairs and economically disadvantagedand needed construction projects would individuals in transportation-relatedput hundreds of thousands of Americans— activities, including construction,construction workers, engineers, maintenance contract administration, inspection,staff, boiler repairmen, and electrical and security. His plan will also invest anworkers—back to work. additional $10 million in 2012 to help minority-owned and disadvantaged Make an immediate investment in our business enterprises gain better accessroads, rails, and airports. In order to to transportation contracts. And it willjumpstart critical infrastructure projects ensure that infrastructure investmentsand create hundreds of thousands of jobs, allow for the hiring of local workers,the President’s plan includes $50 billion in to maximize economic benefits forimmediate investments for highway, highway communities where projects are located.safety, transit, passenger rail, and aviationactivities—with one fifth of the funding • Funding for innovative transportation.advancing a transformation of how we finance The plan includes $10 billion fortransportation infrastructure and what we innovative mechanisms to finance andfinance. invest in infrastructure. This includes $4 billion to develop high-speed • Investments in making our Nation’s rail corridors; $1 billion to support highway systems safer and more NextGen Air Traffic Modernization efficient. The President’s plan includes efforts, which will employ technology investments totaling $27 billion to make to make the National Airspace System our Nation’s highway systems more safer and more efficient; and $5 billion efficient and safer for passenger and for the TIGER and TIFIA programs, commercial transportation. which target competitive dollars to innovative, multi-modal transportation • Repairing transit systems and im- programs. proving our rail systems. The plan includes $9 billion of investments to • Expediting high-impact infrastructure repair our Nation’s transit systems, projects. The President recently many of which are desperately in need issued a Presidential Memorandum in of modernization. It also includes $2 coordination with his Jobs Council billion in funding to improve intercity directing departments and agencies passenger rail service. These funds will to identify high impact, job-creating connect communities, reduce travel infrastructure projects that can be times and congestion, and create skilled expedited through outstanding review manufacturing jobs. and permitting processes within the control and jurisdiction of the Federal • Improving our airports. The plan also Government. The President also includes airport improvement grants of directed the creation of a Projects $2 billion to improve safety, add capacity, Dashboard to ensure the details of and modernize airport infrastructure each project identified will be available across the country. for stakeholders to follow through the expedited review process and provide • Opportunities for all in the trans- public input. This initiative will create portation sector. The President’s plan infrastructure related jobs and use the will invest an additional $50 million lessons learned to develop best practices in 2012 to enhance employment and that can be applied more broadly to job training opportunities that will permitting and review processes going benefit minorities, women, and socially forward.
THE AMERICAN JOBS ACT 11 Establish a National Infrastructure • Addressing market gaps forBank. To direct Federal resources for infrastructure financing. The NIBinfrastructure to projects that demonstrate would issue loan and loan guaranteesthe most merit and may be difficult to fund to eligible projects. Loans issued byunder the current patchwork of Federal NIB would use approximately theprograms, the President is also calling for the same interest rate as similar-lengthcreation of a National Infrastructure Bank U.S. Treasury securities and could be(NIB), based on the bipartisan model proposed extended up to 35 years, giving the NIBin the Senate. The NIB would represent a the ability to be a “patient” partner side-bold reform of our Nation’s infrastructure by-side with State, local, and privatefinancing, independent of the political co-investors. To maximize leverage fromprocess. It would fund the most important and Federal investments, the NIB wouldeconomically viable infrastructure projects to finance no more than 50 percent of thethe Nation across the transportation, energy, total costs of any project.and water sectors. The NIB would also relyon the private sector, never extending loans Put people back to work rehabilitatingor loan guarantees that finance more than 50 homes, businesses, and communities.percent of a project’s costs, and in many cases The recession has left communities acrossproviding much less, just enough to induce the country with large numbers of foreclosedprivate investment. The NIB’s key provisions homes and businesses, which is weighingwould include: down property values, increasing blight and crime, and standing in the way of economic • Independent, non-partisan operations recovery. In these same communities, there led by transportation and financial are also large numbers of people looking for experts. While the NIB would be a work, especially in the construction industry, Government-owned entity, it would not where more than 1.9 million jobs have been be controlled by any Federal agency and lost since the beginning of the recession in instead would operate independently. December 2007. The President is proposing No more than four voting members of Project Rebuild to help address both of these its seven-member board could be from problems by connecting Americans looking for the same political party. Board members work in distressed communities with the work would have to possess significant needed to repair and repurpose residential and expertise either in the management of commercial properties. Building on successful a relevant financial institution or in the models piloted through the Neighborhood financing, development, or operation of Stabilization Program, Project Rebuild infrastructure projects. will invest $15 billion in proven strategies that leverage private capital and expertise • Broad eligibility for infrastructure to rehabilitate hundreds of thousands of and unbiased project selection. properties in communities across the country. Eligible projects would include Key components include: transportation, water, and energy infrastructure. In general, projects • Focus on distressed commercial would have to be at least $100 million properties and redevelopment to in size and be of national or regional stabilize communities. Many regions significance. Projects would have a clear with concentrated home foreclosures public benefit, meet rigorous economic, also have concentrations of vacant technical and environmental standards, commercial structures that weigh on and be backed by a dedicated revenue property values and make it less likely stream. Geographic, sector, and size that new businesses will come into the considerations would also be taken into community and invest new capital. account. Project Rebuild will tackle this problem
12 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE directly by allowing grantees to rebuild Rockefeller and Kay Bailey Hutchison and and repurpose distressed commercial includes an investment to develop and deploy real estate. a nationwide, interoperable wireless network for public safety. The plan includes reallocating • Participation of for-profit entities to the D Block for public safety (costing $3 billion) gain expertise, leverage Federal dollars and an additional $7 billion to support the and speed program implementation. deployment of this network and technological Many successful redevelopment development to tailor the network to meet strategies involve unique collaborations public safety requirements. This is part of a between local governments, non-profit broader deficit-reducing wireless initiative organizations, and developers and other that would free up public and private spectrum private actors. Project Rebuild will seek to enable the private sector to deploy high- to empower and expand these types speed wireless services to at least 98 percent of collaborations by allowing Federal of Americans, even those living in remote rural funding to support for-profit development and farming communities. In addition, freeing when consistent with project aims and up spectrum from the private sector through subject to strict oversight requirements voluntary incentive auctions that were to ensure that the funds are being used included in both the Rockefeller-Hutchison bill as intended. and the House-passed budget resolution would raise money to pay for these investments in • Increase support for “land banking.” public safety and also reduce the deficit. Land banks work with communities to buy, hold, and redevelop distressed Pathways Back to Work for properties as part of a long-term Americans Looking for Jobs redevelopment strategy and have shown impressive results in stemming The President is proposing the most property price declines and stabilizing innovative reforms to the unemployment communities across the country. Project insurance (UI) system in more than 40 years, Rebuild will seek to scale successful land including changes that will prevent layoffs and bank models, providing much needed give States more flexibility to use Federal UI infusions of capital that they can leverage funds to get Americans who have lost their jobs to raise private sector investment. This back to work. The President’s plan is targeted will increase the breadth and depth to address unemployment in an aggressive, of their reach in helping communities multi-pronged way, drawing from ideas about better handle their distressed properties. what is working from around the country and from both parties. First, the President’s • Create jobs to maintain properties plan marks the most comprehensive attempt and avoid community blight. in decades to reshape the unemployment In addition to creating jobs in the insurance system to grapple with long-term construction and redevelopment industry, unemployment and scarce job openings. Project Rebuild will enable grantees Second, the President’s plan will provide to use funds to establish property direct support to put hundreds of thousands maintenance programs to create jobs and of Americans back to work with tax credits mitigate “visible scars” left by vacant or for hiring people who have been unemployed abandoned properties. the longest, and prevent six million Americans looking for work from losing their benefits. The Expand nationwide wireless Internet Administration is proposing to:services for the public and the firstresponders and reduce the deficit. Reform the UI system to provide greaterThe President’s plan follows the model in flexibility while preserving benefits for sixbipartisan legislation from Senators Jay million people. Drawing on the best ideas of
THE AMERICAN JOBS ACT 13both parties and the most innovative States, the • Work Sharing: UI reform to preventPresident’s plan will equip the UI system to better layoffs. Preventing layoffs in the firstaddress our current long-term unemployment place is a win-win for workers andchallenge. In these times, the Federal emergency businesses. The President’s plan—unemployment system must offer not just a consistent with proposals championedweekly check, but also an aggressive strategy by leaders like Senator Jack Reed—to connect the unemployed to work—through calls for work sharing that would letreforms ranging from rigorous assessment and workers receive pro-rated UI benefits asjob-search assistance to flexible work-based uses compensation for a reduction in hoursof Federal funds to smart strategies to prevent at businesses that would otherwise laylayoffs in the first place: workers off. • Rigorous reemployment assistance. • State flexibility for bold reforms to Research has shown that providing put the long-term unemployed back more job search assistance can speed to work. The President is proposing to individuals’ return to work. Robust provide additional funds to allow States reemployment services combined with to introduce new programs aimed at long- eligibility assessments provide an term unemployed workers, including: opportunity to review the claimant’s work-search activities—a step that Bridge to Work. A number of States not only reduces improper payments, have innovative programs that but that also provides an opportunity give workers the opportunity to for UI recipients to receive face-to-face take temporary, voluntary work job search counseling. By requiring to keep up their skills and train at these services for all new claimants the workplace for a new job, while for Emergency Unemployment Comp- continuing to receive unemployment ensation (EUC, the Federal UI program insurance. The President’s plan for the long-term unemployed), the builds on what works in programs President’s plan will ensure that the like Georgia Works and Opportunity long-term unemployed receive maximum North Carolina, while instituting assistance and services to speed their important fixes and reforms that return to work. ensure minimum wage and fair labor protections are being enforced. States will be required to conduct This plan would authorize States Reemployment and Eligibility Assess- to implement “Bridge to Work” ments, to review most EUC claimants’ programs to help connect the long- eligibility for benefits, and provide term unemployed to employers— them with reemployment and career through temporary work that allows information to develop a work-search employers to bring on potential new plan. New EUC claimants will be employees and helps the unemployed required to check-in with their local maintain or learn new skills. One-Stop Career Centers. This will serve three purposes: to provide the Wage insurance to support paths to re- claimant with labor market and career hiring through a different career. Wage information and support the claimant’s insurance compensates workers who development of a reemployment and take a new job for lower pay rather work-search plan; to refer the claimant than claiming unemployment benefits. to reemployment services delivered The President’s plan would give States through the One-Stop Career Center; flexibility to set up wage insurance and to review the claimant’s eligibility programs for older workers who take a for EUC benefits. loss of pay to return to work.
14 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE Starting a new business. A number of losses and smaller savings than higher-income States—including Delaware, Maine, workers. In August 2011, African Americans Maryland, New Jersey, Oregon, and had an unemployment rate of 16.7 percent Pennsylvania—have self-employment and Hispanics had an unemployment rate of assistance programs that encourage 11.3 percent. The numbers were even worse for and enable unemployed workers to youth: 45 percent of all youth between the ages create their own jobs by starting their of 16 to 24 were employed last month, and only own small businesses. The President’s 33.8 percent of African American youth. In fact, plan would allow States across the only 21 out of every 100 teens in low-income Nation to support programs like these families had a job this past summer. Building with Federal UI funds, rewarding on highly successful Recovery Act programs that dislocated workers willing to strike provided job opportunities for low-income adults out on their own and removing and youths, the President’s “Pathways Back to barriers that discourage participation Work” Fund will make it easier for workers to in existing programs. remain connected to the workforce and gain new skills for long-term employment. This $5 billion • Continue unemployment benefits initiative will include: next year. To support unemployed people as they work their way back to a job, we • Support for summer and year-round need to make sure that benefits do not run jobs for youth. The Recovery Act provided out next year. EUC will prevent six million over 367,000 summer job opportunities Americans from losing benefits in 2012. through the public workforce investment system to young people in the summers Provide tax credits for businesses of 2009 and 2010. Such programs notthat hire the long-term unemployed. only provided young people with theirThe President’s plan includes a special bonus first paycheck, but taught them life-credit of $4,000 for firms that hire the long- long employment skills. Building on thisterm unemployed. On top of cutting payroll success, the new Pathways Back to Worktaxes in half for all American businesses, and Fund will provide States with support fora full payroll tax holiday for hiring or raising summer job programs for low-income youthwages, this credit will add $8 billion to the in 2012, and year-round employment for“bang-for-the-buck” of dollars employers spend economically disadvantaged young adults.to hire unemployed workers. With 6.2 millionpeople unemployed for at least six months, • Subsidized employment opportunitiesproviding a targeted incentive to hire these for low-income individuals who areout-of-work individuals ensures that we do unemployed. This effort builds off thenot waste the skills and ambitions of those successful TANF Emergency Fund wagebearing the brunt of the painful recovery from subsidy program that supported 260,000recession. As economists across the political jobs through the recovery. According tospectrum have noted—including Federal an analysis by the Center on Budget andReserve Chairman Ben Bernanke in recent Policy Priorities, this flexible programweeks—long-term unemployment poses a allowed States to reduce the cost and riskrisk to long-term growth by eroding skills and associated with new hiring, encouragingreducing attachment to the labor force. private-sector businesses to hire new workers. Invest in low-income youth and adults.The President is proposing an aggressive • Support for local efforts tostrategy to expand employment opportunities for implement promising work-basedcommunities that have been particularly hard strategies and to provide traininghit by the recession, and that may take longer opportunities. This initiative wouldto get back on their feet due to greater income support efforts that have good records
THE AMERICAN JOBS ACT 15 of placing low-income adults and next year. Rather than having 6.2 percent of youths in jobs quickly. Local officials, in their wages deducted in payroll taxes, workers partnership with local workforce boards, will only pay 3.1 percent next year. This builds business, community colleges, and other on the 2 percentage point payroll tax reduction partners, will be able to apply for funding that the President secured for workers in to support promising strategies designed 2011—providing 160 million Americans the to lead to employment in the short-term. certainty of ongoing tax relief and increasing the amount of that relief by more than 50 Combat discrimination against percent. Independent forecasters have statedthe unemployed. Recent reports have that a failure to extend last year’s payroll taxhighlighted companies that are increasingly cut would reduce growth next year by one-expressing preferences for applicants half to two-thirds of a percentage point. Thewho already have a job. Specifically, some President’s plan would not only extend thiscompanies are posting job listings that cut, but expand it by 50 percent.include language such as “unemployedcandidates will not be considered” or “must Cutting the payroll tax cut in half forbe currently employed” or “must be employed employees in 2012 will provide a tax cut ofwithin the last six months.” The exclusion $180 billion to American workers. A payrollof unemployed applicants is a troubling and tax cut provides middle-class families witharbitrary screen that is bad for the economy, substantial tax relief. This measure will resultbad for the unemployed, and ultimately bad in a tax cut of more than $1,500 for the typicalfor firms trying to find the best candidates. family earning $50,000. That represents aThis is particularly true at a time when so continuation of the $1,000 tax cut they aremany Americans have found themselves out receiving this year, plus an additional $500 toof work through no fault of their own. New help pay bills and cover expenses. For a familyJersey has passed legislation to address this earning $80,000 per year, the President’s planpractice, and members of the Congress also would cut their taxes by about $2,500. That ishave introduced legislation. The President a continuation of the $1,600 tax cut from lastis calling for legislation that would make it year, plus an additional $900 tax cut next year.unlawful to refuse to hire applicants solely Providing certainty to American families nowbecause they are unemployed or to include that they will receive a generous tax cut inin a job posting a provision that unemployed their paychecks next year is a common sensepersons will not be considered. idea that has enjoyed bipartisan support in the past.More Money in the Pockets of EveryAmerican Worker and Family Help more Americans refinance mort- gages at today’s historically low interest The President’s plan would put more money rates. The President has instructed hisin the pockets of working and middle-class economic team to work with Fannie MaeAmericans by providing tax relief to 160 and Freddie Mac, their regulator the Federalmillion workers—extending the payroll tax Housing Finance Agency, major lenders andcut passed last December. He is proposing to: industry leaders to remove the barriers that exist in the current refinancing program Cut the employee payroll tax in half (Home Affordable Refinance Program) tonext year for 160 million workers. Almost help more borrowers benefit from today’severy working American pays payroll taxes, historically low interest rates. This has theand middle-class Americans face a higher potential to not only help these borrowers, butburden because more of their income comes their communities and the American taxpayer,from wages and salaries. The President’s plan by keeping borrowers in their homes andwill cut payroll taxes in half for employees reducing risk to Fannie Mae and Freddie Mac.
MANDATORY SAVINGS In the Budget Control Act, the President from low yields or price declines, and strongsigned into law a measure that will generate crop insurance programs. But there are pro-approximately $1 trillion in deficit reduction grams and places where funding is unneces-over the next decade through the use of dis- sary or too generous. To reduce the deficit,cretionary spending caps. With discretion- the Administration proposes to eliminate orary spending projected to reach historically reduce those programs, while strengtheninglow levels, we need to look at other parts of the safety net for those that need it most.the budget for savings. Mandatory programs, The Administration is proposing to:those that are not generally appropriated onan annual basis, are an important area to find Eliminate direct payments. The directsavings. In some areas, these programs have payment program provides producers fixednot been updated or reformed for years. In annual income support payments for hav-others, parochial politics has allowed waste to ing historically planted crops that were sup-pile up or programs to stray from their mis- ported by Government programs, regardlesssion. The President is proposing $257 billion of whether the farmer is currently producingin savings over 10 years in mandatory pro- those crops—or producing any crop, for thatgrams outside of the health area. This list matter. Direct payments do not vary withdoes not include mandatory savings in higher prices, yields, or producers’ farm incomes. Aseducation programs, because savings from a result, taxpayers continue to foot the bill forthese types of programs should be directed these payments to farmers who are experi-back into helping America’s students enter encing record yields and prices; more than 50and finish college. percent of direct payments go to farmers with more than $100,000 in income. EconomistsAgricultural Sector have shown that direct payments have priced young Americans out of renting or owning the A strong agricultural sector is important land needed to enter into farming. In a periodto maintaining a strong rural economy. The of severe fiscal restraint, these payments areAdministration supports the farm and rural no longer defensible, and eliminating themsectors through a number of means, includ- would save the Government roughly $3 bil-ing funding agricultural research programs, lion per year.providing assistance to beginning and dis-advantaged farmers, pursuing trade agree- Reduce subsidies to crop insurancements, and increasing funding for programs companies. Crop insurance is a foundationto expand U.S. agricultural exports. For of our farm safety net. Our Nation’s farm-the past decade, the agricultural sector has ers and agricultural bankers understand thebeen extremely strong. Farm income has value of this effective risk management pro-been high and continues to increase, with gram, and currently 83 percent of eligible pro-net farm income forecast to be $103.6 bil- gram crop acres are enrolled in the program.lion in 2011, up $24.5 billion (31 percent) However, the program continues to be highlyfrom the 2010 forecast—the highest infla- subsidized and costs the Government approx-tion-adjusted value for net farm income re- imately $8 billion a year to run: $2.3 billioncorded in more than 35 years. The top five per year for the private insurance companiesearnings years for the past three decades to administer and underwrite the programhave occurred since 2004, attesting to the and $5.7 billion per year in premium subsi-profitability of farming this decade. The dies to the farmers. The Administration hasAdministration remains committed to a made a continued effort to improve the cropstrong safety net for farmers, one that pro- insurance program by covering more crops,tects them from revenue losses that result while implementing it more efficiently. 17
18 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE In 2010, the U.S. Department of Agriculture sis points off any coverage premium subsidy(USDA) and the crop insurance companies levels that are currently offered above 50 per-agreed to changes that saved $6 billion over cent, saving $2 billion over 10 years. Farmers10 years from administrative expense reim- who have premium subsidies of 50 percent orbursement and underwriting gains while also less would not be affected.improving service to underserved States. TheAdministration believes there are additional Better target agricultural conserva-opportunities for streamlining of the admin- tion assistance. Farmers, ranchers, andistrative costs of the program. A USDA com- forest landowners share a critical role in con-missioned study found that when compared serving the Nation’s soil, water, and relatedto other private companies, crop insurance natural resources. The Administration iscompanies’ rate of return on investment very supportive of programs that create in-(ROI) should be around 12 percent, but that centives for private lands conservation andit is currently expected to be 14 percent. The has made great strides in leveraging theseAdministration is proposing to lower the crop resources with those of other Federal agen-insurance companies’ ROI to meet the 12 per- cies towards greater landscape-scale con-cent target, saving $2 billion over 10 years. In servation; however, the dramatic increaseaddition, the current cap on administrative ex- in funding (roughly 500 percent since en-penses is based on the 2010 premiums, which actment of the Farm Security and Ruralwere among the highest ever. A more appro- Investments Act of 2002) has led to difficul-priate level for the cap would be based on 2006 ties in program administration and redun-premiums, neutralizing the spike in commodi- dancies among our agricultural conservationty prices over the last four years, but not harm- programs. At the same time, high crop pricesing the delivery system. The Administration, have both strengthened market opportuni-therefore, proposes setting the cap at $0.9 ties to expand agricultural production on thebillion adjusted annually for inflation, which Nation’s farmlands and decreased producerwould save $3.7 billion over 10 years. Finally, demand for certain agricultural conservationthe Administration proposes to price more ac- programs. These current economic realitiescurately the premium for catastrophic (CAT) and the ability to better target existing fund-coverage policies, which will slightly lower the ing for maximum environmental outcomesreimbursement to crop insurance companies. support a proposal to reduce the deficit whileThe premium for CAT coverage is fully subsi- preserving the most important agriculturaldized for the farmer, so the farmer is not im- conservation programs. To reduce the deficit,pacted by the change. This change will save the Administration proposes to reduce con-$600 million over 10 years. servation funding by $2 billion over 10 years by better targeting conservation funding to The Administration also proposes modest the most cost-effective and environmentally-changes in subsidies for producers. Today, pro- beneficial programs and practices. Even un-ducers only pay 40 percent of the cost of their der this proposal, conservation assistance iscrop insurance premium on average, with the projected to grow by $60 billion over the nextGovernment paying for the remainder. This decade.cost-share arrangement was implemented in2000, when very few producers participated Extend mandatory disaster assistance.in the program and “ad-hoc” agricultural di- The Administration strongly supports disas-saster assistance bills were regularly enacted. ter assistance programs that protect farm-The Congress increased the subsidy for most ers in their time of greatest need. The Food,insurance coverage by over 50 percent at the Conservation, and Energy Act of 2008 provid-time to encourage greater participation. Today, ed producers with mandatory disaster assis-participation rates are 83 percent on average, tance programs for the 2008 to 2011 crops. Toand the rationale for high subsidy rates has strengthen the safety net, the Administrationweakened. The proposal would shave two ba- proposes to extend these programs, or simi-
MANDATORY SAVINGS 19lar types of disaster assistance that are of a health care services and what retired militarysimilar cost, for the 2012 to 2016 crops. The personnel pay. The Administration is proposingprograms provide financial assistance to pro- a group of reforms to better align these retire-ducers when they suffer actual losses in farm ment programs with the private sector, whilerevenue, loss of livestock or the ability to graze still preserving the Federal Government’s abil-their livestock, loss of trees in an orchard, and ity to recruit and retain the personnel that theother losses due to diseases or adverse weather. American people need. The reductions soughtTo be eligible for the programs, farmers must in these programs are evenly split between ci-purchase crop insurance. The Supplemental vilian and military retirement programs. TheRevenue Assistance Program provides whole Administration proposes to:farm revenue coverage to farmers at a revenuelevel that is essentially 15 percent higher than Reform civilian Federal workertheir crop insurance guarantee. Payments are retirement. Whether it is defending ourlimited so that the guaranteed level cannot ex- homeland, restoring confidence in ourceed 90 percent of expected farm income in the financial system and administering a historicabsence of a natural disaster. economic recovery effort, providing health care to our veterans, or searching for cures toFederal Worker and Military the most vexing diseases, we rely on a highlyRetirement Programs skilled workforce committed to public service. The Administration has implemented efforts The men and women who serve their fel- to reform the hiring process and improvelow Americans in the Armed Forces and civil employee engagement, satisfaction, andservice are patriots who work for the Nation wellness. In line with its strong commitmentoften at great personal sacrifice. Just as fami- to Federal employees, the Administrationlies and businesses must tighten their belts to believes that we can make modest changeslive within their means, so must the Federal to Federal worker retirement contributionsGovernment. One area to examine is the retire- while maintaining the ability to attract andment and health benefits offered to the Federal retain highly qualified individuals to handlemilitary and civilian workforce. Over the past the challenging and complex work the Federalseveral years, there have been significant shifts Government is expected to do.both in how people work and how their benefitsare structured. Organizations of all sizes have The Administration is proposing that thehad to reform and alter the retirement benefits employee contribution toward accruing retire-they give in order to remain competitive and, in ment costs would increase by a total of 1.2some cases, solvent. As a result, compared to the percent (0.4 percent a year over three yearsprivate sector, the Federal retirement program beginning in 2013), but the employee’s totalcan seem generous. For example, defined bene- pension would remain unchanged. In addition,fit pensions are becoming increasingly rare, and the Administration is proposing to eliminateare now available to only one-third of private in- the FERS Annuity Supplement for new em-dustry workers in large firms and 21 percent of ployees. While Federal agency contributions forall private employees. Some estimates put the currently accruing costs of employee pensionssplit between employer and employee contribu- would decline, these employers would pay antions in the private sector at 55 percent paid additional amount toward unfunded liabilitiesby employers and 45 percent paid by employ- of the retirement system that would leave totalees (combining defined benefit and defined con- agency contributions unchanged over the 10-tribution plans), whereas on average Federal year budget window. The Administration doesemployers pay 67 percent of contributions to not anticipate this policy change will negativelythe Federal Employees Retirement System affect its human capital planning and manage-(FERS), while employees pay 33 percent. In ad- ment, nor inhibit the Government’s ability todition, a marked disparity exists between the serve the American people. This proposal is es-fees most retired private sector workers pay for timated to save $21 billion over 10 years.
20 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE While the modest retirement system change medical services, generally leaving the ben-proposed above is important, we also need eficiary with no out-of-pocket costs aside frombroader reform. The Federal personnel sys- Medicare Part B premiums and drug co-pays.tem that governs pay and performance for the In the private sector, this type of “Medigap”majority of Federal employees was codified in policy would likely require premiums, deduct-1949, when Government was composed of far ibles, and co-pays. In 2009 the average annualmore lower-grade employees handling rela- premium for a “Medigap” policy was $2,100.tively routine tasks that required few special- By contrast, there are no premiums underized or advanced skills and when computers the TFL programs. The Administration is pro-were massive mainframes. Despite employee posing to introduce modest annual fees forsurveys revealing that Federal employees be- the TFL program, beginning with a $200 an-lieve the current work environment fails to ef- nual fee in 2013. The fee then would increasefectively deal with poor performers and does to align with the modest increase in the feesnot reward innovation, reform efforts to date under the regular TRICARE program for in-have not been able to address this foundational dividuals under age 65 that was proposed inissue of Government performance. To manage the President’s 2012 Budget. This proposal isthe complex work agencies perform today in or- estimated to save approximately $6.7 billionder to meet the needs of the American people, in mandatory spending over 10 years.Federal managers and employees need a mod-ernized personnel system that reflects the re- Targeted increases to TRICAREality of the 21st century—where agencies offer pharmacy benefit co-payments. Thecompensation reflecting competing markets Administration supports a generous healthfor employees, facilitate career-development care benefit to recognize the service of mili-mobility across agencies and with the private tary members and retirees. This includes pro-sector, address poor performers consistently viding affordable options to access prescrip-and fairly, develop staff, and motivate better tions. However, the co-payments for militaryperformance using the best evidence-based members have lagged behind other Federalpublic and private sector practices. To advance and private plans. For example, the averagethis effort, the Administration recommends co-payment for a costly brand-name drug pur-that the Congress establish a Commission chased at a drug store by a Federal retiree inon Federal Public Service Reform comprised the most popular Federal Employees Healthof Members of the Congress, representatives Benefits Program (FEHBP) plan option is es-from the President’s Labor-Management timated to be $45, compared to $9 for a mili-Council, members of the private sector, and tary retiree. In an effort to slow the growth inacademic experts. The Commission would de- DOD’s health care costs, the President’s 2012velop recommendations on reforms to modern- Budget included minor pharmacy co-payize Federal personnel policies and practices adjustments, for which both the House andwithin fiscal constraints. Such reforms could Senate indicated support. This new proposalinclude but would not be limited to compensa- would move the TRICARE pharmacy programtion, staff development and mobility, and per- closer to parity with the most popular Federalsonnel performance and motivation. employee health plan, BlueCross BlueShield Standard and closer to the health plans that Initiate annual fees for TRICARE-For- most Americans have from their employers.Life enrollment (TFL). One of the ways The proposal would provide an incentive formilitary retirees and their families are rec- consumers to choose less expensive pharma-ognized for their essential service is through cy options by eliminating co-pays for generichealth insurance coverage called TRICARE. mail-order drugs while, at the same time,Upon turning 65, beneficiaries transition to shifting retail co-pays from a dollar figure toMedicare coverage, with TFL becoming sec- a percentage co-pay. This option would haveond payer. The TFL program pays the ben- no impact on active duty members, but wouldeficiaries’ Medicare out-of-pocket costs for affect active duty families and all military re-
MANDATORY SAVINGS 21tirees regardless of the age of the beneficiary. the Government is required to establish a dol-The Administration’s proposal is estimated lar cap on the amount that the Government willto save $15.1 billion in mandatory funds and reimburse Federal contractors for the compen-$5.5 billion in discretionary funds over 10 sation they pay to their senior-most executivesyears. under cost-based contracts, which account for roughly $160 billion each year. The cap does Establish a commission to review mil- not limit how much contractors pay their ex-itary retirement benefits. The current ecutives—only how much the Government willmilitary retirement system has served the reimburse them. A statutory formula sets themilitary well in past years. In an era when Government’s reimbursement cap to the annu-defined-benefit plans were common, it helped al compensation for the five top managementthe military to retain the personnel needed employees at publicly-traded companies withto maintain a vigorous and highly effective annual sales over $50 million. The cap start-force. But the system was designed for a ed at $250,000 in 1995, but rose to $693,951different era of work, and is now out of line last year in line with the rapid growth ofwith most other Government or private re- private sector executive compensation overtirement plans. The non-disability program the past 15 years. Application of the currentprovides generous benefits to the relatively statutory formula could push the reimburse-few members who stay for at least 20 years ment cap to $750,000 for 2011. However, theand no benefits for the roughly 80 percent of Administration believes the Government is re-servicemembers who stay less than 20 years. imbursing too much for contractor executives,To consider reforms the Administration and the cap’s amount cannot be justified. Asplans to set up a commission to develop rec- a result, the Administration proposes to abol-ommendations for reforming the current ish the formula and instead tie the cap to themilitary retirement system. The commission salary of senior-most Federal officials—specifi-will review the impacts of reform propos- cally, Executive Schedule Level I, currently ap-als on military readiness, recruiting, reten- proximately $200,000. Setting the cap at thistion, costs, and the quality of the force. The level will bring greater parity between FederalAdministration plans to propose that the and contractor executives’ compensation.Commission’s recommendations be han-dled in a manner similar to the 2005 Base Government Liabilities and OperationsRealignment and Closure Commission’s rec-ommendations. Under this approach, DOD Increase fees charged by Fannie Maewould make a proposal to the commission, and Freddie Mac. Since taking office inwhich can alter the proposal as it deems ap- January 2009, the Administration has takenpropriate. The commission proposals then numerous actions to help stabilize the housinggo to the President, who may not alter the market and provide critical support for strug-proposals but can decide whether to forward gling homeowners. This has included continu-them to the Congress. The Congress must ing the financial support for Fannie Mae andapprove or disapprove without any modifica- Freddie Mac under agreements initiated intions. The Administration believes that any 2008 that ensure they have sufficient capitalmajor military retirement reforms should in- to honor their guarantees, meet their debt ob-clude grandfathering provisions that ensure ligations, and facilitate the flow of mortgagethat the country does not break faith with capital to homeowners. To protect taxpayersmilitary personnel now serving, including and help rebuild the robust private mort-those serving in Afghanistan and Iraq. gage market necessary to our Nation’s long- term economic well-being, the Administration End the overpayment of Federal con- proposes to modestly increase the fees thattractor executives. Just as the Government Fannie Mae and Freddie Mac charge mortgagemust be prudent in paying Federal employees, lenders to guarantee repayment of new mort-it must also not overpay contractors. Each year, gage loans.
22 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE Because of their Government support, it is collected. Modeled after ChairmanFannie Mae and Freddie Mac are able to price Paul Ryan’s proposal in the House’s 2012their mortgage guarantees below what it Concurrent Resolution on the Budget, thewould cost private banks or financial institu- Administration’s proposal would:tions to provide the same guarantee. These“guarantee fees” should be increased over time • Replace the current “per-enplanement”to help the private market compete on a level fee structure with a “per one-way trip”playing field and reimburse taxpayer assis- fee structure so that passengers pay thetance, although the pace of these price changes fee only one time when travelling to theirwill depend significantly on market conditions. destination.The President is proposing to begin this pro-cess with a modest increase of 10 basis points, • Remove the current statutory fee limitor one-tenth of one percent, to Fannie Mae and and replace it with a statutory fee mini-Freddie Mac’s existing fees. Existing mort- mum of $5.00, with annual incrementalgages would be unaffected by this change and increases of 50 cents from 2013 to 2017,the monthly cost of a typical $220,000 new resulting in a fee of $7.50 in 2017 andmortgage would increase by less than $15. thereafter.These small changes would reduce costs to theGovernment by $28 billion over 10 years. • Allow the Secretary of Homeland Security to adjust the fee (to an amount Reform the Aviation Passenger Security equal to or greater than the new statu-Fee to more accurately reflect the costs of tory fee minimum) through regulationaviation security. Reflecting its commitment when necessary.to keeping air travel and commerce safe, theAdministration has invested heavily in person- • Set aside a specific amount of fee revenuenel, technology, and infrastructure to mitigate to be returned to the General Fund forthe constantly-evolving risks to aviation secu- deficit reduction over 10 years.rity. As risk changes, however, so too must theway in which we fund our aviation security ef- The proposed fee would collect an estimat-forts. In 2001, the Aviation and Transportation ed $8.8 billion in additional fee revenue overSecurity Act created the Aviation Passenger five years, and $24.9 billion over 10 years. TheSecurity Fee, which was to be collected to off- Administration’s proposal would direct $15set the costs of the Transportation Security billion to be deposited into the General FundAdministration’s (TSA’s) aviation security-re- for debt reduction, with any additional reve-lated activities. The fee, in conjunction with nues in excess of this amount being applied asa separate fee charged directly to air carriers, offsets to TSA’s discretionary appropriations.was put in place to ensure that the costs ofaviation security were borne by the direct ben- More equitably share payments for aireficiaries (e.g., air passengers, airlines) of avia- traffic services. Roughly two-thirds of thetion security services. The fee was originally air traffic control system’s current costs areintended to recover the full costs of aviation financed by aviation excise taxes. Most of thesecurity. Since its establishment, however, the tax revenue is collected from commercial avia-fee has been statutorily limited to $2.50 per tion through ticket taxes, segment fees, inter-passenger enplanement with a maximum fee national head taxes, and fuel taxes. Generalof $5.00 per one-way trip. This recovers only aviation users currently pay a fuel tax, but this43 percent of TSA’s aviation security costs, revenue does not cover their fair-share-use ofwhich have risen over the years while the fee air traffic services. All flights that use con-has remained the same. trolled air space require a similar level of air traffic services. However, commercial and gen- The Administration proposes both to raise eral aviation can pay very different aviationthe fee and change the manner in which fees for those same air traffic services. For ex-
MANDATORY SAVINGS 23ample, a large commercial aircraft would pay payments to an accruing cost basis and reducebetween $1,300 to $2,000 in taxes for a flight near-year Postal payments; 2) provide USPSfrom Los Angles to San Francisco while a cor- with a refund over two years of the $6.9 billionporate jet flying the same route and using the surplus in Postal contributions to the FERSsame Federal Aviation Administration (FAA) program; 3) reduce USPS operating costs byair traffic services would pay about $60 in giving USPS authority, which it has said it willtaxes. To reduce the deficit and more equitably exercise, to reduce mail delivery from six daysshare the cost of air traffic services across the to five days; 4) allow USPS to offer non-postalaviation user community, the Administration products and increase collaboration with Stateproposes to establish a new mandatory sur- and local governments; and 5) give USPS thecharge for air traffic services. This proposal ability to better align the costs of postage withwould create a $100 per flight fee, payable to the costs of mail delivery while still operatingthe FAA, by aviation operators who fly in con- within the current price cap, and permit USPStrolled airspace. Military aircraft, public air- to seek the modest one-time increase in post-craft, recreational piston aircraft, air ambu- age rates it proposed a year ago. These reformslances, aircraft operating outside of controlled would provide USPS with over $20 billion inairspace, and Canada-to-Canada flights would cash relief over the next several years and inbe exempted. The revenues generated by the total would reduce the Federal deficit by $19surcharge would be deposited into the Airport billion over 10 years.and Airway Trust Fund. This fee would gen-erate an estimated $11 billion over 10 years. Strengthen the safety net for workers’Assuming the enactment of the fee, total retirement benefits. All Americans deservecharges collected from aviation users would fi- a secure retirement. The Administrationnance roughly three fourths of airport invest- has proposed to create new opportunities toments and air traffic control system costs. save for retirement by establishing a system of automatic workplace pensions and dou- Provide Postal Service financial relief bling the small employer pension plan start-and undertake reform. The Administration up credit. In addition, the Administrationrecognizes the enormous value of the U.S. Postal has issued regulations that would increaseService (USPS) to the Nation’s commerce and 401(k) fee disclosure, so that workers cancommunications, as well as the urgent need make more informed choices about how tofor reform to ensure its future viability. USPS invest their retirement savings. The Pensionfaces a long-term, structural operating deficit Benefit Guaranty Corporation (PBGC),that has been exacerbated by the precipitous which protects the retirement security ofdrop in mail volume in the last few years due 44 million workers in defined benefit pen-to the economic crisis and the continuing shift sion plans, is also critical to the success oftoward electronic communication. Absent leg- a robust pension system. When underfundedislative intervention, USPS will be insolvent plans terminate, PBGC assumes responsi-by the end of September 2011 when it will bility for paying the insured benefits. PBGCbe unable to make the statutory $5.5 billion is responsible for paying current and futureRetiree Health Benefit prefunding payment to retirement benefits to more than 1.5 millionthe Office of Personnel Management, will have workers and retirees.exhausted its cash reserves, and will have hitits cumulative statutory Treasury borrowing PBGC receives no taxpayer financing, andceiling of $15 billion. Bold action is needed to relies primarily on premiums paid by insuredensure that USPS can continue to operate in plans. PBGC premiums are currently muchthe short-run and achieve viability in the long- lower than what a private financial institu-run. To that end, the President is proposing a tion would charge for insuring the same riskcomprehensive reform package that would: 1) and are insufficient for PBGC to meet its long-restructure Retiree Health Benefit pre-fund- term obligations. As of the end of Septembering in order to accelerate moving these Postal 2010, PBGC faced a $23 billion deficit. The
24 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREAdministration proposes to encourage compa- Reform the National Flood Insurancenies to fully fund their pension benefits and Program (NFIP) by eliminating the pre-ensure PBGC’s continued financial soundness mium subsidy for certain properties.by giving the PBGC Board the authority to ad- Currently, 1.2 million or 20 percent of all NFIPjust premiums to better account for the risk properties are charged premiums well belowthe agency is insuring. This proposal would the actuarial value of the insured liability. Onraise much-needed revenue for PBGC while average (including subsidized and unsubsi-providing incentives for firms both to continue dized policies) NFIP premium collections cov-offering pensions and to improve plan fund- er approximately 70 percent of the actuarialing so they can keep their pension promises. value of the insured liability. To address thisWithout action, the PBGC’s deficit will in- concern, the Administration supports a pro-crease and we may face, for the first time, the posal, as passed by the House in H.R. 1309,need for an infusion of taxpayer funds to keep which would impact approximately 375,000 orPBGC solvent. 30 percent of the 1.2 million subsidized poli- cies. Specifically, the proposal would: The proposal consists of two parts: 1) agradual increase in the single-employer flat- • Increase premiums over five years for arate premium that will raise approximately subset of subsidized properties: non-res-$4 billion by 2021; and 2) PBGC Board dis- idential or non-primary residences, resi-cretion to increase the single-employer vari- dences sold to new owners, and severeable-rate premium to raise $12 billion by repetitive loss properties.2021. Beginning in 2014, the Board wouldbe given discretion to increase variable-rate • Redefine severe repetitive loss proper-premiums, which are based on plan under- ties as residences with at least four paidfunding. Currently, premiums are set at $9 claims greater than $5,000 or with twoper $1,000 of underfunding. Under the pro- paid claims that cumulatively exceed theposal, two-thirds of the Board would have to market value of the house.certify that changes to the variable premiumschedule would be estimated to generate at • One year after enactment, increase pre-least $12 billion through 2021. If the Board miums for all policy holders fitting thewere unable to certify the premium schedule, above named categories (non-residentialit would be required to make adjustments to or non-primary residences, residencesensure generated revenues of at least $12 sold to new owners, and severe repetitivebillion. The Board would be prohibited from loss properties) by no more than 20 per-raising premiums to generate more than $13 cent per year until the amount collectedbillion. In determining variable-rate premi- covers the full expected cost of the insur-ums, the Board would consider a number of ance.factors, including a plan’s risk of losses toPBGC, the amount of a plan’s possible claims, • New policies that fit this category of sub-and other factors the Board’s directors de- sidized properties one year after enact-termine appropriate. In addition, the Board ment would immediately pay the full costwould be required to consult with stakehold- actuarial premium.ers prior to setting a new premium scheduleand would also establish a hardship waiver The Administration also supports otherand other limitations on plan-specific pre- measures in H.R. 1309 that would increasemium increases. PBGC would be required to the maximum policy coverage for structurepublish a notice of its determination in the and contents and authorize studies and pilotsFederal Register, including the basis for the to test alternative approaches to flood insur-determination and the amount of the expect- ance that are sustainable and cost-effective.ed increase in income. This proposal would The NFIP would collect about $700 million insave $16 billion over the next decade. additional premium revenue over five years
MANDATORY SAVINGS 25and approximately $4.2 billion over 10 years. and public safety uses would be exempt fromThese increased revenues could be deposited this fee. The proposal would also allow spec-in either the National Flood Insurance Fund trum licenses for satellite services that are pri-or into the General Fund. marily domestic (such as satellite TV services) to be assigned via competitive bidding, as theyGovernment Assets had been prior to a 2005 court decision. Auction radio spectrum to expand As long envisioned by the Administrationwireless broadband and invest in a and members of both parties in the Congress,broadband network for public safety us- the Administration would invest $7 billion ofers. Expanding access to mobile Internet and spectrum auction proceeds and reserve spec-other wireless communications will benefit trum valued at nearly $3 billion for use in aAmerican families and businesses and sup- modern, nationwide, and interoperable pub-port a more competitive economy. The Federal lic safety broadband network. This networkCommunications Commission (FCC) estimates will provide first responders access to secure,that mobile data use will increase by 35 times interoperable video and voice communica-over 2009 levels by 2014, thus creating greater tions. By achieving interoperable communi-demand for spectrum. Recognizing this, the cations nationally and utilizing commercialAdministration committed last year to repur- infrastructure tailored to the requirementspose 500 megahertz of spectrum through auc- of first responders, this investment holds thetions and other means to meet the growing potential to improve public safety communica-demand for spectrum placed on commercial tions and applications, promote cost-efficientnetwork capacity from smartphones and other networks through greater economies of scale,mobile technologies. The Administration also and achieve the security and reliability neces-has strongly promoted vital improvements sary for first responder communications. Thein the communication capabilities of first re- Administration believes the build-out of a pub-sponders and other public safety users. A wide lic safety network would be best managed byvariety of public safety organizations and the a new independent corporation—with a BoardNational Governors Association have also sup- representing local, State and Federal publicported a first responders broadband network. safety users—to promote nationwide interop- erability and meet the collective requirements To further these goals, the Administration of public safety users. In total, the proposalproposes to raise more than $24 billion by ex- would provide nearly $10 billion in funds andtending the FCC authority to auction spectrum spectrum for a public safety broadband net-and by providing new authority to hold incen- work, while reducing the deficit by over $18tive auctions, through which current spectrum billion over 10 years.licensees voluntarily relinquish spectrumrights in exchange for a fair portion of auc- Get rid of unneeded Federal real prop-tion proceeds. In addition, the Administration erty. The Administration proposes to createwould free-up spectrum currently used by an independent real property board to rec-Federal agencies for auction, including by pro- ommend disposal and consolidation oppor-viding enhanced flexibility through the exist- tunities to the Congress. The Governmenting Spectrum Relocation Fund to help agencies Accountability Office (GAO) has recognizedrepurpose and relocate. This will enhance the longstanding inefficiencies in the Federal realAdministration’s ongoing interagency effort to estate portfolio, identifying it as a prime candi-develop options for relocating Federal agencies date for reform in its recent March 2011 reportfrom valuable spectrum. In cases where auc- on proposals to reduce the cost of Governmenttions are not appropriate, the FCC would be operations. Within the 1.1 million buildings,directed to collect $4.8 billion in fees over the structures, and land parcels that the Federalnext 10 years to promote efficient resource use. Government owns or operates are significantSpectrum assigned to television broadcasters opportunities to sell unneeded property, con-
26 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREsolidate agency leases, co-locate agency op- waste. If enacted, these proposals will resulterations, and improve the sustainability of in over $160 billion in savings to the Federalthe Government’s operations. The Civilian Government over 10 years. Building on theseProperty Realignment Act (CPRA) would es- efforts the Administration proposes to:tablish an independent board of experts toexpedite the disposal of unneeded properties Crack down on tax cheats and delin-and the consolidation of properties across and quents through investments in Internalwithin agencies. Modeled after the success- Revenue Service (IRS) tax enforcementful Base Realignment and Closure (BRAC) and compliance. In the BCA, fundingCommission, the board would achieve this dis- was provided for program integrity effortsposal and consolidation of Federal real prop- in the Social Security Administration anderty through a process that forwards bundled Department of Health and Human Services,recommendations to the Congress for a direct but not the IRS. Yet the IRS’s tax enforcementvote. Although the Congressional Budget and compliance activities are critical to theOffice (CBO) does not score savings for this fairness and integrity of the U.S. tax system,proposal, the Administration believes that this and also generate a positive ROI for taxpayersprocess would save the Federal Government at of roughly $7-to-$1. Because of this contribu-least $4 billion over 10 years from sales pro- tion to deficit reduction, the Administrationceeds. In addition, the Administration believes has consistently proposed high-priority in-the proposal would result in decreased operat- creases in IRS tax enforcement. Putting pro-ing costs and efficiencies through better space gram integrity funding in the Joint Committeemanagement. package is now especially urgent because tight discretionary caps will otherwise forceProgram Integrity lower investment and higher deficits. The Administration is seeking an incremental 10- For many years, the Federal Government year tax enforcement investment which in-has erroneously cut checks to the wrong per- cludes more than $350 million in new tax en-son at the wrong time or for the wrong reason. forcement and compliance initiatives, plus theCutting waste and combating these kinds of inflationary costs of maintaining current IRSerroneous payments has been a priority for enforcement activities. This additional 2012President Obama. He set a goal of prevent- funding will support new initiatives capable ofing $50 billion in improper payments and re- bringing in over $2 billion in additional reve-capturing $2 billion by the end of 2012. The nue when the new resources reach maturity inAdministration has taken important steps to- 2014. Subsequent increases in 2013 throughwards achieving the President’s goals, which 2016 will include further additional fundinghave yielded early results. The Administration increments for new revenue-generating initia-began using cutting edge forensic technology tives, all of which will be sustained throughto detect and prevent fraud and error before 2021. CBO has scored such a policy as reducingit happens and implemented new account- the deficit by about $3.2 billion over 10 years.ability to these errors, posting details of er- OMB believes that relative to the current lawror rates at PaymentAccuracy.gov, and for BEA baseline, and particularly in light of thethe first time adding sanctions for programs tight discretionary caps, a provision that pro-that fail to meet a minimum threshold for er- vides protected funding for program integrityror. In 2010, the Government-wide improper efforts will have a significantly larger effect,payment rate declined to 5.49 percent, a de- saving an estimated $30 billion or more.crease from the 5.65 percent reported in 2009. Agencies also reported that they recaptured Reduce the improper payment rate in$687 million in improper payments in 2010— the Unemployment Insurance (UI) pro-the highest amount recovered to date. The gram. The Administration is proposing a setPresident’s 2012 Budget proposes even more of innovative reforms to the UI program, in-aggressive tools that will help drive down this cluding changes that will prevent layoffs and
MANDATORY SAVINGS 27give States more flexibility to use Federal UI es with the Office of Personnel Managementfunds to get Americans who have lost their to identify Federal workers who have beenjobs back to work. The President’s plan is employed in non-covered employment, theretargeted to address unemployment in an ag- is currently no similar data system to obtaingressive, multi-pronged way, drawing from information on State or local pensioners. Thisideas about what is working from around the proposal provides up to $50 million to Statecountry and from both parties. As we make and local governments to develop such a sys-UI more flexible and responsive to the needs tem for more timely and accurate data collec-of the unemployed and the Nation, we can- tion and direct pension information reportingnot tolerate waste in the program. However, to SSA. This proposal would improve enforce-UI is run as a Federal-State partnership; ment of the current law WEP and GPO provi-the error rates vary widely by State; and the sions, resulting in improved payment accuracyhigh error rates in some States lead the UI for the Old-Age and Survivor, and Disabilityprogram to have one of the highest improp- Insurance Programs, and is projected to saveer payment rates of any Federal program. approximately $3.1 billion over 10 years byReemployment and Eligibility Assessments preventing overpayments. (REAs)—in-person interviews with UI claim-ants to determine continued eligibility for ben- Step up collection of debts owed to theefits and whether additional reemployment Federal Government. The Department ofassistance is needed—are an important part the Treasury manages the collection of de-of the Administration’s strong improper pay- linquent tax and non-tax debt owed to vari-ments reduction strategy. The Administration ous State and Federal agencies through theproposes a multi-year discretionary alloca- Treasury Offset Program (TOP), which col-tion adjustment starting with $10 million in lects delinquent non-tax debts (including2012 along with $60 million in base funding child support) by offsetting outgoing Federalto allow States to conduct REAs. These assess- payments, and the Federal Payment Levyments will strengthen UI program integrity by Program, which employs a continuous levyidentifying ineligible claimants and reducing (deduction) on Federal payments to collect de-improper payments. They will also help reduce linquent taxes from individual taxpayers. As ofUI benefit costs by helping unemployed indi- June 30, 2011, the Treasury’s debtor databaseviduals return to work more quickly than they included approximately $437 billion in delin-would were this targeted assistance not pro- quent debts, including $308 billion in Federalvided. This policy would reduce the deficit by debts (of which $200 billion is tax debt), and$256 million over 10 years. $129 billion in State debts (including $111 bil- lion in child support). In 2007, GAO estimated Improve Collection of Pension Infor- that approximately 60,000 Federal contractorsmation from States and Localities. The were delinquent on over $7 billion in FederalSocial Security Windfall Elimination Provision taxes, and in 2008, it found that over 27,000(WEP) and Government Pension Offset (GPO) Medicare providers owed more than $2 billionprovisions are adjustments to the Social in tax debt. This is money owed the FederalSecurity formula which ensure that non-cov- Government, and allowing those who cheatered workers do not receive a higher propor- the system is unfair to us all. That is why thetional benefit than workers with similar earn- Administration is proposing the following re-ings who worked their entire careers in covered forms that will generate $911 million in sav-employment. Currently, WEP and GPO ad- ings over 10 years:justments are only applied when an individ-ual worker attests that he or she has a pen- • Increase IRS levy authority to 100sion in non-covered employment or the Social percent for Federal contractor pay-Security Administration (SSA) discovers that ments. The tax code was amended byan individual is receiving a non-covered pen- the American Jobs Creation Act of 2004,sion. While SSA is able to conduct data match- which sought to authorize a 100 per-
28 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE cent levy of Federal vendor payments. tions, particularly as an increasing share However, a technical error had the un- of households no longer have landlines intended effect of limiting the levy to 15 and rely instead on cell phones. percent. This proposal, which was also included in the 2012 Budget, would cor- Other Reforms and Savings rect the error and allow the Treasury to collect some of the sizable delinquent tax Reform Abandoned Mine Lands (AML) debt owed by Federal contractors. This payments. The coal industry as a whole is will yield $141 million over 10 years. currently held responsible for cleaning up abandoned coal mines by paying a fee that fi- • Increase IRS levy authority to 100 nances grants to States and Tribes for recla- percent for Medicare payments. The mation. This linkage was lost, however, when Congress recently authorized the levy the Congress in 2006 authorized additional (tax) and offset (non-tax) of Medicare pay- unrestricted payments to certain States and ments to collect delinquent tax and non- Tribes that had already completed their coal tax debts through the Federal Payment mine reclamation work. In addition, regular Levy Program (FPLP); however, the reclamation funds are not well targeted at Treasury currently levies only up to 15 the highest priority abandoned mine lands, percent of a payment to Medicare provid- because amounts are distributed by a produc- ers with delinquent tax debt. This reform tion-based formula so that funding goes to the would increase the levy to 100 percent States with the most coal production, not the when collecting tax debts, which would greatest reclamation needs. States can use bring it in line with the 100 percent pay- their funding for a variety of purposes, includ- ment offset (through TOP) applied to ing the reclamation of abandoned hardrock non-tax debt collection. This will gener- mines, for which there is no other source of ate $770 million in savings over 10 years. Federal funding. • Offset Federal tax refunds to col- The Administration proposes to reform the lect State income taxes from debtors coal AML program to reduce unnecessary who currently reside in other States. spending and ensure that the Nation’s high- Under current law, Federal tax refunds est priority sites are reclaimed. First, the may be offset to collect delinquent State Administration proposes to terminate unre- income taxes only if the delinquent tax- stricted payments to the States and Tribes payer resides in the State collecting the that have been certified for completing their tax. This proposal would allow Treasury coal reclamation work, since these payments to offset tax refunds to collect delinquent do not contribute to reclaiming abandoned coal State tax obligations regardless of where mines. Second, the Administration proposes the debtor resides; however, collections to reform the distribution process for the re- are returned to States and do not score maining funds to allocate available resources as Federal savings. competitively to the highest priority coal AML sites. Through a competitive grant program, • Allow agencies to contact delinquent a new AML Advisory Council will review and debtors via their cellular phones. rank the abandoned mine lands sites, so that The Administration also proposes to the Department of the Interior, in coordination amend the Communications Act of 1934 with States and Tribes, can distribute grants to facilitate collection of debts owed to or to reclaim the highest priority coal sites each guaranteed by the Federal Government, year. by facilitating contact of delinquent debt- ors who are most readily reached on their Mining for hardrock minerals (e.g., silver and cell phones. This provision is expected to gold) has also left a legacy of abandoned mines provide substantial increases in collec- across the United States. The Administration
MANDATORY SAVINGS 29proposes to create a parallel AML program The Administration’s proposal provides twofor abandoned hardrock sites. Like the coal forms of up-front, two-year relief to employersprogram, hardrock reclamation would be fi- in indebted States: relieving States of interestnanced by a new AML fee on the production of payments on Federal borrowing that are typi-hardrock minerals on both public and private cally paid through an automatic surtax on em-lands. This would hold the hardrock mining in- ployers; and suspending automatic increasesdustry responsible for cleaning up the hazards in Federal UI taxes on employers in indebtedleft by its predecessors. The funds would be dis- States. These two forms of relief would signifi-tributed through a competitive grant program cantly reduce employers’ UI tax burden, allow-to reclaim the highest priority hardrock sites ing them the flexibility to create jobs that theon Federal, State, tribal, and private lands. economy desperately needs.Altogether, this proposal will save $1.3 billionover the next 10 years. Equally important, it The proposal also would encourage States towould focus available coal fees to better ad- put their programs on sounder financial foot-dress the Nation’s most dangerous abandoned ing by increasing the Federal UI taxable wagecoal mines and establish a new approach to base in 2014 from $7,000 to $15,000—near thecleaning up abandoned hardrock mines across same real level as set under President Ronaldthe country. Reagan in 1983—and indexing it to average wages. At the same time, the Federal tax rate Restore the solvency of the Unem- would be decreased to ensure that the Federalployment Insurance system by helping UI taxes employers pay are held roughly con-employers now and restoring State fiscal stant. States would also maintain flexibility inresponsibility. Unemployment Insurance how they set the tax rate paid by employers to(UI) provides a vital safety net for workers finance their own UI trust funds. While Stateswho are laid off. Over the past several years, would be required to set a wage base at leastUI benefits have kept many families afloat equal to the new Federal level by 2014, theyduring tough financial times, and in 2010 could also choose to reduce their tax rates inthese benefits prevented 3.2 million individu- response to the wage base increase.als—including nearly 1 million children—from falling into poverty. UI is also one of Although States have been hit hard by thethe most effective levers we have for promot- economic downturn, many have chronicallying economic growth—generating up to $2 underfunded their UI programs and relied onof economic activity for every $1 spent. The borrowing from the Federal Government toPresident has strongly supported expanding make up the shortfall. This borrowing oftenthis critical safety net and has called for an leads States to increase taxes on employersextension of unemployment benefits for an- during recessions, when businesses can leastother year. At the same time, we must recog- afford the added burden. Increasing the wagenize the fact that the economic downturn has base would encourage these States to adopt ataken a toll on the solvency of the UI program. responsible tax structure that is able to fullyTwenty-eight States currently owe more than fund their UI benefits. By 2020, this proposal$37 billion to the Federal Unemployment is projected to reduce the number of State pro-Trust Fund, and many have little prospect grams still in debt to the Federal Governmentof paying these loans back in the foreseeable from 17 to 2. Taken together, this package offuture. Employers in those States are now reforms will reduce the deficit by $33 billionfacing Federal tax increases as a result of over 10 years.this indebtedness. The Administration pro-poses to put the UI system back on the path Require the financial services industryto solvency by providing immediate relief to to pay back taxpayers. The Administrationemployers to encourage job creation now and is calling for a Financial Crisis Responsibilityreestablishing State fiscal responsibility go- Fee on the largest financial institutions to ful-ing forward. ly compensate taxpayers for the extraordinary
30 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREsupport they provided to the financial sector ticide registration services by increasing thethrough the Troubled Asset Relief Program amount charged for currently authorized pesti-(TARP) and other Government actions. The cide user charges. Amendments to the Federalassistance given to the largest financial firms Insecticide, Fungicide, and Rodenticide Act re-represented an extraordinary step that no quire EPA to review all registered pesticidesone wanted to take, but one that was neces- on a 15-year cycle to ensure that registrationssary in order to stem a deeper financial crisis reflect current science. The Administration’sand set the economy on a path to recovery. The proposed increases to registration and mainte-cost associated with the excessive risk-taking nance fees are intended to cover the increasedby the largest financial institutions continues costs posed by these reviews and a greater por-to ripple through the economy. Furthermore, tion of overall program costs. In addition, al-although many of the largest financial firms though the Federal Food, Drug, and Cosmetichave repaid the Treasury for their TARP assis- Act of 1938, as amended, requires EPA to col-tance, they continue to implicitly benefit from lect fees for the establishment and reassess-the TARP funds that bolstered their balance ment of pesticide tolerances, the collection ofsheets during a period of great economic up- these fees has been blocked through 2012 byheaval. While the expected deficit cost of the statute. The Administration proposes to elimi-TARP program has fallen by $66 billion since nate this prohibition and collect the tolerancethe 2011 Mid-Session Review to approximate- fee beginning in 2012. This will save $740 mil-ly $48 billion in the 2012 Budget, shared re- lion over 10 years.sponsibility requires that the largest financialfirms pay back the taxpayer for the extraordi- Lift the cap on pre-manufacture noticenary support they received. The fee will be re- user charges. EPA presently collects feesstricted to financial firms with assets over $50 from chemical manufacturers seeking to mar-billion and will be imposed until all TARP costs ket new chemicals. These fees are authorizedhave been recouped. The Administration’s by the Toxic Substances Control Act and areFinancial Crisis Responsibility Fee aligns with subject to a statutory cap. The Administrationthe congressional intent of the TARP legisla- proposes to lift the cap so that EPA can recovertion that requires the President to propose a a greater portion of the program cost. This willway for the financial sector to pay back taxpay- save $76 million over 10 years.ers so that not one penny of the Government’sTARP-related debt is passed on to the next Establish a hazardous waste electronicgeneration. It would extend beyond 2021 as manifest system. The Resource Conservationnecessary to achieve these ends. The structure and Recovery Act of 1976, as amended, (RCRA)of this fee would be consistent with principles requires transporters of hazardous waste toagreed to by the G-20 Leaders and similar to document information on the waste’s genera-fees proposed by other countries. This fee will tor, destination, quantity, and route. Currently,reduce the deficit by $30 billion over 10 years. the tracking system relies on paper copies that are not frequently digitized for data analysis Increase pesticide user charges. The or quality control. The Administration propos-Environmental Protection Agency (EPA) es to collect fees from users of a new electronicscreens and registers new pesticides before they manifesting system beginning in 2014. Use ofreach the market and ensures that pesticides electronic records will allow EPA to more effi-already in commerce are safe when used in ac- ciently monitor and analyze future waste ship-cordance with the label. Presently, EPA collects ments. Full implementation of the electronicfees from entities seeking to register their pes- system may reduce industry reporting coststicides and from entities seeking to maintain under RCRA by $77 million to $126 milliontheir existing registrations; however, the fees annually. This proposal is supported by indus-only cover a small portion of the full cost for try stakeholders and members of the CongressEPA to register a pesticide. The Administration as an efficient cost-saving measure. This willproposes to better cover the costs of EPA’s pes- save $31 million over 10 years.
MANDATORY SAVINGS 31 Reauthorize the special assessment These R&D activities have historically fundedfrom domestic nuclear utilities. The development of technologies that can be com-Administration believes nuclear energy must mercialized quickly, and are thus activitiesbe part of our energy mix and is commit- which should instead be funded by the compa-ted to its safe development to help support a nies that benefit from the projects. Mandatorylow-carbon energy future. For example, to funding for this program sunsets in 2014.advance the Nation’s nuclear industry, the Repeal of this program, effective for 2012 andAdministration has offered conditional com- beyond, will save $150 million over the 10-yearmitments for $8.33 billion in nuclear loan budget window.guarantees for two new nuclear reactors ata plant in Burke, Georgia and $2 billion for Realize savings at the Department ofAREVA’s Eagle Rock Enrichment Facility near the Interior (DOI). The Administration isIdaho Falls, Idaho. proposing six mandatory savings proposals at DOI that would provide a total savings of $1.6 Along with this commitment to the in- billion over 10 years. These proposals woulddustry is a shared responsibility to make give taxpayers a fair return from energy de-sure our cleanup liabilities are met. The velopment and mining on Federal lands andDepartment of Energy’s Uranium Enrichment waters, while providing incentives for compa-Decontamination and Decommissioning Fund nies to get leases into production or relinquishwas established in 1992 to pay the decontami- them. In some cases, the proposals seek tonation and decommissioning (D&D) costs of share equitably the costs of oversight with thethe Department of Energy’s gaseous diffu- States or companies that benefit.sion plants in Tennessee, Ohio, and Kentucky.These uranium enrichment plants served our • Institute a fee on non-producing oildefense mission as well as nuclear industry and gas leases. The Administrationneeds. The authorization of the special assess- proposes to encourage energy productionment from domestic utilities and Federal con- on Federal lands and waters leased fortribution expired in 2007, and there is current- development. As noted in the March 2011ly insufficient funding to cover the remaining Blueprint for a Secure Energy Future,costs of D&D of the plants. The Administration more than 70 percent of the tens of mil-proposes to reauthorize the special assessment lions of offshore acres under lease arefrom domestic utilities and Federal contribu- inactive. A $4 per acre fee on non-pro-tion into the Fund for another 15-year period. ducing Federal leases on lands and wa-The amount collected from industry for a fis- ters would provide a financial incentivecal year would be $200 million and the Federal for oil and gas companies to either getcontribution would be $463 million (both an- their leases into production or relinquishnually adjusted for inflation). This proposal them so that the tracts can be leased toreiterates the ongoing need to decontaminate, and developed by new parties. The pro-decommission, and remediate the uranium posed $4 per acre fee would apply to allprocessing facilities, and provides $2 billion in new leases and would be indexed annu-savings over 10 years. ally. In October 2008, the GAO issued a report critical of past efforts by Interior Repeal mandatory oil and gas research to ensure that companies diligently de-and development program. To foster the velop their Federal leases. Although theclean energy economy of the future and reduce GAO report focused on administrativeour reliance on fossil fuels that contribute to actions, this legislative proposal is con-climate change, the Administration proposes sistent with the GAO recommendationsto repeal provisions in the 2005 Energy Policy and is similar to other non-producingAct which establish and fund the mandatory fee proposals recently considered by theoil and gas research and development (R&D) Congress. This will save $1 billion overprogram that promotes fossil fuel production. 10 years.
32 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE • Make permanent net receipts shar- the Treasury. This will save $70 million ing for energy minerals. Mineral and over 10 years. energy leases on Federal lands gener- ate significant revenue, half of which • Repeal oil and gas fee prohibition is shared with the States. The costs of and mandatory permit funds. The administering these leases should also Administration supports the environmen- be shared with the States, which is now tally sustainable development of energy accomplished through an annual appro- resources on Federal lands, with indus- priations provision, referred to as net try sharing in the cost of administering receipts sharing. This proposal would permits. To facilitate this process, the make this equitable arrangement perma- Bureau of Land Management (BLM) re- nent, beginning in 2013. This will save lies on cost recovery fees for processing $412 million over 10 years. applications for oil and gas permits to drill. The Congress has implemented per- • Reform hardrock mining on Federal mit fees through appropriations language lands. The Administration proposes pro- for the last several years and the 2012 viding a fair return to the taxpayer from Budget proposes to continue this practice. hardrock production on Federal lands by This proposal would make permanent establishing a leasing program under the the authority to establish fees, providing Mineral Leasing Act of 1920 for certain certainty to companies submitting appli- hardrock minerals (e.g., gold, silver, lead, cations. Fee receipts could then replace a zinc, copper, uranium, and molybdenum) mandatory funding account, which would currently covered by the General Mining be terminated to generate savings. This Law of 1872. After enactment, mining for will save $66 million over 10 years. these metals on Federal lands would be governed by the new leasing process and • Reauthorize the Federal Land subject to annual rental payments and a Transaction Facilitation Act (FLTFA) royalty of not less than five percent of gross of 2000. FLTFA allows BLM to sell lands proceeds. Half of the receipts would be dis- identified as suitable for disposal in re- tributed to the States in which the leases cent land use plans and use the revenue are located and the remaining half would to fund the acquisition of environmental- be deposited in the Treasury. Existing ly sensitive lands. The Administration mining claims would be exempt from the proposes to reauthorize FLTFA, which change to a leasing system, but would be recently expired, with small savings gen- subject to increases in the annual mainte- erated from a lag in spending revenue. nance fees under the General Mining Law This will save $20 million over 10 years. of 1872. Holders of existing mining claims for these minerals could, however, volun- Reform inland waterways funding. In tarily convert claims to leases. This will allocating funds within the Army Corps of save $36 million over 10 years. Engineers (Corps) budget, the Administration gives priority to those projects that offer the • Boost Federal share of geothermal greatest returns to the Nation in achieving energy receipts. This proposal would economic, environmental, and public safety provide a fair return to taxpayers from objectives. This includes providing priority geothermal leases on Federal lands. funding for the maintenance of existing high- Traditionally, the Treasury receives 50 performing inland waterways. However, it has percent of revenues from mineral leases had to limit capital spending because the cur- on Federal lands, with the States receiv- rent way of producing the funds that support ing the rest. This proposal would restore the user-financed share of these costs is not this practice for geothermal leases, which working as intended. currently return 25 percent of receipts to
MANDATORY SAVINGS 33 The Corps constructs and rehabilitates the about eight percent of the total costs that thelocks, dams, channels, and other features that Corps spends on behalf of the users, whichenable barges to travel along 12,000 miles of make barge transportation possible (includingdeveloped inland waterways. Some of these O&M, all of which the general taxpayer pays).waterways, such as the Mississippi and Ohio By contrast, non-Federal partners in all of theRivers and the Illinois Waterway, support a other Corps programs contribute on averagehigh level of commercial traffic. In 1986, the 35 percent or more.Congress authorized use of an existing in-land waterways fuel tax (now 20 cents per To address these concerns, the Admini-gallon) to finance 50 percent of the cost of stration supports enactment of a new user fi-most inland waterways capital investments. nancing structure for the inland waterways toThe general taxpayer pays all of the remain- supplement the existing diesel fuel tax. Thising capital costs and all of the operation and new fee would generate about $1 billion of ad-maintenance (O&M) costs of inland water- ditional revenue into the Inland Waterwaysways navigation. Trust Fund over the next 10 years. This ad- ditional revenue would enable a more robust While spending for capital investments on level of funding for safe, reliable, highly cost-these waterways has increased significant- effective, and environmentally sustainablely in recent years, revenue from the fuel tax waterways, and contribute to deficit reduc-has declined. The fuel tax now only covers tion and economic growth.
HEALTH SAVINGS For years, we have known that high disabilities access to affordable health care.health care costs are a major driver of our While the ACA helped extend Medicare’slong-term deficits. The United States spent solvency by encouraging high-quality,approximately $2.6 trillion on health care efficient health care and addressingin 2010, or 17.6 percent of our GDP—more wasteful spending, the Medicare Trusteesthan any other developed nation. Families still estimate trust fund exhaustion in 2024.with health insurance are seeing their The new proposals would make changestake-home pay reduced and their budgets to Medicare that are gradual, protectstrained by high costs and spiraling current and middle-class beneficiaries, andpremiums. State and local governments strengthen Medicare overall. These proposalsare also feeling this pinch. That is why the would save about $224 billion over 10 yearsPresident signed into law the Affordable by better aligning payments with the costsCare Act (ACA), which not only eliminated of care and improving providers’ paymentinsurance company abuses and expanded incentives to provide high quality care. Theaccess to health insurance to tens of millions proposals also make structural changesof Americans but also took steps to reduce that include reducing Federal subsidieshealth care cost growth. The Congressional for high-income beneficiaries and creatingBudget Office (CBO) estimates that the financial incentives for newly eligibleACA will reduce the deficit by over $200 beneficiaries to seek high-value health carebillion over the next 10 years and over $1 services to achieve an additional $24 billiontrillion in the following decade. Beyond in savings. These measures are expectedthese savings, the ACA puts into place the to extend the solvency of the Medicaremost aggressive combination of reforms yet Hospital Insurance Trust Fund by aboutto cut waste, reduce errors and inefficiency, three years. These proposals are presentedboost quality, and reduce the rate of health in the context of a Medicare baseline thatcare cost growth. assumes legislative action to permanently prevent current law reductions in Medicare While the ACA was an historic step toward physician payment rates consistent withgetting health care costs under control, the Administration’s commitment to fix thethere is still more that we can do to realize sustainable growth rate policy in a fiscallyefficiencies, cut waste, and improve Federal responsible way. Failing to do so simplyhealth care programs. Most importantly, we masks the worsening long-run deficit. Tocan make modest adjustments to strengthen save money and strengthen Medicare, theMedicare and Medicaid in a way that does Administration proposes to:not undermine the fundamental compact theyrepresent to our Nation’s seniors, children, Reduce Medicare coverage of bad debts.people with disabilities, and low-income For most eligible provider types, Medicarefamilies. The Administration’s proposals will currently generally reimburses 70 percent ofsave approximately $320 billion over the next bad debts resulting from beneficiaries’ non-decade. As these reforms save money, they payment of deductibles and copayments afteralso will strengthen these vital programs providers have made reasonable efforts toso that they are robust and healthy to serve collect the unpaid amounts. Similar to theAmericans for years to come. Fiscal Commission, this proposal will align Medicare policy more closely with private sectorMedicare standards by reducing bad debt payments to 25 percent for all eligible providers over three The Medicare program helps give roughly years starting in 2013. This proposal will save50 million seniors and individuals with approximately $20 billion over 10 years. 35
36 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE Better align graduate medical education Encourage efficient post-acute care.payments with patient care costs. Medicare covers services in skilled nursingMedicare compensates teaching hospitals for facilities (SNFs), long-term care hospitalsthe indirect costs stemming from inefficiencies (LTCHs), inpatient rehabilitation facilitiescreated from residents “learning by doing.” (IRFs) and home health. Over the years,The Medicare Payment Advisory Commission expenditures for these services have(MedPAC) has determined that these Indirect increased dramatically, and payments inMedical Education (IME) add-on payments are excess of the costs of providing high qualitysignificantly greater than the additional patient and efficient care place a drain on Medicare.care costs that teaching hospitals experience, Recognizing the importance of theseand the Fiscal Commission, among others, services, the Administration supports therecommended reducing the IME adjustment. following policies that will save $42 billionThis proposal would reduce the IME adjustment over 10 years and improve the quality ofby 10 percent beginning in 2013, and save care:approximately $9 billion over 10 years. • Adjust payment updates for certain Better align payments to rural post-acute care providers. MedPACproviders with the cost of care. Medicare analysis indicates that Medicaremakes a number of special payments to account payment significantly exceeds thefor the unique challenges of delivering medical cost of patient care in post-acute carecare to beneficiaries in rural areas. These settings, resulting in high Medicarepayments continue to be important; however, in margins. This proposal would graduallyspecific cases, the adjustments may be greater realign payments with costs throughthan necessary to ensure continued access to adjustments to payment rate updatescare. The Administration proposes to improve in 2014 through 2021 for thesethe consistency of payments across rural hospital providers. These adjustments buildtypes, provide incentives for efficient delivery on recommendations from MedPAC’sof care, and eliminate higher than necessary March 2011 Report to the Congress,reimbursement. First, the Administration in which they recommended that theproposes to end an add-on payment for hospitals Congress eliminate payment updatesand physicians in low-population States. for each of these provider types inCurrently, hospitals and physicians in certain 2012. This proposal will save $32 billionlow-population States receive a special payment over 10 years.adjustment that exceeds the amount indicatedby their labor costs or certain other costs. This • Equalize payments for certainproposal would end this add-on payment in 2013, conditions commonly treated into better align providers’ payments with their IRFs and SNFs. Post-acute care relatedcosts, and will save approximately $2 billion to a number of conditions, including hipover 10 years. Secondly, to improve payment and knee replacements, hip fractures,accuracy for Critical Access Hospitals (CAHs), and certain pulmonary diseases arethe Administration proposes to reduce payments currently provided in both IRFs andfrom 101 percent to 100 percent of reasonable SNFs, although Medicare paymentscosts and to eliminate the CAH designation are significantly greater when treatedfor those that are fewer than 10 miles from the in IRFs. This policy would reduce thenearest hospital. This will ensure that this unique differences in payment for treatment ofpayment system is better targeted to hospitals specified conditions to encourage care inmeeting the eligibility criteria. These two CAH the most clinically appropriate settingproposals will save approximately $4 billion over beginning in 2013. This proposal will10 years. Together, these rural proposals will save save approximately $4 billion over 10approximately $6 billion over 10 years. years.
HEALTH SAVINGS 37 • Encourage appropriate use of General has found substantial differences inpatient rehabilitation hospitals. in rebate amounts and net prices paid for Medicare pays IRFs at a rate that brand name drugs under the two programs, reflects specialized rehabilitation care to with Medicare receiving significantly lower patients with the most intensive needs. rebates and paying higher prices than IRFs must demonstrate this by meeting Medicaid. Moreover, Medicare per capita a compliance threshold which specifies spending in Part D is growing significantly a minimum percentage of patients with faster than that in Parts A or B under designated medical conditions that current law. This proposal would allow require intensive rehabilitation services. Medicare to benefit from the same rebates Starting in 1984, this compliance that Medicaid receives for brand name and threshold was set at 75 percent, but it generic drugs provided to beneficiaries who was reduced to 60 percent in 2007. This receive the Medicare Low-Income Subsidy proposal would return the compliance beginning 2013. Manufacturers previously threshold to its previous 75 percent level paid Medicaid rebates for drugs provided beginning in 2013 to better ensure that to the dual eligible population prior to the the higher IRF payments apply to cases establishment of Medicare Part D. The requiring this level of care. This proposal Fiscal Commission recommended a similar will save approximately $3 billion over proposal to apply Medicaid rebates to dual 10 years. eligibles for outpatient drugs covered under Part D. This option is estimated to save $135 • Adjust SNF payments to reduce billion over 10 years. hospital readmissions. The Affordable Care Act created payment adjustments Cut waste, fraud, and abuse in for inpatient hospitals with high rates Medicare. In this fiscal environment, we of readmissions, many of which could be cannot tolerate waste, fraud, and abuse in avoided through better care. However, a Medicare—or any Government program. comparable adjustment does not exist That is why the Administration has made for SNFs. MedPAC analysis shows that this a priority through its Campaign to Cut nearly 14 percent of Medicare patients Waste, together with long-standing efforts to that are discharged from a hospital to a boost program integrity and reduce improper SNF are readmitted to the hospital for payments (that is, payments made to the conditions that could have been avoided. wrong person, in the wrong amount, or at the To promote high quality care in SNFs, wrong time). The Administration is proposing this proposal reduces SNF payments by a series of policies to build on these efforts that up to three percent beginning in 2015 for will save approximately $5 billion over the facilities with high rates of care-sensitive, next 10 years. Specifically, the Administration preventable hospital readmissions. This proposes to: proposal will save approximately $2 billion over 10 years. • Recover erroneous payments made to insurers participating in Medicare Align Medicare drug payment policies Advantage. Medicare Advantage planswith Medicaid policies for low-income receive payments that are adjusted basedbeneficiaries. Under current law, drug on whether or not beneficiaries havemanufacturers are required to pay specified certain health conditions that result inrebates for drugs dispensed to Medicaid higher costs. The Centers for Medicarebeneficiaries. In contrast, Medicare Part D and Medicaid Services (CMS) auditsplan sponsors negotiate with manufacturers a sample of plans’ records to validateto obtain plan-specific rebates at unspecified the accuracy of adjusted payments,levels. The Department of Health and based on beneficiaries’ documentedHuman Services (HHS) Office of Inspector health conditions (validation audits).
38 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE This proposal would require CMS to a penalty, and the penalty is credited extrapolate the error rate found in risk to a special account beginning in 2020. adjustment validation audits to the entire This proposal would instead use these Medicare Advantage contract payment penalties for deficit reduction beginning for a given year, leading to recoupment of in 2021; this will save approximately overpayments made to these plans. This $500 million over 10 years. proposal will save approximately $2.3 billion over 10 years. • Update Medicare payments to more appropriately account for utilization • Reduce improper payments in of advanced imaging. Medicare Medicare. In June 2010, the President spending for imaging services paid for announced a goal of reducing the under the physician fee schedule has Medicare fee-for-service improper grown dramatically in recent years due to payment rate by half by 2012. Several an increase in the number and intensity robust proposals would contribute to of these services. MedPAC has stated that reaching the President’s goal, as well as this volume growth may signal that these strengthen Medicare program integrity services are mispriced and has supported more broadly. These include: increasing Medicare payment changes for expensive scrutiny of providers using high-risk imaging equipment. Beginning in 2013, banking arrangements, allowing civil this proposal implements a payment monetary penalties for providers who adjustment for advanced imaging do not update enrollment information, equipment to account for higher levels of creating a Medicare claims ordering utilization of certain types of equipment. system to validate physician orders for This proposal will save approximately certain high-risk services, requiring $400 million over 10 years. prepayment or earlier review for all power wheelchairs, using a portion of • Require prior authorization for Recovery Audit Contractor recoveries to advanced imaging. The rapid growth implement actions that prevent improper in the number and intensity of imaging payments and fraud, permitting exclusion services in recent years raises concerns of individuals affiliated with entities about whether these services are being sanctioned for fraudulent or other used appropriately. This proposal would prohibited actions from Federal health adopt prior authorization for the most care programs, limiting the discharge of expensive imaging services, beginning debt in bankruptcy proceedings in cases in 2013, to ensure that these services of fraudulent activity, and strengthening are used as intended and protect the penalties for illegal distribution by others Medicare program and its beneficiaries of Medicare, Medicaid, or Children’s from unwarranted use. This is consistent Health Insurance Program (CHIP) with practices by private health beneficiary identification or billing insurance to manage spending growth privileges. These proposals will save and a GAO recommendation to consider nearly $1 billion over 10 years. prior authorization and other approaches to address rapid spending growth on • Dedicate penalties for failure to use these services. This proposal will save electronic health records toward approximately $900 million over 10 deficit reduction. Current law offers years. incentive payments to hospitals and physicians who become meaningful users Increase income-related premiums of electronic health records. Beginning under Medicare Parts B and D. Under in 2015, Medicare providers that fail to Medicare Parts B and D, certain beneficiaries become meaningful users are subject to pay higher premiums as a result of their
HEALTH SAVINGS 39higher levels of income. Beginning in 2017, Introduce a Part B premium surchargethe Administration proposes to increase for new beneficiaries that purchase nearincome-related premiums under Medicare first-dollar Medigap coverage. MedigapParts B and D by 15 percent and maintain policies sold by private insurance companiesthe income thresholds associated with provide beneficiaries additional support forincome-related premiums until 25 percent of covering healthcare costs by covering most orbeneficiaries under Parts B and D are subject all of the cost sharing Medicare requires. Thisto these premiums. This will help improve protection, however, gives individuals lessthe financial stability of the Medicare incentive to consider the costs of health careprogram by reducing the Federal subsidy of services and thus raises Medicare costs andMedicare costs for those beneficiaries who Part B premiums. Of particular concern arecan most afford them. This proposal will save Medigap plans that cover substantially allapproximately $20 billion over 10 years. Medicare copayments, including even the modest co-payments for routine care that Modify Part B deductible for new most beneficiaries can afford to pay out ofbeneficiaries. Beneficiaries who are pocket. To encourage more efficient healthenrolled in Medicare Part B are required to care choices, the Administration proposes apay an annual deductible. This deductible Part B premium surcharge equivalent to abouthelps to share responsibility for payment 15 percent of the average Medigap premiumof Medicare services between Medicare (or about 30 percent of the Part B premium)and beneficiaries. To strengthen program for new beneficiaries that purchase Medigapfinancing and encourage beneficiaries to policies with particularly low cost-sharingseek high-value health care services, the requirements, starting in 2017. CurrentAdministration proposes to apply a $25 beneficiaries and near-retirees would notincrease in the Part B deductible in 2017, be subject to the surcharge. Other Medigap2019, and 2021 for new beneficiaries. plans would be exempt from this requirementCurrent beneficiaries or near retirees would while still providing beneficiaries options fornot be subject to the revised deductible. protection against high out-of-pocket costs.This proposal will save approximately $1 This proposal will save approximately $2.5billion over 10 years. billion over 10 years. Introduce home health co-payments for Strengthen the Independent Paymentnew beneficiaries. Medicare beneficiaries Advisory Board (IPAB) to reduce long-currently do not make co-payments for term drivers of Medicare cost growth.Medicare home health services. This proposal Created by the ACA, IPAB has been high-would create a home health copayment of lighted by economists and health policy$100 per home health episode, applicable experts as a key contributor to Medicare’sfor episodes with five or more visits not long term solvency. Under current law, if thepreceded by a hospital or other inpatient projected Medicare per capita growth ratepost-acute care stay. This would apply to exceeds a predetermined target growth rate,new beneficiaries beginning in 2017. This IPAB recommends to the Congress policies toproposal is consistent with a MedPAC reduce the rate of Medicare growth to meet therecommendation to establish a per episode target. IPAB recommendations are prohibitedcopayment. MedPAC noted that “beneficiaries from increasing beneficiary premiums or cost-without a prior hospitalization account for a sharing, or restricting benefits. To furtherrising share of episodes” and that “adding moderate the rate of Medicare growth, thisbeneficiary cost sharing for home health care proposal would lower the target rate from thecould be an additional measure to encourage GDP per capita growth rate plus 1 percent toappropriate use of home health services.” plus 0.5 percent. Additionally, the proposalThis proposal will save approximately $400 would give IPAB additional tools like themillion over 10 years. ability to consider value-based benefit design
40 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREand enforcement mechanisms such as an State Medicaid expenditures are generallyautomatic sequester as a backstop for IPAB, matched by the Federal Government usingthe Congress, and the Secretary of HHS. This the Federal medical assistance percentageproposal would act as a backstop to the other (FMAP); CHIP expenditures are matched withproposed reforms. enhanced FMAP (eFMAP); and the Affordable Care Act provides increased match for newly-Medicaid eligible individuals and certain childless adults beginning in 2014. Beginning in 2017 Medicaid is a critical source of health this proposal would replace these complicatedinsurance coverage for approximately 56 formulas with a single matching rate specificmillion low-income beneficiaries including to each State that automatically increases if amillions of children with disabilities and recession forces enrollment and State costs toseniors in nursing homes. The ACA included rise. This proposal is projected to save $14.9provisions to increase anti-fraud efforts in billion over 10 years.Medicaid and placed a renewed focus on qualityof care provided to Medicaid beneficiaries. To Limit Medicaid reimbursement ofmake Medicaid more flexible, efficient, and durable medical equipment (DME) basedaccountable, the following proposals would on Medicare rates. Under current law,limit State financing practices that increase States have experienced the same challengesFederal spending, replace complicated in preventing overpayments for DME thatmatching formulas with a single matching previously confronted Medicare. The Medicarerate specific to each State, and strengthen program is in the process of implementingMedicaid program integrity. These proposals innovative ways to increase efficiency forare projected to save approximately $66 billion payment of DME through the DME Competitiveover 10 years. Bidding Program, which is expected to save the Medicare program more than $17 billion and Reduce the Medicaid provider tax Medicare beneficiaries approximately $11 billionthreshold beginning in 2015. Many States over 10 years. This proposal extends some ofimpose taxes on health care providers to help these efficiencies to Medicaid, starting in 2013,finance the State share of Medicaid program by limiting Federal reimbursement for a State’scosts. However, some States use those tax Medicaid spending on certain DME services torevenues to increase payments to those same what Medicare would have paid in the sameproviders, and use that additional spending State for the same services. This proposal isto increase their Federal Medicaid matching projected to save $4.2 billion over 10 years.payments. The Administration proposes tolimit these types of State financing practices Strengthen third-party liability forthat increase Federal Medicaid spending, Medicaid beneficiary claims. This proposalby phasing down the Medicaid provider would affirm Medicaid’s position as a payertax threshold, from the current law level of last resort by removing exceptions to theof 6 percent in 2014, to 4.5 percent in 2015, requirement that State Medicaid agencies4 percent in 2016, and 3.5 percent in 2017 reject medical claims when another entityand beyond. By delaying the effective date is legally liable to pay the claim, starting inuntil 2015, the proposal protects States from 2013. Specifically, the Administration wantsreductions in the short term. This proposal is to allow States to avoid costs for prenatal andprojected to save $26.3 billion over 10 years. preventive pediatric claims when third parties are responsible, allow providers to collect Apply a single blended matching rate to medical child support for children with healthMedicaid and CHIP starting in 2017. Under insurance through a non-custodial parent,current law, States face a patchwork of different and allow Medicaid to recover costs fromFederal payment contributions for individuals beneficiary liability settlements. This proposaleligible for Medicaid and CHIP. Specifically, is projected to save $1.3 billion over 10 years.
HEALTH SAVINGS 41 Re-base Medicaid disproportionate report a list of their “covered outpatientshare hospital (DSH) allotments in 2021. drugs” to CMS for Medicaid drug coverage,This proposal continues the Affordable Care but some manufacturers improperlyAct policy to better align Medicaid DSH report items that do not belong (e.g.,payments with reductions in the number of syringes). This proposal would recoup costsuninsured in 2021 and beyond. Supplemental of covering improperly-reported itemsDSH payments are intended to help support discovered after Medicaid reimbursementhospitals that provide care to disproportionate has occurred; the proposal leverages thenumbers of low-income and uninsured Medicaid drug rebate program by directingindividuals. The Affordable Care Act reduced manufacturers to pay a “rebate” equal toState DSH allotments by $18.1 billion through the amount the State paid for these items.2020 to reflect the reduced need as a result ofthe increased coverage provided in the Act. • Track high prescribers and utilizersThe Administration proposes to compute 2021 of prescription drugs in Medicaid.State DSH allotments based on States’ actual States already have the capability to2020 DSH allotments, better aligning future implement monitoring systems forMedicaid supplemental payments to hospitals prescription drugs, but are not currentlywith reduced levels of uncompensated care. taking full advantage of these systems’This proposal is projected to save $4.1 billion potential benefits. This proposal requiresover 10 years. States to track drug claims for indications of waste, fraud, or abuse by providers or Amend modified adjusted gross income beneficiaries and to take steps to reduce(MAGI) for health insurance assistance wasteful or abusive prescribing practices.programs to include Social Securitybenefits. Starting in 2014, eligibility for • Enforce Medicaid drug rebateExchange tax credits and cost sharing agreements. Under this proposal,reductions, Medicaid, and CHIP will be HHS would, when cost-effective, conductdetermined based on an individual’s or regular audits and surveys of Medicaidfamilies’ MAGI, as defined under the drug rebate agreements to ensure theAffordable Care Act. Similar to legislation Medicaid program is receiving propercurrently under consideration by the Congress, prices and rebate amounts.the Administration proposes to amend thatdefinition to include the total amount of Social • Increase penalties on drugSecurity benefits in the calculation of MAGI, manufacturers for fraudulent non-rather than just the taxable portion, when compliance with Medicaid drugdetermining eligibility for these programs to rebate agreements. This proposalbetter target those in need. This proposal is would increase the statutory civilprojected to save $14.6 billion over 10 years. monetary penalties on manufacturers that knowingly report false information Reduce waste, fraud, and abuse in under their drug rebate agreements forMedicaid. Medicaid funds should not be calculation of Medicaid rebates.wasted on fraudulent claims, abuses of therules, or general waste in implementing the • Require drugs to be properly listedprogram. The following policies will save $110 with the FDA to receive Medicaidmillion over the next 10 years while reducing coverage. Though FDA law requireswaste, fraud, and abuse: manufacturers to list their drugs with FDA, compliance is inconsistent. Recently, • Require manufacturers that im- Medicare required that drugs must be properly report items for Medicaid properly listed with the FDA to receive drug coverage to fully repay States. Part D coverage; this proposal would add Federal law requires manufacturers to the same requirement in Medicaid.
42 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE • Prohibit States from using Federal Administration proposes to increase the funds as the State share of Medicaid availability of generic drugs and biologics by or CHIP, unless specifically authorizing the Federal Trade Commission authorized by law. This proposal would (FTC) to stop companies from entering into anti- prohibit States from using Federal funds competitive deals, known also as “pay for delay” as the State share of Medicaid or CHIP agreements, intended to block consumer access unless funds are specifically provided for to safe and effective generics. A 2010 Federal that purpose under law. Trade Commission study that evaluated the universe of brand-generic settlements and 2008 Streamline and coordinate Federal drug expenditure data found that on average,Government oversight of State Medicaid these agreements delayed entry of a genericprograms and expand State flexibility. This by 17 months and cost American consumers asproposal would alleviate State program integrity much as $3.5 billion per year. More recently, thereporting requirements by consolidating FTC reported that the number of pay-for-delayredundant error rate measurement programs agreements skyrocketed from 19 in 2009 to 31to create a streamlined audit program with in 2010.meaningful outcomes, while maintainingthe Federal and State’s government ability Such deals block access to generics and canto identify and address improper payments. cost consumers billions of dollars because genericAdditionally, this proposal would give States drugs are typically priced significantly less thanflexibility to require “benchmark” benefit plan their branded counterparts. These agreementscoverage for non-elderly, non-disabled adults reduce competition and raise the cost of care forwith incomes over 133 percent of the Federal patients both directly, through higher drug andpoverty level. Currently, States have the option biologic prices, and indirectly through higherto provide certain populations “benchmark” or health care premiums. The Administration’s“benchmark equivalent” plans, or alternative proposal facilitates greater access to lower-costbenefit packages that may be offered in lieu generics and will generate $2.7 billion over 10of the benefits covered under a traditional years in savings to Federal health programsMedicaid State plan. including Medicare and Medicaid.Other Health Savings Reduce the exclusivity period for generic biologics. Access to affordable Beyond Medicare and Medicaid, there lifesaving medicines is essential to improvingare a series of proposals in other health the quality and efficiency of health care. Theprograms that will help reduce the deficit Administration’s proposal accelerates access toand provide consumers with more affordable affordable generic biologics by modifying thepharmaceuticals; prioritize investments in length of exclusivity on brand name biologicspublic health outcomes proven to reduce to encourage faster development of genericdrivers of health care cost growth; and biologics while retaining appropriate incentivesprovide States the flexibility to develop for research and development for the innovationtheir own innovative strategies to ensure of breakthrough products. Beginning in 2012,their residents have access to high this proposal would award brand biologicquality, affordable health insurance. The manufacturers seven years of exclusivityAdministration proposes to: rather than 12 years under current law and prohibit additional periods of exclusivity for Prohibit “pay for delay” agreements to brand biologics due minor changes in productincrease the availability of generic drugs formulations, a practice often referred to asand biologics. The high cost of prescription “evergreening.” Reducing the exclusivity perioddrugs places a significant burden on Americans increases the availability of generic biologicstoday, causing many to skip doses, split pills to encourage faster development of genericor forgo needed medications altogether. The biologics while retaining appropriate incentives
HEALTH SAVINGS 43for research and development for the innovation reductions of health care associated infections.of breakthrough products. The Administration’s The Administration proposes to scale-back theproposal strikes a balance between promoting Fund by reducing resources by $3.5 billion overaffordable access to medications and encouraging 10 years starting in 2014, while maintaininginnovation to develop needed therapies. The high priority activities that improve healthproposal will result in $3.5 billion in savings over outcomes and restrain the rate of growth in10 years to Federal health programs including private and public sector health care costs.Medicare and Medicaid. Prioritizing Prevention Fund activities would allow for significant investments in prevention Streamline Federal Employee Health and public health activities of more than $6Benefit (FEHB) pharmacy benefit con- billion over five years and $13.8 billion over 10tracting. The Administration is committed years, while providing $3.5 billion in savings.to the efficient administration of the FEHBprogram in order to get the best deal for Accelerate the issuance of StateFederal employees and their families, as well Innovation Waivers. This proposalas for taxpayers. The FEHB program pays empowers States to develop their own$40 billion per year for health coverage, and innovative strategies to ensure their residentsdrugs represent about 30 percent of claims have access to high quality, affordable healthexpenditures. Under current law, health plans insurance achieving the same outcomes asparticipating in the FEHB program contract the ACA. Similar to legislation previouslywith pharmacy benefits managers who introduced by Senators Ron Wyden, Scottnegotiate prices with drug manufacturers and Brown, and Mary Landrieu and endorsedpharmacies on behalf of their enrollees. This by the President, it would make “Statefragmented purchasing strategy does not take Innovation Waivers” available starting infull advantage of the combined purchasing 2014, three years earlier than under currentpower of the nearly eight million enrollees in law. These State strategies would need tothe FEHB program. Under the Administration provide affordable insurance coverage to atproposal, the Office of Personnel Management least as many residents as without the waiverwould contract directly for pharmacy benefit and must not increase the Federal deficit. Themanagement services on behalf of all FEHB Administration is committed to the budgetenrollees and their dependents. This will neutrality of these waivers; an allowance forallow the FEHB program to more efficiently these waivers is included to account for theleverage its purchasing power to obtain a possibility that CBO will estimate costs forbetter deal for enrollees and taxpayers. This this proposal.proposal is projected to save $1.6 billion over10 years. Provide resources to implement these reforms. To achieve the reforms proposed, Prioritize prevention and public health HHS will need to implement significantfund investments. The Prevention and changes to its systems and processes to ensurePublic Health Fund has supported effective, the savings proposed are achieved in a timelyevidence-based public health activities manner. To accomplish this, the proposalthat restrain health care costs and improve includes $400 million in funding for thehealth outcomes, such as immunizations and Secretary of HHS.
TAX REFORM The President is committed to reducing the benefits, along with everything else. Thedeficit through a balanced approach—one Administration believes in a balanced approachthat restrains spending across the budget, that cuts spending responsibly, but also asksincluding in the tax code; asks the wealthiest the most well-off in society—many of whom,among us to contribute to deficit reduction; and through loopholes and other exemptions, paylays the foundation for future growth. That is less in taxes than most middle class families—why the President is calling on the Congress to contribute their fair share towards reducingto undertake comprehensive tax reform to cut the deficit and healing our economy.rates, cut inefficient tax breaks, cut the deficit,and increase jobs and growth in the United Comprehensive Tax ReformStates—while observing the “Buffett Rule”that people making over $1 million should not The tax code has become increasinglypay lower taxes than the middle class. complicated and unfair. Changes enacted during the previous Administration were Tax reform is critical to rebuilding our skewed in favor of the wealthiest taxpayerseconomy to be stronger and more stable than and reduced the tax code’s overall progressivity.in the past. Two of our biggest economic Under today’s tax laws, those who can affordchallenges—creating jobs and reducing long- expert advice can avoid paying their fairterm deficits—both depend on a simpler, fairer, share and interests with the most connectedmore progressive tax system than we have lobbyists can get exemptions and specialtoday. treatment written into our tax code. While many of the tax incentives serve important The Administration believes, like many purposes, taken together the tax expendituresothers, that tax cuts play an important role in in the law are inefficient, unfair, duplicative,job creation. But the Administration believes or even unnecessary. The corporate tax systemthat broad tax cuts for the middle class— provides special incentives for some industries,rather than for only the wealthiest one or two like oil and gas producers, yet fails to providepercent of Americans—are far more effective sufficient incentives for companies to invest inat creating jobs and growing the economy. America. Because our corporate tax system isWhen millions of middle class families across so riddled with special interest loopholes, ourthe country have more money in their bank system has one of the highest statutory taxaccounts to spend in their communities, rates among developed countries to generatebusinesses large and small can grow, innovate, about the same amount of corporate taxinvest, and hire. The success of the American revenue as our developed country partnerseconomy has long been built on the vibrancy as a share of our economy; this, in turn, hurtsof our middle class, and our efforts to create our competitiveness in the world economy. Ina tax system that is fairer, simpler, and more addition, a large fraction of the tax code is nowprogressive reflect that reality. temporary and expires periodically, adding uncertainty for households and businesses, Tax reform is also an important part of and complicating the fiscal outlook.reducing our long-term deficits and placingour country on a fiscally sustainable path. The result is a tax code that neitherWe cannot address a deficit a decade in the serves the American people nor our economy.making through spending cuts alone—that Recent data show that the tax code places ais, unless we, as a country, agree to cut every relatively light tax burden on the wealthiestprogram in the entire budget by more than a Americans. As Warren Buffett has pointedquarter, including all defense spending, Social out, his effective tax rate is lower than hisSecurity and Medicare benefits, and veterans’ secretary’s, although this is not true for 45
46 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE PRINCIPLES FOR TAX REFORM 1. Lower tax rates. The tax system should be simplified and work for all Americans with lower individual and corporate tax rates and fewer brackets. 2. Cut Inefficient and Unfair Tax Breaks. Cut tax breaks that are inefficient, unfair, or both so that the American people and businesses spend less time and less money each year filing taxes and cannot avoid their responsibility by gaming the system. 3. Cut the deficit. Cut the deficit by $1.5 trillion over the next decade through tax reform, including the expiration of tax cuts for single taxpayers making over $200,000 and married couples making over $250,000. 4. Increase job creation and growth in the United States. Make America stronger at home and more competitive globally by increasing the incentive to work and invest in the United States. 5. Observe the Buffett Rule. No household making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. As Warren Buffett has pointed out, his effective tax rate is lower than his secretary’s. No house- hold making over $1 million annually should pay a smaller share of its income in taxes than middle-class families pay. This rule will be achieved as part of an overall reform that increases the progressivity of the tax code.many small business owners and others who reduce the deficit. For individuals, the high-primarily receive labor income. The tax code income tax cuts enacted in 2001 and 2003also places a substantial compliance burden would be allowed to expire and additionalon taxpayers. For instance, taxpayers filing inefficient tax breaks would be cut to raiseForm 1040 spent an average of 21 hours an additional $700 billion while observingpreparing their returns and most taxpayers— the Buffett Rule and making the tax code fairabout 60 percent—find themselves paying tax for all Americans. For corporations, deficitpreparers to fill out their returns. We have neutral tax reform would make businessesnot had a comprehensive reform of our tax pay for the cost of any of the roughly $300code in a generation. The last time we had billion in temporary tax breaks over theone, the Internet was a small tool used by next decade that would be continued asresearchers, the Euro did not exist, and global part of the reform but have generally beensupply chains and commerce were far less deficit financed in the past, like the Researchdeveloped. The time has come for tax reform and Experimentation credit. Together,to modernize our tax code, make it fairer, and individuals and corporations would beto reduce its complexity. contributing roughly proportionately to deficit reduction. That is why the President is calling on theCongress to enact comprehensive tax reform Specific Measures to Cut Inefficientthat meets five principles (see box above). Tax Breaks and Improve ComplianceThis will make our tax code simpler, fairer,and more efficient—and end a system that The President recognizes that comprehensiveallows households making millions of dollars tax reform will take time and will not be easy.annually to pay lower tax rates than middle- However, the President also believes that theclass families. Joint Committee must take action now that locks in improvements in our tax code that This tax reform would make an important increase fairness and efficiency while helpingcontribution as part of a balanced plan to put the Nation on a sustainable fiscal course.
TAX REFORM 47 To begin the national conversation about The measures that could contributetax reform, the President is offering a to comprehensive tax reform or, absentdetailed set of specific tax loophole closers such reform, act as a backstop, includeand measures to broaden the tax base bringing fairness to the individual tax code,that, together with the expiration of the incorporating measures in the American Jobshigh-income tax cuts, would be more than Act, closing business loopholes and broadeningsufficient to hit the $1.5 trillion target for the business tax base, eliminating fossil fueltax reform and cut inefficient expenditures preferences, reforming the treatment ofas well as move the tax system closer to insurance companies and products, reformingobserving the Buffett Rule. These measures the U.S. international tax system, and otherinclude: cutting tax preferences for high- changes. These proposals would generallyincome households; eliminating special tax become effective on January 1, 2013.breaks for oil and gas companies; closing thecarried interest loophole for investment fund Bring Fairness to themanagers; and eliminating benefits for those Individual Tax Codewho buy corporate jets. It is incumbent oneveryone who supports comprehensive tax Allow the 2001 and 2003 high-income taxreform to not only call for lower rates but cuts to expire and return the estate taxto identify specific tax loopholes and tax to 2009 parameters. The tax cuts for thoseexpenditures that they would be willing with household income above $250,000 perto reform or eliminate as part of a reform year passed in the Bush Administration wereeffort. The President is making good on this unfair and unaffordable at the time they werecommitment by putting forward a specific, enacted and remain so today. In Decemberscorable set of tax expenditure reforms. 2010, congressional Republicans insisted on extending them through 2012 and threatened Tax reform should draw on items listed here, to allow taxes to increase on middle-classtogether with the elimination of additional families if the Administration did not agree.inefficient tax breaks, to finance the reduction Not extending the middle-class tax cuts wouldof marginal rates and comport with the have hurt our nascent economic recovery, andBuffett Rule. If the Joint Committee is unable would have imposed an enormous burden onto undertake comprehensive tax reform, the working families. The Administration remainsPresident believes these measures should opposed to the extension of these high-incomebe enacted on a standalone basis. Although tax cuts past 2012 and supports the return ofthis would fall short of the President’s five the estate tax exemption and rates to 2009principles for reform, it would move the tax levels. This would reduce the deficit by $866system closer to several of them. billion over 10 years. This fallback of allowing the high-income Measures Incorporated intax cuts to expire, and enacting specific the American Jobs Actloophole closers and base broadeners, wouldlock in deficit reduction from tax changes Reduce the value of itemized deductionsthat is as specific and certain as the deficit and other tax preferences to 28 percentreduction coming from the President’s for families with incomes over $250,000.proposed spending reductions, and would be a Currently, a millionaire who contributescritical part of a balanced plan to put America to charity or deducts a dollar of mortgageon a course towards fiscal sustainability. This interest, enjoys a deduction that is more thanwould significantly improve the country’s twice as generous as that for a middle-classfiscal standing, represent an important step family. The proposal would limit the tax ratetoward more fundamentally transforming our at which high-income taxpayers can reducetax code, and serve as a strong foundation for their tax liability to a maximum of 28 percent,economic growth and job creation. affecting only married taxpayers filing a joint
48 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREreturn with income over $250,000 (at 2009 any allocation of income or gain attributablelevels) and single taxpayers with income to invested capital on the part of the partnerover $200,000. This limit would apply to: all would be taxed as ordinary income or capitalitemized deductions; foreign excluded income; gain based on its character to the partnershiptax-exempt interest; employer sponsored and any gain realized on a sale of the interesthealth insurance; and selected above-the-line attributable to such partner’s invested capitaldeductions. The proposed limitation would would be treated as capital gain or ordinaryreturn the deduction rate to the level it was income as provided under current law. Thisat the end of the Reagan Administration. It would reduce the deficit by $13 billion over 10would reduce the deficit by $410 billion over years.10 years. Eliminate special depreciation rules Tax carried (profits) interests as for corporate purchases of aircraft. Underordinary income. A partnership does not current law airplanes used in commercial andpay income tax; instead, the income or loss contract carrying of passengers and freightand associated character flows through to can be depreciated over seven years. Airplanesthe partners who must include such items on not used in commercial or contract carrying oftheir individual income tax returns. Certain passengers or freight, for example corporatepartners receive a partnership interest, jets, are depreciated over five years. Thetypically an interest in future profits, in proposal would change depreciation schedulesexchange for services (commonly referred to for corporate planes that carry passengersas a “carried interest”). Current law taxes the to seven years, effective for tax years afterrecipient of a carried interest on the value December 31, 2012. This would reduce theat the time granted, which may be based on deficit by $5 billion over 10 years.the value the partner would receive if thepartnership were liquidated immediately Eliminate oil and gas tax preferences.(for example, the value of an interest only Current law provides a number of credits andin future profits would be zero). Because the deductions that are targeted towards certainpartners, including partners who provide oil and gas activities. In accordance with theservices, reflect their share of partnership President’s agreement at the G-20 Summititems on their tax return in accordance with in Pittsburgh in December 2009 to phasethe character of the income at the partnership out subsidies for fossil fuels so that we canlevel, long-term capital gains and qualifying transition to a 21st Century energy economy,dividends attributable to carried interests may the President is proposing to repeal a numberbe taxed at a maximum 15-percent rate (the of tax preferences available for fossil fuels.maximum tax rate on capital gains) rather The Administration proposes repealing thethan at ordinary income tax rates. following tax preferences available for oil and gas activities beginning in 2013: 1) the use of The President is proposing to designate a percentage depletion with respect to oil andcarried interest in an investment partnership gas wells; 2) the ability to claim the domesticas an “investment services partnership manufacturing deduction against incomeinterest” (ISPI) and to tax a partner’s share of derived from the production of oil and gas; 3)income from an ISPI that is not attributable the expensing of intangible drilling costs; 4)to invested capital as ordinary income, the deduction for costs paid or incurred forregardless of the character of the income at any tertiary injectant used as part of a tertiarythe partnership level. In addition, the partner recovery method; 5) the exception to passivewould be required to pay self-employment loss limitations provided to working intereststaxes on such income, and the gain recognized in oil and natural gas properties; and 6) two-on the sale of an ISPI that is not attributable year amortization of independent producers’to invested capital would generally be taxed as geological and geophysical expenditures,ordinary income, not as capital gain. However, instead of allowing amortization over the same
TAX REFORM 49seven-year period as for integrated oil and gas certain taxpayers to take cost-of-goods-soldproducers. This would reduce the deficit by $41 deductions on certain merchandise before thebillion over 10 years. merchandise is sold. The proposed prohibition would be effective for the first taxable year Modify tax rules for dual capacity beginning after December 31, 2012, and anytaxpayers. The Administration proposes resulting income inclusion would be recognizedtightening the foreign tax credit rules that over a four-year period. This would reduce theapply to taxpayers that are subject to a deficit by $8 billion over 10 years.foreign levy and that also receive (directly orindirectly) a specific economic benefit from Eliminate preferences for the coalthe levying country (so-called “dual capacity” industry. The Administration proposestaxpayers). This would reduce the deficit by repealing the following tax preferences$10 billion over 10 years. available for coal activities beginning in 2013: 1) expensing of exploration and developmentClose Business Loopholes and costs; 2) percentage depletion for hard mineralBroaden the Business Tax Base fossil fuels; 3) capital gains treatment for royalties; and 4) the ability to claim the Repeal last-in, first-out (LIFO) method of domestic manufacturing deduction againstaccounting for inventories. Under the LIFO income derived from the production of coalmethod of accounting for inventories, the cost and other hard mineral fossil fuels. This wouldof the items of inventory that are sold is equal reduce the deficit by $2 billion over 10 years.to the cost of the items of inventory that weremost recently purchased or produced. For many Reform Treatment of Insurancebusinesses where the price of goods in inventory Companies and Productsrise over time, like oil and gas companies, theLIFO approach allows firms to artificially lower Modify rules that apply to sales of lifetheir tax liability. The President’s proposal would insurance contracts. The seller of a liferepeal the use of the LIFO accounting method for insurance contract generally must reportFederal tax purposes, effective for taxable years the difference between the amounts receivedbeginning after December 31, 2012. Assuming from the buyer and the adjusted basis forinventory costs rise over time, taxpayers the contract as taxable income. When deathrequired to change from the LIFO method benefits are received under the contract, theunder the proposal generally would experience buyer is taxed on the excess of those benefitsa permanent reduction in their deductions for over the amounts paid for the contract,cost of goods sold and a corresponding increase unless an exception to a “transfer-for-valuein their annual taxable income as older, cheaper rule” applies. Information reporting may notinventory is taken into account in computing always be required in circumstances involvingtaxable income. Taxpayers required to change the purchase of a life insurance contract.from the LIFO method also would be required In response to the growth in the numberto report their beginning-of-year inventory at and size of life settlement transactions, theits first-in, first-out (FIFO) value in the year of proposal would expand information reportingchange, causing a one-time increase in taxable on the sale of life insurance contracts and theincome that would be recognized ratably over payment of death benefits on contracts that10 years. This would reduce the deficit by $52 were sold, and would modify the “transfer-billion over 10 years. for-value” exceptions to prevent purchasers of policies from avoiding tax on death benefits Repeal lower-of-cost-or-market inventory that are received. The proposal would applyaccounting method. The President’s plan to sales or assignment of interests in lifewould prohibit the use of the lower-of-cost- insurance policies and payments of deathor-market and subnormal goods methods of benefits for taxable years beginning afterinventory accounting, which currently allow
50 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREDecember 31, 2012. This would reduce the individuals are also 20-percent owners of thedeficit by $1 billion over 10 years. business that is the owner or beneficiary of the contracts. Thus, purchases of life insurance Modify dividends-received deduction by small businesses and other taxpayers that(DRD) for life insurance companies’ depend heavily on the services of a 20-percentseparate accounts. Under current law, owner would be unaffected, but the fundinga life insurance company is required to of deductible interest expenses with tax-“prorate” its net investment income between exempt or tax-deferred inside buildup woulda company’s share and a policyholder’s be curtailed. The proposal would apply toshare. The result of this proration is used to contracts issued after December 31, 2012,limit the funding of tax-deductible reserve in taxable years ending after that date. Thisincreases with tax-preferred income, such as would reduce the deficit by $6 billion over 10certain corporate dividends and tax-exempt years.interest. The complexity of this regime hasgenerated significant controversy between Reform the U.S International Tax Systemlife insurance companies and the InternalRevenue Service (IRS), particularly with Defer deduction of interest expense re-regard to the dividends-received deduction lated to deferred income. Under currentfor such companies’ separate accounts. In law, a taxpayer that incurs interest expensesome cases, the existing regime produces a properly allocable and apportioned to foreign-company’s share that exceeds the company’s source income may be able to deduct thatactual economic interest in the underlying expense even if some or all of the foreignincome. The proposal would replace this source income is not subject to current U.S.regime with one that is much simpler. Under taxation. To provide greater matching of thethe proposal, the DRD with regard to general timing of interest expense deductions andaccount dividends would be subject to the recognition of associated income, the proposalsame flat proration percentage that applies to would defer the deduction of interest expensenon-life insurance companies under current properly allocable and apportioned to foreign-law (15 percent); the DRD with regard to source income to the extent the U.S. taxationseparate account dividends would be based on of such income is deferred. This would reducethe proportion of reserves to total assets of the the deficit by $36 billion over 10 years.account. This would reduce the deficit by $5billion over 10 years. Determine the foreign tax credit on a pooling basis. Under the proposal, a taxpayer Expand pro rata interest expense would be required to determine foreign taxdisallowance for corporate-owned life credits from the receipt of a dividend from ainsurance (COLI). The interest deductions of foreign subsidiary on a consolidated basis fora business other than an insurance company are all its foreign subsidiaries. Foreign tax creditsreduced to the extent the interest is allocable from the receipt of a dividend from a foreignto un-borrowed policy cash values on life subsidiary would be based on the consolidatedinsurance and annuity contracts. The purpose earnings and profits and foreign taxes of allof this pro rata disallowance is to prevent the the taxpayer’s foreign subsidiaries. This woulddeduction of interest expense that is allocable reduce the deficit by $53 billion over 10 years.to inside buildup that is either tax-deferredor not taxed at all. A similar disallowance Tax excess returns associated withapplies with regard to reserve deductions of an transfers of intangibles offshore cur-insurance company. A current-law exception to rently. The IRS has broad authority tothis rule applies to contracts covering the lives allocate income among commonly controlledof officers, directors and employees. Under the businesses under section 482 of the Internalproposal, the exception for officers, directors Revenue Code. Notwithstanding the transferand employees would be repealed unless those pricing rules, there is evidence of income
TAX REFORM 51shifting offshore, including through transfers chemicals listed in section 4661 of the Internalof intangible rights to subsidiaries that bear Revenue Code (26 U.S.C. § 4661) at rates thatlittle or no foreign income tax. Under the vary from 22 cents to $4.87 per ton; 3) an exciseproposal, if a U.S parent transfers an intangible tax on imported substances that use listedto a controlled foreign corporation (CFC) in hazardous chemicals as a feedstock (in ancircumstances that demonstrate excessive amount equivalent to the tax that would haveincome shifting from the United States, then been imposed on domestic production of thean amount equal to the excessive return would chemicals); and 4) a corporate environmentalbe treated as subpart F income. This would income tax imposed at a rate of 0.12 percentreduce the deficit by $19 billion over 10 years. on the amount by which the modified AMT income of a corporation exceeds $2 million. Limit shifting of income through This would reduce the deficit by $19 billionintangible property transfers. The over 10 years.definition of intangible property for purposesof the special rules relating to transfers of Make unemployment insurance (UI)intangibles by a U.S. person to a foreign surtax permanent. The net Federal UI taxcorporation (section 367(d) of the Internal on employers dropped from 0.8 percent to 0.6Revenue Code) and the allocation of income percent with respect to wages paid after Juneand deductions among taxpayers (section 482) 30, 2011. The President’s plan would extendwould be clarified to prevent inappropriate the 0.8 percent rate permanently, effective asshifting of income outside the United States. of June 30, 2011. This would reduce the deficitThis would reduce the deficit by $1 billion over by $15 billion over 10 years.10 years. Increase certainty with respect to Limit earnings stripping by expatriated worker classification. Under currententities. Under the proposal, the rules that law, worker classification as an employeelimit the deductibility of interest paid to or as a self-employed person (independentrelated persons subject to low or no U.S. tax contractor) is generally based on a common-on that interest would be amended to prevent law test for determining whether aninverted companies from using foreign-related employment relationship exists. Under aparty and certain guaranteed debt to reduce special provision (section 530 of the Revenueinappropriately the U.S. tax on income earned Act of 1978), a service recipient may treat afrom their U.S. operations. This would reduce worker who may actually be a common lawthe deficit by $4 billion over 10 years. employee as an independent contractor for Federal employment tax purposes if, amongOther Changes other things, the service recipient has a reasonable basis for treating the worker as an Reinstate Superfund taxes. The independent contractor. If a service recipientPresident is proposing to reinstate the meets the requirements of this specialtaxes that were deposited in the Hazardous provision with respect to a class of workers,Substance Superfund prior to their expiration the IRS is prohibited from reclassifying theon December 31, 1995. These taxes, which workers as employees, even prospectively. Thecontributed to financing the cleanup of the special provision also prohibits the IRS fromNation’s highest risk hazardous waste sites, issuing generally applicable guidance aboutare proposed to be reinstated for periods (excise the proper classification of workers.taxes) or tax years (income tax) beginningafter 2012, with expiration for periods and tax The President’s plan would permit the IRS toyears after 2021. The proposed taxes include issue generally applicable guidance about thethe following: 1) an excise tax of 9.7-cents-per- proper classification of workers and to permitbarrel on crude oil and imported petroleum the IRS to require prospective reclassificationproducts; 2) an excise tax on hazardous of workers who are currently misclassified
52 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTUREand whose reclassification is prohibited after enactment, new enforcement activityunder the special provision. Penalties would would focus mainly on obtaining the properbe waived for service recipients with only worker classification prospectively, since ina small number of employees and a small many cases the proper classification of workersnumber of misclassified workers, if the service may not be clear. The proposal would berecipient had consistently filed all required effective upon enactment, but the prospectiveinformation returns reporting all payments reclassification for those covered by the specialto all misclassified workers and the service provision would not be effective at least onerecipient agreed to prospective reclassification year after the date of enactment. This wouldof misclassified workers. It is anticipated that reduce the deficit by $8 billion over 10 years.
Table S–1. BRIDGE BETWEEN OMB MID-SESSION REVIEW BASELINE AND DEFICIT ASSUMING ENACTMENT OF RECOMMENDATIONS TO THE JOINT SELECT COMMITTEE (In billions of dollars) Totals 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012-2016 2012-2021Mid-Session Review adjusted baseline deficit before Budget Control Act (BCA) caps ��������������������������������� 1,316 1,060 912 854 968 1,088 1,058 1,075 1,158 1,255 1,345 4,883 10,774 Percent of GDP ������������������������������������������������������������ 8.8% 6.8% 5.5% 4.9% 5.3% 5.6% 5.2% 5.0% 5.2% 5.4% 5.5% SUMMARY TABLES BCA discretionary caps: Cap reductions, program integrity, and cap adjustment for proposed disaster relief ��������� ......... –25 –55 –77 –91 –102 –110 –119 –128 –137 –147 –351 –992 Debt service ��������������������������������������������������������� ......... –* –1 –4 –8 –13 –19 –25 –32 –39 –47 –26 –188 Total ����������������������������������������������������������������� ......... –25 –56 –81 –99 –115 –130 –144 –159 –176 –194 –377 –1,180 Mid-Session Review adjusted baseline deficit with BCA caps ����������������������������������������������������������������� 1,316 1,035 856 773 869 972 929 931 998 1,079 1,151 4,506 9,593 Recommendations to the Joint Select Committee: American Jobs Act ���������������������������������������������� ......... 324 155 –6 –3 –8 –7 –4 –2 –1 –2 462 447 Mandatory savings 1 ������������������������������������������� ......... 12 –3 –40 –43 –34 –29 –27 –31 –30 –32 –107 –257 Health savings 1 �������������������������������������������������� ......... * –11 –17 –22 –28 –38 –41 –46 –53 –65 –78 –320 Cap Overseas Contingency Operations (OCO) funding 2 ���������������������������������������������������������� ......... –24 –78 –103 –115 –120 –123 –126 –129 –132 –135 –439 –1,084 Tax reform ����������������������������������������������������������� –* –14 –89 –134 –154 –171 –185 –191 –200 –211 –224 –562 –1,573 Debt service ��������������������������������������������������������� ......... 1 4 3 –8 –23 –41 –60 –81 –103 –127 –23 –436 Total ����������������������������������������������������������������� –* 300 –23 –297 –343 –383 –423 –449 –487 –530 –586 –747 –3,222Total deficit reduction ����������������������������������������������������� –* 274 –79 –378 –443 –499 –552 –593 –647 –706 –780 –1,124 –4,403Resulting deficit �������������������������������������������������������������� 1,316 1,334 833 476 525 589 506 482 511 549 565 3,758 6,371 Percent of GDP ��������������������������������������������������������� 8.8% 8.5% 5.1% 2.7% 2.9% 3.0% 2.5% 2.2% 2.3% 2.4% 2.3%Memorandum: Debt held by the public ����������������������������������������������� 10,264 11,685 12,689 13,316 13,982 14,698 15,309 15,885 16,479 17,107 17,753 Percent of GDP ���������������������������������������������������� 68.6% 74.6% 76.9% 76.4% 75.9% 75.6% 74.8% 74.2% 73.8% 73.4% 73.0% Debt net of financial assets ���������������������������������������� 9,194 10,508 11,333 11,808 12,333 12,922 13,427 13,909 14,420 14,969 15,534 Percent of GDP ������������������������������������������������������� 61.4% 67.0% 68.7% 67.8% 66.9% 66.5% 65.6% 65.0% 64.6% 64.2% 63.9% Primary deficit (+) / surplus (–) ���������������������������������� 1,100 1,099 532 82 42 40 –106 –181 –197 –202 –225 1,795 885 Percent of GDP ������������������������������������������������������� 7.4% 7.0% 3.2% 0.5% 0.2% 0.2% –0.5% –0.8% –0.9% –0.9% –0.9% * $500 million or less. 1 Based on OMB estimates of CBO scoring. 2 Illustrative allocation of savings from the proposal to cap OCO appropriations through 2021. 55
Table S–2. BRIDGE BETWEEN OMB MID-SESSION REVIEW BEA BASELINE DEFICIT AND ADJUSTED MID-SESSION REVIEW BASELINE DEFICIT (In billions of dollars) 56 Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021Mid-Session Review BEA baseline deficit ������������������������������������������ 1,314 1,011 654 475 526 585 493 449 468 495 510 3,251 5,666 Extend the 2001 and 2003 tax cuts and index the AMT for inflation ��� 1 33 228 330 364 401 436 467 500 535 572 1,356 3,867 Prevent reduction in Medicare physician payments ������������������������������ ......... 13 22 23 25 28 30 33 36 40 43 111 293 Reflect incremental cost of funding existing Pell maximum grant award ���������������������������������������������������������������������������������������������������� ......... –* –* 3 8 8 7 6 6 6 6 18 50 Baseline assumption of possible emergencies 1 �������������������������������������� 1 3 7 8 9 9 10 10 10 10 10 36 86 Debt service ���������������������������������������������������������������������������������������������� ......... * 3 15 36 57 83 109 137 169 204 111 813Mid-Session Review adjusted baseline deficit before Budget Control Act (BCA) caps ����������������������������������������������������������������������� 1,316 1,060 912 854 968 1,088 1,058 1,075 1,158 1,255 1,345 4,883 10,774 BCA discretionary caps: Cap reductions, program integrity, and cap adjustment for proposed disaster relief ������������������������������������������������������������������� ......... –25 –55 –77 –91 –102 –110 –119 –128 –137 –147 –351 –992 Debt service ����������������������������������������������������������������������������������������� ......... –* –1 –4 –8 –13 –19 –25 –32 –39 –47 –26 –188 Total �������������������������������������������������������������������������������������������������� ......... –25 –56 –81 –99 –115 –130 –144 –159 –176 –194 –377 –1,180 Mid-Session Review adjusted baseline deficit with BCA caps �� 1,316 1,035 856 773 869 972 929 931 998 1,079 1,151 4,506 9,593 * $500 million or less. 1 These amounts represent a placeholder for major disasters requiring Federal assistance for relief and reconstruction. Such assistance might be provided in the form of discretion-ary or mandatory outlays or tax relief. This placeholder is separate from the Budget Control Act cap adjustment for disaster relief. LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE
Table S–3. BRIDGE BETWEEN CBO AUGUST BASELINE DEFICIT AND DEFICIT ASSUMING ENACTMENT OF RECOMMENDATIONS TO THE JOINT SELECT COMMITTEE (In billions of dollars) Totals 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2012- 2012- 2016 2021Adjusted CBO August baseline deficit ������������������������������������������������������� 1,284 1,024 933 815 826 972 1,004 1,069 1,207 1,323 1,430 4,571 10,603 Percent of GDP ���������������������������������������������������������������������������������������� 8.5% 6.5% 5.8% 4.8% 4.6% 5.1% 5.0% 5.1% 5.5% 5.8% 6.0% SUMMARY TABLES Budget Control Act discretionary caps: Cap reductions, program integrity, and cap adjustment for proposed disaster relief ������������������������������������������������������������������� ......... –24 –47 –61 –69 –77 –84 –91 –98 –107 –116 –278 –774 Debt service ����������������������������������������������������������������������������������������� ......... –* –1 –2 –4 –8 –13 –18 –24 –31 –38 –13 –138 Total ������������������������������������������������������������������������������������������������� ......... –25 –48 –62 –72 –85 –97 –109 –123 –138 –153 –292 –912 Recommendations to the Joint Select Committee: American Jobs Act ������������������������������������������������������������������������������� ......... 324 155 –6 –3 –8 –7 –4 –2 –1 –2 462 447 Mandatory savings 1 ��������������������������������������������������������������������������� ......... 12 –3 –40 –43 –34 –29 –27 –31 –30 –32 –107 –257 Health savings 1 ���������������������������������������������������������������������������������� ......... * –11 –17 –22 –28 –38 –41 –46 –53 –65 –78 –320 Cap Overseas Contingency Operations (OCO) funding 2 ������������������ ......... –12 –58 –95 –111 –118 –122 –126 –130 –134 –138 –395 –1,044 Tax reform 1 ���������������������������������������������������������������������������������������� –* –* –50 –136 –163 –175 –185 –195 –204 –210 –215 –525 –1,534 Debt service ����������������������������������������������������������������������������������������� ......... 4 5 3 –3 –17 –36 –57 –79 –103 –129 –9 –413 Total ������������������������������������������������������������������������������������������������� –* 328 36 –291 –344 –381 –417 –449 –491 –531 –581 –652 –3,121Total deficit reduction ��������������������������������������������������������������������������������� –* 303 –12 –354 –417 –465 –514 –558 –613 –669 –735 –944 –4,033Resulting deficit ������������������������������������������������������������������������������������������ 1,284 1,328 921 462 410 507 490 510 593 654 695 3,627 6,570 Percent of GDP ���������������������������������������������������������������������������������������� 8.5% 8.5% 5.7% 2.7% 2.3% 2.7% 2.4% 2.4% 2.7% 2.9% 2.9%Memorandum: Debt held by the public ��������������������������������������������������������������������������� 10,164 11,507 12,538 13,109 13,629 14,235 14,824 15,428 16,109 16,847 17,624 Percent of GDP ������������������������������������������������������������������������������������ 67.3% 73.5% 77.5% 77.2% 75.2% 74.5% 74.0% 73.6% 73.6% 73.7% 74.0% Debt net of financial assets �������������������������������������������������������������������� 9,306 10,620 11,530 11,988 12,385 12,887 13,369 13,867 14,447 15,087 15,769 Percent of GDP ������������������������������������������������������������������������������������ 61.7% 67.8% 71.3% 70.6% 68.3% 67.4% 66.8% 66.2% 66.0% 66.0% 66.2% Primary deficit (+) / surplus (–) �������������������������������������������������������������� 1,062 1,086 650 159 57 76 –28 –79 –52 –43 –45 2,028 1,781 Percent of GDP ������������������������������������������������������������������������������������ 7.0% 6.9% 4.0% 0.9% 0.3% 0.4% –0.1% –0.4% –0.2% –0.2% –0.2% * $500 million or less. 1 Based on OMB estimates of CBO scoring. 2 Illustrative allocation of savings from the proposal to cap OCO appropriations through 2021. 57
Table S–4. BRIDGE BETWEEN CBO AUGUST BASELINE DEFICIT AND ADJUSTED CBO AUGUST BASELINE DEFICIT (In billions of dollars) 58 Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021CBO August baseline deficit �������������������������������������������������������������������������� 1,284 973 623 380 322 402 362 349 405 430 440 2,701 4,687 Remove Budget Control Act discretionary caps ��������������������������������������������� ......... 27 49 62 70 77 84 91 98 106 115 285 778 Extend the 2001 and 2003 tax cuts and index the AMT for inflation ����������� ......... 11 238 340 385 414 444 476 509 546 586 1,389 3,949 Prevent reduction in Medicare physician payments ��������������������������������������������� ......... 12 19 23 26 29 31 34 37 41 45 109 298 Debt service ������������������������������������������������������������������������������������������������������ ......... 1 4 11 23 50 84 119 157 199 244 88 891Adjusted CBO August baseline deficit ��������������������������������������������������������� 1,284 1,024 933 815 826 972 1,004 1,069 1,207 1,323 1,430 4,571 10,603 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE
Table S–5. JOINT COMMITTEE RECOMMENDATIONS (Deficit increases (+) or decreases (-) in millions of dollars) Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021American Jobs Act: Tax Cuts to Help Americas Small Businesses Hire and Grow: SUMMARY TABLES Cut employer payroll taxes in half and provide bonus payroll cut for new jobs/wages ������������������������������������� ......... 60,686 14,992 –4,383 –1,736 –602 –177 –32 ......... ......... ......... 68,957 68,748 Extend 100% expensing in 2012 ������������������������������������� ......... 50,660 17,898 –21,275 –13,712 –9,731 –7,171 –4,666 –2,990 –1,839 –1,377 23,840 5,797 Help entrepreneurs and small businesses access capital and grow ����������������������������������������������������������������������� ......... 3 ......... ......... ......... ......... ......... ......... ......... ......... ......... 3 3 Delay application of withholding on government contractors ��������������������������������������������������������������������� ......... ......... 5,900 –5,403 ......... ......... ......... ......... ......... ......... ......... 497 497 Putting Workers Back on the Job While Rebuilding and Modernizing America: Support teacher rehiring and first responders ��������������� ......... 21,000 14,000 ......... ......... ......... ......... ......... ......... ......... ......... 35,000 35,000 Modernize schools ������������������������������������������������������������ ......... 15,000 6,000 6,000 3,000 ......... ......... ......... ......... ......... ......... 30,000 30,000 Invest in immediate surface transportation priorities ���� ......... 11,030 16,320 8,130 4,860 3,070 2,100 1,630 1,550 910 400 43,410 50,000 Create infrastructure bank ��������������������������������������������� ......... 300 600 1,930 1,915 745 948 1,190 1,740 632 ......... 5,490 10,000 Extend exemption from AMT treatment for certain tax- exempt bonds ���������������������������������������������������������������� ......... 19 48 25 24 23 23 22 21 20 19 139 244 Rehabilitate and repurpose vacant property (neighborhood stabilization) ����������������������������������������� ......... 50 4,650 7,100 3,200 ......... ......... ......... ......... ......... ......... 15,000 15,000 Implement Veterans hiring initiative ����������������������������� ......... 29 29 15 9 5 2 1 ......... ......... ......... 87 90 Enact national wireless initiative1 ���������������������������������� ......... 1,244 1,329 –250 –1,449 –2,516 –3,143 –2,462 –2,238 –784 –1,031 –1,642 –11,300 Pathways Back to Work for Americans Looking for Jobs: Reform and extend unemployment insurance ��������������� ......... 29,997 17,608 112 137 138 143 124 132 129 68 47,992 48,588 Provide jobs tax credit for long term unemployed ��������� ......... 3,243 3,278 1,231 862 642 465 345 267 191 71 9,256 10,595 Create pathways back to work fund ������������������������������� ......... 2,010 2,205 785 ......... ......... ......... ......... ......... ......... ......... 5,000 5,000 More Money in the Pockets of Every American Worker and Family: Cut employee payroll taxes in half in 2012 �������������������� ......... 129,156 49,691 ......... ......... ......... ......... ......... ......... ......... ......... 178,847 178,847 Total, American Jobs Act ����������������������������������������������������� ......... 324,427 154,548 –5,983 –2,890 –8,226 –6,810 –3,848 –1,518 –741 –1,850 461,876 447,109Mandatory Savings:1 Agriculture: Reduce agriculture subsidies ������������������������������������������ ......... –50 –5,118 –2,788 –1,650 –1,974 –2,631 –3,278 –4,662 –4,551 –4,395 –11,580 –31,097 Better target conservation assistance ���������������������������� ......... –100 –296 –266 –222 –215 –211 –207 –213 –209 –209 –1,099 –2,148 Federal employees: Increase employee defined benefit contributions ����������� ......... ......... –779 –1,593 –2,444 –2,500 –2,558 –2,617 –2,677 –2,739 –2,802 –7,316 –20,709 59 Increase TRICARE pharmacy benefit co-payments ������� ......... –256 –511 –948 –1,256 –1,410 –1,719 –1,969 –2,161 –2,354 –2,554 –4,381 –15,138 Initiate annual premiums for TRICARE-For-Life enrollment ��������������������������������������������������������������������� ......... ......... –400 –600 –600 –700 –700 –800 –900 –900 –1,100 –2,300 –6,700
Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued (Deficit increases (+) or decreases (-) in millions of dollars) 60 Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021Government liabilities and operations: Increase guarantee fees charged by Fannie Mae and Freddie Mac ������������������������������������������������������������������ ......... ......... –1,950 –2,700 –2,800 –3,000 –3,100 –3,300 –3,400 –3,600 –3,700 –10,450 –27,550 Reform the aviation passenger security fee to more accurately reflect the costs of aviation security ���������� ......... –10 –735 –1,041 –1,361 –1,663 –2,012 –2,023 –2,037 –2,051 –2,067 –4,810 –15,000 Introduce fee to better cover costs of air traffic services ......... –521 –1,063 –1,085 –1,108 –1,129 –1,151 –1,173 –1,196 –1,219 –1,242 –4,906 –10,887 Enact Postal Service financial relief and reform ������������ ......... 6,120 2,345 –2,505 –3,505 –3,505 –3,505 –3,505 –3,505 –3,505 –3,505 –1,050 –18,575 Ensure a strong safety net for workers’ retirement benefits ������������������������������������������������������������������������� ......... ......... ......... –685 –1,352 –1,638 –1,907 –2,190 –2,443 –2,768 –3,020 –3,675 –16,003 Reform the National Flood Insurance Program (NFIP) by phasing out the premium subsidy for certain properties ���������������������������������������������������������������������� ......... ......... –45 –119 –215 –335 –483 –649 –704 –778 –834 –714 –4,162Government assets: Enact national wireless initiative 2 ���������������������������������� ......... ......... ......... ......... –1,000 –1,000 –1,000 –1,000 –1,000 –1,000 –1,000 –2,000 –7,000 Dispose of unneeded real property 3 ��������������������������������� ......... –200 –400 –600 –1,500 –400 –200 –200 –200 –200 –200 –3,100 –4,100Program Integrity, Asset Management, and Miscellaneous Fees: Additional Program Integrity: Improve collection of pension information from States and localities (WEP/GPO) ���������������������������������������� ......... 13 20 17 –212 –405 –537 –547 –517 –496 –476 –567 –3,140 Strengthen IRS tax enforcement and compliance ������� ......... 1,932 2,188 1,513 747 25 –973 –1,673 –2,057 –2,314 –2,591 6,405 –3,203 Improve the integrity of the Unemployment Insurance program �������������������������������������������������� ......... –11 –26 –33 –37 –38 –33 –27 –20 –16 –15 –145 –256 Strengthen Treasury debt collection ��������������������������� ......... –64 –86 –89 –90 –92 –95 –96 –98 –99 –102 –421 –911 Reform coal and hardrock Abandoned Mine Lands (AML) programs ����������������������������������������������������������� ......... –100 –315 –281 –174 –89 –31 –66 –89 –64 –43 –959 –1,252 Restore the solvency of the Unemployment Insurance system by helping employers now and restoring State fiscal responsibility ������������������������������������������������������� ......... 5,723 5,551 –22,421 –20,425 –10,217 –1,743 2,882 1,882 3,373 2,435 –41,789 –32,960 Recoup financial sector assistance ���������������������������������� ......... ......... –1,000 –3,000 –3,000 –3,000 –4,000 –4,000 –4,000 –4,000 –4,000 –10,000 –30,000 Miscellaneous: Enact pesticide registration and premanufacture notice fees ����������������������������������������������������������������� ......... –50 –51 –80 –83 –89 –89 –92 –92 –95 –95 –353 –816 Charge for the use of the hazardous waste electronic manifest system �������������������������������������������������������� ......... ......... ......... –6 –5 –5 –3 –3 –3 –3 –3 –16 –31 Reauthorize special assessment from domestic nuclear utilities �������������������������������������������������������� ......... –150 –253 –205 –209 –213 –218 –223 –228 –233 –239 –1,030 –2,171 Repeal ultra-deepwater oil and gas research and development program ���������������������������������������������� ......... –3 –20 –40 –45 –30 –10 –2 ......... ......... ......... –138 –150 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE Enact Department of Interior savings proposals ������� ......... –17 –116 –136 –162 –159 –178 –193 –209 –227 –236 –590 –1,633 Reform inland waterways funding ������������������������������ ......... –40 –80 –80 –80 –120 –120 –120 –150 –150 –150 –400 –1,090Total, mandatory savings ���������������������������������������������������� ......... 12,216 –3,140 –39,771 –42,788 –33,901 –29,207 –27,071 –30,679 –30,198 –32,143 –107,384 –256,682
Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued (Deficit increases (+) or decreases (-) in millions of dollars) Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021Health Savings:1 Medicare Providers: SUMMARY TABLES Bad Debts: Reduce Medicare coverage of patients’ bad debts ������ ......... ......... –600 –1,300 –2,100 –2,200 –2,400 –2,600 –2,800 –3,000 –3,200 –6,200 –20,200 Graduate Medical Education: Align Graduate Medical Education payments with patient care costs ����������������������������������������������������� ......... ......... –700 –800 –1,000 –1,000 –1,000 –1,100 –1,100 –1,200 –1,200 –3,500 –9,100 Better Align Payments to Rural Providers with the Cost of Care: End add-on payments for hospitals and physicians in frontier states ����������������������������������������������������������� ......... ......... –200 –200 –200 –200 –200 –200 –300 –300 –300 –800 –2,100 Reduce Critical Access Hospital (CAH) payments from 101% of reasonable costs to 100% of reasonable costs �������������������������������������������������������� ......... ......... –100 –100 –100 –100 –100 –100 –100 –100 –200 –400 –1,000 Prohibit CAH designation for facilities that are less than 10 miles from the nearest hospital ������������������ ......... ......... –100 –200 –200 –300 –300 –400 –400 –500 –600 –800 –3,000 Encourage Efficient Post-Acute Care: Adjust payment updates for certain post-acute care providers ������������������������������������������������������������������� ......... ......... ......... –700 –1,600 –2,500 –3,300 –4,300 –5,500 –6,600 –8,000 –4,800 –32,500 Equalize payments for certain conditions commonly treated in IRFs and SNFs ���������������������������������������� ......... ......... –400 –400 –400 –500 –500 –500 –600 –600 –600 –1,700 –4,500 Encourage appropriate use of inpatient rehabilitation hospitals ������������������������������������������������������������������� ......... ......... –100 –200 –200 –200 –300 –300 –400 –400 –500 –700 –2,600 Adjust skilled nursing facility payments to reduce hospital readmissions ����������������������������������������������� ......... ......... ......... ......... –200 –200 –300 –300 –300 –300 –400 –400 –2,000 Drug Rebates: Align Medicare drug payment policies with Medicaid policies for low-income beneficiaries ������������������������ ......... ......... –8,300 –11,600 –13,200 –14,500 –14,800 –15,400 –17,000 –18,700 –21,500 –47,600 –135,000 Cut Waste, Fraud, and Improper Payments in Medicare: Recover erroneous payments made to insurers participating in Medicare Advantage ���������������������� ......... ......... –300 –300 –300 –300 –300 –200 –200 –200 –200 –1,200 –2,300 Reduce fraud, waste, and abuse in Medicare ������������� ......... ......... ......... ......... ......... –100 –100 –100 –100 –100 –100 –100 –600 Dedicate penalties for failure to use electronic health records toward deficit reduction ������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –500 ......... –500 Update Medicare payments to more appropriately account for utilization of advanced imaging ����������� ......... ......... –30 –30 –40 –40 –40 –50 –50 –60 –60 –140 –400 Require prior authorization for advanced imaging ���� ......... ......... –100 –100 –100 –100 –100 –100 –100 –100 –100 –400 –900 Interactions ����������������������������������������������������������������������� ......... ......... –400 –600 –700 –700 –700 –700 –900 –1,100 –1,200 –2,400 –7,000 61 Medicare Structural Reforms: Increase income-related premiums under Medicare Parts B and D ���������������������������������������������������������������� ......... ......... ......... ......... ......... ......... –2,000 –2,200 –2,500 –6,000 –7,300 ......... –20,000
Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued (Deficit increases (+) or decreases (-) in millions of dollars) 62 Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021 Modify Part B deductible for new enrollees ������������������� ......... ......... ......... ......... ......... ......... –10 –40 –150 –300 –500 ......... –1,000 Introduce home health copayments for new beneficiaries ����������������������������������������������������������������� ......... ......... ......... ......... ......... ......... –50 –50 –100 –100 –100 ......... –400 Introduce a Part B premium surcharge for beneficiaries that purchase near first-dollar Medigap coverage ����� ......... ......... ......... ......... ......... ......... –100 –300 –500 –700 –900 ......... –2,500 Strengthen IPAB to reduce long-term drivers of Medicare cost growth ����������������������������������������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... Medicaid and Other: Medicaid (non-MAGI): Reduce Medicaid provider tax threshold beginning in 2015 �������������������������������������������������������������������������� ......... ......... ......... ......... –1,550 –2,750 –3,900 –4,200 –4,400 –4,600 –4,900 –4,300 –26,300 Apply a single blended matching rate to Medicaid and CHIP ������������������������������������������������������������������ ......... ......... ......... ......... ......... ......... –3,400 –3,100 –3,100 –2,500 –2,800 ......... –14,900 Limit Medicaid reimbursement of durable medical equipment (DME) based on Medicare rates ������������ ......... ......... –100 –100 –200 –300 –500 –600 –700 –800 –900 –700 –4,200 Strengthen Medicaid third party liability ������������������ ......... ......... –100 –100 –100 –100 –100 –200 –200 –200 –200 –400 –1,300 Rebase Medicaid Disproportionate Share Hospital (DSH) allotments in 2021 ����������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –4,100 ......... –4,100 Reduce waste, fraud, and abuse in Medicaid ������������� ......... ......... –10 –10 –10 –10 –10 –15 –15 –15 –15 –40 –110 Streamline and coordiinate Federal Government oversight of State Medicaid programs and expand flexibility ����������������������������������������������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... Amend MAGI for health insurance assistance Programs to include total Social Security benefits ���������������������� ......... ......... ......... –888 –694 –1,679 –1,955 –2,197 –2,376 –2,088 –2,706 –3,261 –14,583 Pharmaceutical Savings: Prohibit pay for delay agreements ������������������������������ ......... ......... –100 –100 –100 –100 –200 –400 –500 –600 –600 –400 –2,700 Reduce the exclusivity period for generic biologics ���� ......... ......... ......... ......... –100 –200 –400 –400 –600 –800 –1,000 –300 –3,500 Streamline FEHBP pharmacy benefit contracting ���� ......... ......... –74 –148 –159 –170 –185 –198 –213 –232 –250 –552 –1,631 Prioritize Prevention and Public Health Fund investments ������������������������������������������������������������������ ......... ......... ......... –28 –283 –678 –523 –500 –500 –500 –500 –989 –3,512 Accelerate the issuance of State Innovation Waivers �������� ......... ......... ......... 1,000 2,000 1,000 ......... ......... ......... ......... ......... 4,000 4,000Administrative costs for implementation �������������������������������� ......... 100 250 50 ......... ......... ......... ......... ......... ......... ......... 400 400 Total, health ������������������������������������������������������������������������� ......... 100 –11,464 –16,854 –21,536 –27,927 –37,773 –40,750 –45,704 –52,695 –65,431 –77,682 –320,036Cap Overseas Contingency Operations funding through 2021 ����������������������������������������������������������������������� ......... –23,562 –77,949–103,087–114,816–119,586–122,810–125,735–128,906–132,124–135,403 –439,000–1,083,978Measures for Tax Reform: Bring Fairness to the Individual Tax Code: LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE Allow the 2001 and 2003 high-income tax cuts and estate tax cuts to expire ����������������������������������������������� –49 –12,847 –46,593 –63,411 –76,929 –90,638 –100,730 –107,618 –114,641 –122,194 –130,410 –290,418 –866,011
Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued (Deficit increases (+) or decreases (-) in millions of dollars) Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021Measures Incorporated in the American Jobs Act: Reduce the value of itemized deductions and other tax preferences to 28 percent for those with high incomes ����� ......... ......... –21,731 –36,038 –39,590 –43,048 –46,772 –50,405 –53,968 –57,511 –61,076 –140,407 –410,139 SUMMARY TABLES Tax carried (profits) interests in investment partnerships as ordinary income ��������������������������������� ......... ......... –1,940 –2,111 –2,019 –1,733 –1,402 –1,092 –947 –732 –525 –7,803 –12,501 Eliminate special depreciation rules for corporate purchases of aircraft ����������������������������������������������������� ......... ......... –126 –402 –620 –691 –793 –826 –603 –342 –250 –1,839 –4,653 Eliminate Oil and Gas Tax Preferences: Repeal percentage depletion for oil and natural gas wells �������������������������������������������������������������������������� ......... ......... –664 –1,124 –1,151 –1,177 –1,207 –1,237 –1,267 –1,295 –1,360 –4,116 –10,482 Repeal domestic manufacturing deduction for oil and natural gas companies ���������������������������������������������� ......... ......... –623 –1,653 –1,749 –1,842 –1,932 –2,020 –2,108 –2,200 –2,296 –5,867 –16,423 Repeal expensing of intangible drilling costs (“IDCs”) ���� ......... ......... –1,849 –2,449 –1,716 –1,423 –1,433 –1,284 –1,031 –871 –741 –7,437 –12,797 Repeal deduction for tertiary injectants ��������������������� ......... ......... –7 –10 –10 –10 –10 –9 –9 –9 –9 –37 –83 Repeal exception to passive loss limitation for working interests in oil and natural gas properties ���������������� ......... ......... –23 –27 –24 –22 –21 –19 –18 –17 –16 –96 –187 Increase geological and small integrated geophysical amortization period for independent producers to seven years ���������������������������������������������������������������� ......... ......... –66 –244 –369 –338 –247 –160 –74 –15 –1 –1,017 –1,514 Modify the tax rules for dual capacity taxpayers ����������� ......... ......... –564 –974 –1,031 –1,085 –1,138 –1,190 –1,242 –1,296 –1,352 –3,654 –9,872Close Business Loopholes and Broaden the Business Tax Base: Repeal last-in, first-out (“LIFO”) method of accounting for inventories ��������������������������������������������������������������� ......... ......... –2,598 –5,630 –6,432 –6,372 –6,315 –6,233 –6,149 –6,072 –5,984 –21,032 –51,785 Repeal lower-of-cost-or-market (“LCM”) inventory accounting method ������������������������������������������������������� ......... ......... –188 –1,435 –2,334 –1,532 –1,358 –309 –323 –337 –352 –5,489 –8,168 Eliminate Preferences for the Coal Industry: Repeal expensing of exploration and development costs �������������������������������������������������������������������������� ......... ......... –27 –46 –48 –50 –51 –51 –49 –47 –42 –171 –411 Repeal percentage depletion for coal and hard mineral fossil fuels ��������������������������������������������������� ......... ......... –70 –119 –120 –124 –128 –133 –136 –143 –151 –433 –1,124 Repeal capital gains treatment for royalties �������������� ......... ......... –8 –22 –31 –38 –43 –47 –51 –55 –58 –99 –353 Repeal domestic manufacturing deduction for coal and other hard mineral fossil fuels �������������������������� ......... ......... –27 –42 –40 –41 –45 –46 –48 –50 –50 –150 –389Reform Treatment of Insurance Companies and Products: Modify Rules that apply to sales of life insurance contracts ����������������������������������������������������������������������� ......... ......... –9 –42 –76 –89 –104 –132 –138 –158 –181 –216 –929 Modify dividends-received deduction (“DRD”) for life insurance company separate accounts ������������������������ ......... ......... –342 –550 –565 –641 –674 –689 –686 –674 –657 –2,098 –5,478 Expand pro rata interest expense disallowance for 63 corporate-owed life insurance �������������������������������������� ......... ......... –22 –72 –158 –260 –414 –649 –923 –1,312 –1,757 –512 –5,567
Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued (Deficit increases (+) or decreases (-) in millions of dollars) 64 Totals 2012- 2012- 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2016 2021 Reform the U.S. International Tax System: Defer deduction of interest expense related to deferred income ��������������������������������������������������������������������������� ......... ......... –3,521 –5,950 –6,128 –6,348 –6,580 –3,369 –1,190 –1,236 –1,289 –21,947 –35,611 Determine the foreign tax credit on a pooling basis ������ ......... ......... –3,242 –5,478 –5,643 –5,845 –6,059 –6,271 –6,492 –6,743 –7,036 –20,208 –52,809 Tax currently excess returns associated with transfers of intangibles offshore �������������������������������������������������� ......... ......... –1,322 –2,228 –2,288 –2,305 –2,297 –2,251 –2,177 –2,132 –2,137 –8,143 –19,137 Limit shifting of income through intangible property transfers ����������������������������������������������������������������������� ......... ......... –27 –60 –85 –111 –138 –165 –194 –224 –258 –283 –1,262 Limit earnings stripping by expatriated entities ����������� ......... ......... –223 –382 –401 –421 –442 –464 –488 –512 –538 –1,427 –3,871 Other Changes: Reinstate Superfund Taxes ��������������������������������������������� ......... ......... –1,491 –2,023 –2,073 –2,105 –2,133 –2,179 –2,210 –2,230 –2,266 –7,692 –18,710 Make the 0.2 percent unemployment insurance surtax permanent �������������������������������������������������������������������� ......... –1,345 –1,372 –1,404 –1,434 –1,458 –1,481 –1,500 –1,516 –1,532 –1,548 –7,013 –14,590 Increase certainty with respect to worker classification ������ ......... ......... –238 –572 –722 –804 –892 –982 –1,075 –1,173 –1,273 –2,336 –7,731 Total, tax reform ������������������������������������������������������������������ –49 –14,192 –88,913–134,498–153,786–170,551–184,839–191,330–199,753–211,112–223,613 –561,940–1,572,5871 Based on OMB estimates of CBO scoring.2 Portion of budgetary effects not included under American Jobs Act.3 OMB estimate of sales proceeds. CBO has not scored savings for similar proposals. LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE
Table S–6. DEFICIT REDUCTION SINCE JANUARY 2011 (Deficit reduction (–) or increase (+) in billions of dollars) 2012-2021Enactment of 2011 full-year appropriations ��������������������������������������������� –357Budget Control Act discretionary caps 1����������������������������������������������������� –992Recommendations to the Joint Select Committee: SUMMARY TABLES American Jobs Act ����������������������������������������������������������������������������������� 447 Mandatory savings 2 �������������������������������������������������������������������������������� –257 Health savings 2 ��������������������������������������������������������������������������������������� –320 Cap Overseas Contingency Operations (OCO) funding ������������������������ –1,084 Tax reform ����������������������������������������������������������������������������������������������� –1,573Debt service ������������������������������������������������������������������������������������������������� –715Total deficit reduction ��������������������������������������������������������������������������������� –4,850 1 Includes program integrity and the cap adjustment for proposed disaster relief. 2 Based on OMB estimates of CBO scoring. 65
66 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE Chart 1. Annual Deﬁcits as a Percent of GDPPercent of GDP10.0 9.0 8.0 7.0 OMB Adjusted Baseline 6.0 with BCA Caps 5.0 4.0 3.0 2.0 Recommendations to the 1.0 Joint Select Committee 0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
SUMMARY TABLES 67 Chart 2. Debt Held by the Public as a Percent of GDPPercent of GDP90.085.0 OMB Adjusted Baseline with BCA Caps80.075.0 Recommendations to the70.0 Joint Select Committee65.060.0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
EXECUTIVE OFFICE OF THE PRESIDENT OFFICE OF MANAGEMENT AND BUDGET WASHINGTON, D.C.