Posted December 3, 2012
BPC's proposal to sustain support for the economy and demonstrate a commitment to deficit reduction
In late 2010, the Bipartisan Policy Center’s Debt Reduction Task Force, co-chaired by former Sen. Pete Domenici and former Congressional Budget Office (CBO) Director Dr. Alice Rivlin, released a comprehensive, very detailed fiscal plan that would have promoted economic growth and stabilized America’s federal debt trajectory.
Since then, a weaker than anticipated economy, as well as political events, have prompted an update of the Domenici-Rivlin Plan, which we call Domenici-Rivlin (D-R) 2.0.
In addition, we propose a framework that Congress could enact now, in light of the rapidly-approaching fiscal cliff and the still-hesitant recovery. This framework would include a down-payment, an accelerated process, and a backstop, all of which would facilitate the adoption of a comprehensive fiscal plan – such as D-R 2.0 – during 2013.
Documents
Major Themes of Both D-R 1.0 and D-R 2.0
Where Do We Stand?
Since the release of the original Task Force report, Congress passed the Budget Control Act of 2011, which cut and capped defense and non-defense discretionary accounts at approximately the levels recommended by D-R. Conversely, there has been no comprehensive reform of taxes and entitlement spending, the primary drivers of U.S. debt.
Now, the fiscal cliff demands that policymakers pass a law** in the coming weeks to avoid dramatic tax increases and mindless across-the-board spending cuts that would take discretionary spending to levels far below those that we recommended. CBO and other analysts have projected that if these measures take effect, they could choke off the nascent recovery, increase joblessness and send us back into recession. There is too little time remaining in the 112th Congress, however, to draft and pass legislation to fundamentally reform taxes and entitlements.
Therefore, we propose a “stepping stone” approach – a “Framework for the Grand Bargain” – that will sustain near-term support for the economy, demonstrate a commitment to deficit reduction, and set the stage for the necessary broader agreement along the lines of D-R 2.0 in the 113th Congress.
“The Framework for a Grand Bargain”: D-R 2.0’s Recommendations for the Fiscal Cliff and Debt Stabilization
Pass a law in the lame duck session of Congress that does the following:
** Action by the lame duck Congress to avoid the fiscal cliff must consist of a bill subsequently signed into law by the President. All elements of the fiscal cliff are current law. Only a new law can vitiate any or all of these elements.
Related Resources
Comments
Anonymous (not verified)
Dec. 4, 2012
It is absurd to pretend that any answer to our national problems is yet more tax cuts. This is idiotic. Start by ending Bush's irresponsible tax holiday. Return all rates to Clinton era levels and then just shovel most of the revenue out the door the first year to avoid a sharp contraction in the economy. Craft a carbon tax and especially a financial transaction tax.
Loren Adler (not verified)
Dec. 4, 2012
You are correct that extending the “Bush” tax cuts and doing nothing else would be irresponsible. Under the Domenici-Rivlin 2.0 plan, however, high-income households would pay higher EFFECTIVE tax rates than they would if the Bush tax cuts for high-earners expired. What our plan proposes is to lower MARGINAL tax rates on income, which have a greater impact on work incentives, while eliminating most of the tax deductions and loopholes that benefit high-income taxpayers. Additionally, in that vein, D-R 2.0 would increase tax rates on capital gains and dividends, which predominantly flow to the rich. Therefore, the wealthy would be contributing MORE in taxes than they would if the Bush tax cuts expired.
D-R 2.0 also does not raise the eligibility age for Medicare or Social Security.
Paul Nolan (not verified)
Dec. 4, 2012
Extending the Bush tax cuts is a terrible idea and should not happen. Tax reform is only a partial solution without addressing the unconscionably low rates that have evolved since Bush. You have zero credibility when you blithely recommend continuing costly tax cuts while probably seeking to raise age eligibility and take away benefits people expect. Shame on you.
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