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

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A View From Washington

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▪ 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

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The Big Picture

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0% 20% 40% 60% 80% 100% 120% 1940 1950 1960 1970 1980 1990 2000 2010 2020

Axis Title

Debt is At Record-High Levels

Sources: Congressional Budget Office, Office of Management and Budget, and the Committee for a Responsible Federal Budget.

Percent of GDP

Carter Bush Reagan Clinton Bush

Trump

77%

Obama JFK Eisenhower

Truman

103%

Ford Nixon Johnson

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Trillion-Dollar Deficits Will Return by 2022

Sources: CBO June Baseline, CRFB calculations. Billions 2004, $413 2009, $1,413 2016, $585 2017, $693 2022, $1,027 2027, $1,463

$0 $200 $400 $600 $800 $1,000 $1,200 $1,400 $1,600 2002 2007 2012 2017 2022 2027

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Debt Is Rising Unsustainably

Sources: CBO, CRFB calculations.

0% 20% 40% 60% 80% 100% 120% 140% 160% 180% 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Percent of GDP Projected Actual

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Discretionary Spending Is Falling

9.0% 2.7% 3.3% 2.6% 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 2027

Defense Spending

Percent of GDP

Non-Defense Spending

Projected Actual

Sources: CBO, OMB.

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Entitlement and Interest Spending are Ballooning

0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 2000 2005 2010 2015 2020 2025 2030 2035 2040

Social Security Discretionary Spending Other Mandatory

Historical Projected

Sources: CBO, CRFB calculations.

Percent of GDP

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Major Trust Funds Are Heading Toward Insolvency

Trust Fund Exhaustion Date (CBO Est)* Annual Deficit In Exhaustion Year Percent Cut At Insolvency Highway Trust Fund (combined) 2021 $18 billion (0.1% of GDP) 32% Medicare Hospital Insurance Trust Fund 2025 $62 billion (0.2% of GDP) 13% Social Security Disability Insurance Fund 2023 $31 billion (0.1% of GDP) 17% Social Security Old Age & Survivors’ Insurance Trust Fund 2031 $530 billion (1.6% of GDP) 29% Addendum: Theoretical Combined Social Security Trust Funds 2030 $510 billion (1.6% of GDP) 25%

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*The Social Security and Medicare Trustees project similar but somewhat later exhaustion dates

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0% 5% 10% 15% 20% 25% 30% 35% 40% 45%

2003 2012 Top Statutory Tax rate Among G20 Countries

The Tax Code Is Increasingly Uncompetitive

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America is Getting Older

20 40 60 80 100 120 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070

Population 65 or Older (in Millions)

65 to 74 75 to 84 85 to 94 95 or Older

Actual Projected

Sources: CBO, CRFB calculations.

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Economic Growth is Slow

10-Year Average Real GDP Growth by End Year (Rolling Average)

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Unmet Needs Abound

Infrastructure Investment
Tax Relief
Higher Education
Health Care
Paid Family Leave
Retirement Support
Military Rebuild
Caretaker Support
Long-Term Care
Etc.

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Fiscal Space is Diminishing

Fiscal Space Until Debt Reaches Record Set in WWII (Percent of GDP)

Sources: CBO, CRFB calculations.

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Fiscal Space is Diminishing

Fiscal Space Until Debt Reaches Record Set in WWII (Percent of GDP)

Sources: CBO, CRFB calculations.

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

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Obamacare Repeal & Replace

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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

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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

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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

expires ??

Other Deadlines

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Passing Tax Reform

HIGH PRIORITY, FLUID TIMELINE AND SUBSTANCE

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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

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Passing Tax Reform

Sources: CBO, CRFB calculations.

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Passing Tax Reform

Five Reasons to Pay for Tax Reform

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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

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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

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Passing Tax Reform

WHERE IS TAX REFORM NOW?

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Infrastructure Package

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Social Security and Medicare Reform

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▪ 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

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Social Security and Medicare Reform

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Social Security and Medicare Reform

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Sources: CRFB calculations.

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Social Security and Medicare Reform

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