CRFB.org A View From Washington Marc Goldwein - Senior Vice - PowerPoint PPT Presentation

CRFB.org

A View From Washington ▪ Marc Goldwein - Senior Vice President and Senior Policy Director for the Committee for a Responsible Federal Budget. Economics Professor. Former senior staff on Simpson-Bowles Fiscal Commission and “Super Committee.” New Dad. ▪ The Committee for a Responsible Federal Budget – A nonpartisan, non-profit think tank committed to educating policymakers, the press, and the public on issues with significant economic and budgetary impact. http://www.CRFB.org ▪ The Campaign to Fix the Debt – A coalition of business, community, and policy leaders as well as ordinary citizens who want to see elected officials work together to solve our nation's long-term fiscal challenges. http://www.FixTheDebt.org CRFB.org 2

The Big Picture CRFB.org 3

Debt is At Record-High Levels Percent of GDP 120% Truman 103 % 100% Trump 77% 80% 60% Obama Bush Eisenhower 40% JFK Clinton Carter Bush Johnson Reagan Nixon 20% Ford 0% 1940 1950 1960 1970 1980 1990 2000 2010 2020 Axis Title Sources: Congressional Budget Office, Office of Management and Budget, CRFB.org and the Committee for a Responsible Federal Budget. 4

Trillion-Dollar Deficits Will Return by 2022 Billions $1,600 2027, $1,463 2009, $1,413 $1,400 $1,200 2022, $1,027 $1,000 2017, $693 $800 2016, $585 $600 2004, $413 $400 $200 $0 2002 2007 2012 2017 2022 2027 Sources: CBO June Baseline, CRFB calculations. CRFB.org 5

Debt Is Rising Unsustainably Percent of GDP 180% Actual Projected 160% 140% 120% 100% 80% 60% 40% 20% 0% 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 CRFB.org Sources: CBO, CRFB calculations. 6

Discretionary Spending Is Falling Percent of GDP Actual Projected 10% 9.0% 9% 8% 7% 6% Defense Spending 5% 4% 2.7% 3% 3.3% Non-Defense Spending 2% 2.6% 1% 0% 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 2027 CRFB.org Sources: CBO, OMB. 7

Entitlement and Interest Spending are Ballooning Percent of GDP 10% Projected Historical 9% 8% 7% Social Security 6% Discretionary Spending 5% 4% 3% 2% Other Mandatory 1% 0% 2000 2005 2010 2015 2020 2025 2030 2035 2040 CRFB.org Sources: CBO, CRFB calculations. 8

Major Trust Funds Are Heading Toward Insolvency Exhaustion Annual Deficit In Percent Cut Trust Fund Date Exhaustion Year At Insolvency (CBO Est)* $18 billion Highway Trust Fund (combined) 2021 32% (0.1% of GDP) Medicare Hospital Insurance Trust $62 billion 2025 13% Fund (0.2% of GDP) Social Security Disability Insurance $31 billion 2023 17% Fund (0.1% of GDP) Social Security Old Age & Survivors’ $530 billion 2031 29% Insurance Trust Fund (1.6% of GDP) Addendum: Theoretical Combined $510 billion 2030 25% Social Security Trust Funds (1.6% of GDP) *The Social Security and Medicare Trustees project similar but somewhat later exhaustion dates CRFB.org 9

The Tax Code Is Increasingly Uncompetitive 45% Top Statutory Tax rate Among G20 Countries 40% 2003 2012 35% 30% 25% 20% 15% 10% 5% 0%

America is Getting Older Population 65 or Older (in Millions) 120 Actual Projected 95 or Older 100 85 to 94 80 75 to 84 60 40 65 to 74 20 0 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 CRFB.org Sources: CBO, CRFB calculations. 11

Economic Growth is Slow 10-Year Average Real GDP Growth by End Year (Rolling Average) CRFB.org 12

Unmet Needs Abound • Infrastructure Investment • Tax Relief • Higher Education • Health Care • Paid Family Leave • Retirement Support • Military Rebuild • Caretaker Support • Long-Term Care • Etc. CRFB.org 13

Fiscal Space is Diminishing Fiscal Space Until Debt Reaches Record Set in WWII (Percent of GDP) CRFB.org Sources: CBO, CRFB calculations. 14

Fiscal Space is Diminishing Fiscal Space Until Debt Reaches Record Set in WWII (Percent of GDP) CRFB.org Sources: CBO, CRFB calculations. 15

The Smaller Picture – What Must Happen in FY 2018? (October 1, 2017 – September 30, 2018) CRFB.org 16

Obamacare Repeal & Replace CRFB.org 17

Passing a Budget Resolution • House and Senate must agree to a “concurrent budget resolution” for FY 2018 • Budget resolution will include “reconciliation instructions” for tax reform (setting allowable revenue loss) and possibly spending reforms • House calls for ~$200 billion of deficit reduction • Senate calls for ~$1.5 trillion of deficit increases • Budget resolution may also set discretionary funding levels for FY 2018 and aspirations for fiscal goals CRFB.org 18

Funding the Government… • Current continuing resolution (CR) expires December 8 • “The Sequester” returns on December 8, requiring large defense and non-defense cuts • Funding the government and reducing sequester cuts requires 60 votes in the Senate • Congress and the President must reach a bipartisan deal to set cap levels, pay for (or ignore cost of) sequester relief, and fund government CRFB.org 19

Other Deadlines • Flood Insurance Program authorization expires 12/8/17 • Disaster Relief Bill Needed for Texas, Florida, and Puerto Rico. • Debt Limit Restored on 12/8/17, must be raised after ‘extraordinary measures’ are exhaust (Feb -March?) • Children’s Health Insurance Program (CHIP) authorization expires ?? • Federal Aviation Administration (FAA) authorization CRFB.org expires ?? 20

Passing Tax Reform HIGH PRIORITY, FLUID TIMELINE AND SUBSTANCE CRFB.org 21

Passing Tax Reform Arguments for Tax Reform ▪ No reform since 1986, only “deform” ▪ Business Taxes are Uncompetitive ▪ Highest corporate marginal rate in developed world ▪ Hybrid “worst of both worlds” territorial -worldwide international system ▪ The Individual Income Tax is a Mess ▪ Relatively high rates for level of revenue collection ▪ Hodge-podge of phase-ins, phase-outs, surtaxes, and alternative taxes ▪ $1.5 TRILLION of annual “tax expenditures” – costly, regressive, distorting ▪ Insufficient revenue to cover current spending – high deficits CRFB.org 22

Passing Tax Reform CRFB.org Sources: CBO, CRFB calculations. 23

Passing Tax Reform Five Reasons to Pay for Tax Reform CRFB.org 24

Passing Tax Reform Areas of Strong (GOP) Agreement ▪ Lower Corporate rate (15%-25%) and pass-through rate ▪ Territorial taxation ▪ Repeal AMT Areas of General (GOP) Agreement: ▪ Lower individual rates ▪ Repeal some tax expenditures, like S&L deduction ▪ Expand standard deduction in place of exemptions ▪ Repeal NIIT and Estate Tax Areas of Some (GOP) Agreement: ▪ Full expensing (trade for interest deduction?) ▪ Lower capital gains rates ▪ Aggressive repeal of tax expenditures CRFB.org 25

Passing Tax Reform Areas of Disagreement ▪ Size of tax cut (after dynamic scoring) ▪ Temporary v. Permanent ▪ Specific rates ▪ Interest deductibility ▪ Changes to mortgage, charitable, retirement deductions ▪ Worldwide minimum tax ▪ Distribution of tax changes ▪ Need for offsetting spending cuts CRFB.org 26

Passing Tax Reform WHERE IS TAX REFORM NOW? CRFB.org 27

Infrastructure Package CRFB.org 28

Social Security and Medicare Reform ▪ Largest two federal programs, with rising costs ▪ Both programs on path toward insolvency ▪ Many options – including bipartisan options – to slow growth and improve solvency ▪ Democrats will demagogue, Republicans won’t touch CRFB.org 29

Social Security and Medicare Reform CRFB.org 30

Social Security and Medicare Reform CRFB.org Sources: CRFB calculations. 31

Social Security and Medicare Reform CRFB.org 32