“Your move,” say the House GOP:
House Republican leaders have made a counteroffer to President Obama in the fiscal cliff negotiations, proposing to cut $2.2 trillion with a combination of spending cuts, entitlement reforms and $800 billion in new tax revenue.
The leaders delivered the offer to the White House on Monday with a three-page letter signed by Speaker John Boehner (R-Ohio), Majority Leader Eric Cantor (R-Va.), and four other senior Republicans, including Rep. Paul Ryan (R-Wis.), the party’s just-defeated vice presidential nominee.
Republican officials said the offer was based on a proposal outlined by Erskine Bowles, the former chief of staff to President Bill Clinton, in testimony last year before the congressional “supercommittee” on deficit reduction. That offer is distinct from the widely-cited Simpson-Bowles deficit plan released two years ago. [via The Hill]
But when you include the Budget Control Act savings plus war savings — as Obama does — this is at least a $4 trillion plan, probably more. And a few more details from Politico:
The proposal, unveiled by senior GOP aides Monday during a briefing in the Capitol, assumes $800 billion in fresh governmental revenue through tax reform, $600 billion in health savings and changes to CPI, a formula that determines benefits across the government. There’s also $600 billion in other savings, split evenly between mandatory and discretionary spending.
That $800 billion from tax reform seems like a lot, but it is in the ballpark as a recent White House memo explains
Consider the example of a $25,000 cap on itemized deductions, which some claim would raise in the range of $1 trillion or more from high-income households:
- Limiting the cap to those with incomes over $250,000 leaves only $800 billion in revenue. A $25,000 cap that applied to all households would raise taxes by an average of $2,400 on 17 million households with incomes below $250,000 ($200,000 for singles). Treasury estimates show that about 40 percent of the revenue from such a cap would come from these households. Thus, the amount of revenue that could be raised from taxpayers making more than $250,000 is only about $800 billion.
- The need to phase in a cap to avoid a “cliff” reduces revenues to around $650 billion. In practice, it would not be possible to impose a $25,000 cap on itemized deductions beginning at an income threshold of $250,000. Doing so would create an immense “cliff,” where someone whose income rose to $251,000 could suddenly owe thousands of dollars more in taxes. Accounting for a realistic phase-in reduces the revenue from households above $250,000 by about 20 percent, to about $650 billion.
At a hearing before the deficit Super Committee, former Clinton White House Chief of Staff Erskine Bowles argued that the Affordable Care Act should allow Democrats to accept raising the Medicare eligibility age, because it creates a system of subsidized, guaranteed private health insurance for people who don’t qualify for government programs like Medicare and Medicaid. …
Bowles included the proposal in a rough proposal he laid out for committee members that, combined with the cuts Congress has already passed, would total $3.9 trillion in deficit reduction.
“If you look at where I understand the two sides now stand…You all are between $250 and $400 billion in additional cuts on discretionary, so I assumed that we could reach a compromise of an additional $300 billion discretionary spending cuts,” Bowles said. “On health care you are somewhere between $500 and $750 billion of additional health care cuts. I assume we can get to $600 and I got there by increases in the eligibility age for Medicare…. On other mandatory cuts you’re somewhere between $250 and $400, so I settled on $300 there.”
Bowles also proposed $200 billion in savings by changing the way the government calculates inflation to a less generous measure called chained CPI. That would reduce seniors’ Cost of Living Adjustments under Social Security, among other government benefit cuts, and provide the Treasury new revenue by slowing the rate at which tax brackets rise. That would push workers into higher brackets sooner as they climb the income latter — a de facto tax increase over time.
For Democrats, he asked Republicans to accept $800 billion in new tax revenues.
Add in $400 billion in 10-year savings on interest payments on the debt, and over $1.3 trillion in 10-year savings from cuts Congress has already passed, and that adds up to $3.9 trillion.
If you think this is an offer Republicans couldn’t possibly refuse, think again. Committee co-chair, Rep. Jeb Hensarling (R-TX) cautioned Bowles in his closing remarks, “You’ve certainly created some excitement for the press I think. I would say don’t necessarily believe everything you read and hear about the proceedings of this committee.”
If you add in the war savings, which I do not believe Bowles does, then the debt reduction is closer to $5 trillion. But this also looks like a flat-out tax hike rather than tax revenue through economic growth from tax reform, which was the old Boehner-GOP proposal.