Panel 1 Transcript

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Business Roundtable

Meeting the Challenges of Economic Growth and Deficit Reduction

Panel One: The Joint Committee on Deficit Reduction: How Broad is this

Opportunity?

Welcome:

John Engler,

President,

Business Roundtable

Moderator:

Maya MacGuineas,

President,

Committee for a Responsible Federal Budget

Speakers:

Jim Gould,

Partner,

Capitol Counsel, LLC

G. William Hoagland,

Vice President for Public Policy,

CIGNA

Rudy Penner,

Arjay and Frances Miller Chair in Public Policy,

Urban Institute

Tuesday, September 6, 2011

1:30 p.m.

Washington, D.C.

Transcript by

Federal News Service

Washington, D.C.



JOHN ENGLER: Well, good afternoon, everyone. I‟m delighted to be able to convene

this session, and tried to do so right on time. I‟m John Engler, the president of the BusinessRoundtable, and it is our privilege to welcome you to this Business Roundtable forum on thework of the Joint Select Committee on Deficit Reduction and our program, appropriatelyentitled: “Meeting the Challenges of Economic Growth and Deficit Reduction.”

And I think we‟ve got a treat for everyone today. We‟ve got outstanding panelists; theexperts‟ experts really are here today to help us focus on budget, taxation, the economy, the roleof this incredible 12-member commission. And we hope to have time not only to have a – just aproductive discussion but also a little bit of give-and-take with the audience. We‟ve got C-SPAN on site today. We appreciate their presence and their coverage of this afternoon‟s forum.And there also will be a video that‟s produced and will be available in a day or so on the

Business Roundtable website.

Now, there‟s no question that America‟s business leaders care deeply about the issue of deficit reduction, and it‟s something that matters not only to them as citizens but it matters to ourcompanies and our job providers as we seek to have the world‟s most globally competitivenation. Our association is actually an association of chief executive officers of leadingcompanies, but those companies are what really matter -- $6 trillion in annual revenue, more than13 million employees directly employed in those companies; and the impact on the economy,obviously very, very substantial.

As we think about this day and those companies – the stock market down earlier quite abit – they comprise nearly a third of the total value of the U.S. stock market and invests morethan $114 billion annually in research and development. And that‟s nearly half of all the privateR&D spending that takes place in the country. So the fiscal health of the nation – the hostnation, the headquarters nation for virtually all of these companies – is something that‟s highlysignificant, and their shareholders, their customers, their supply chains, their retirees as well aspeople currently employed have very much at stake, as does our nation.

We‟re certainly also today, I think, providing a friendly “welcome back” to Congress.The Senate convenes today; the House Wednesday, tomorrow; the president speaking on jobs onThursday. The Business Roundtable has the view that it will work with anyone who wants tohelp create jobs, to reduce the deficit and strengthen our economy. And there is much work to bedone. The bipartisan, bicameral supercommittee will meet for the first time also on Thursday.And they‟ve got a tight schedule and a – as I think as we‟ll hear from our panel – not much timeat all. But what they lack in time, they make up in power. As near as I can tell, they‟ve gotunbelievable, awesome authority been delegated by their colleagues. And so the ability to puttogether a package of recommendations before Thanksgiving – the opportunity‟s there.



This afternoon, what we hope to do is the first panel will focus on the process, just howmuch power do they have, how great is that opportunity, what can and maybe should thebipartisan, bicameral group be thinking about as they go about their business?

The second panel, of course, gets into the real meat of it: details of entitlements,

discretionary spending, defense budgets, even a dose of – or dash of federalism – a doseprobably overstates it. But the idea – a lot of this has already been tabled in various groups.Some of the participants today have actually been the ones who‟ve put it on the table. Butwhat‟s sort of generally agreed to, and what are those opportunities?

And then the third one, I think, the president will be very interested in because it‟s jobsand economic growth and the role of tax reform. And again, without predetermined conclusionsabout our discussion today, I think there‟s one thing that‟s pretty clear. Without economicgrowth, you can‟t cut the budget enough and you certainly can‟t have enough jobs to really resultin a strong, healthy fiscal condition for our nation. So time is short not just for deficit reductionand the committee‟s work but for the forum itself. So I would hope we could get started right

away.

Our first panel, panel one, “The Joint Committee on Deficit Reduction: How Broad isThis Op portunity?” – we‟ve got a wonderful moderator, Maya MacGuineas, and somebody well-known to all of us. Maya has served with great distinction as the president for – of theCommittee for a Responsible Federal Budget, a nonpartisan group, a who‟s who of directors; andthey‟ve examined and explained budget issues to the public and policymakers for, oh, 30 or soyears. Since 2003, Maya and the committee have also housed at – have been also located at theCenter for a New America. Maya herself is one of the most respected analysts andcommentators on budget matters – experience at Brookings, Wall Street and a number of otherforums that she‟s been part of. And so we‟re just delighted. She‟ll be provocative and lively, asalways, today.

And Maya, why don‟t you come forward, and you can present your first panel, and wecan hear from them. And I‟ll come back up and introduce our moderators of the second andthird panels, and we‟ll move the afternoon along.

But ladies and gentlemen, Maya MacGuineas. (Applause.) Good afternoon.

MAYA MACGUINEAS: (Off mic.) Thanks.

Thank you so much. It‟s a lot of pressure to be provocative and lively because I had – itwas my son‟s first day of second grade today, and so last night I had a midnight visit from himwanting to go over everything he was going to learn in second grade and whether he was goingto have to dissect a deer, as I had told him I had in second grade. (Laughter.) So I‟m going tonow be provocative and lively.

Anyhow, thank you so much to the Business Roundtable for hosting this timely andimportant event. Obviously, all eyes are now on fiscal policy and economic growth. I think Governor Engler was right to kind of talk about how those two are going to be brought together.



And I think, in fact, one of the issues right now is, are we going to look at those ascompartmentalized, or are we going to, as I think we need to, understand that putting in place a big deficit/debt reduction plan that‟s both big enough and done well is part of a whole economicgrowth strategy?

And so I think the supercommittee, which we‟re going to be focusing an awful lot ontoday, has a daunting and critically important task, and it‟s made all the more important becauseit‟s not just getting the numbers to add up. I think this is really a question of how you pulltogether a whole fiscal package that‟s done smart in a pro-growth way.

And so let me just quickly make the point that I think – there‟s been a lot of work doneon fiscal policy in the past year, starting with the president‟s fiscal commission and many other ideas put on the table. And in many ways, most of the ideas are already out there. And so this isnow about to turn to a political discussion as much as it is a policy discussion.

But I think one of the things people have come to understand is that if we put in place a

multi-year plan that‟s credible so it can actually be spread out over 10 years – it‟s not just empty political promises of politicians saying they promise to make these hard choices later, but it‟sdone in a credible way that I think is going to have to be bipartisan, put in statute, enforced witha number of triggers – one of the things that does, is it actually buys us some fiscal space upfrontto deal with the fact that we have an economic recovery that‟s not as strong as we would like it tobe.

Secondly, I would point out that sort of a wise plan that lays out where we‟re headed addsstability that we don‟t right now have, because everybody knows we‟re on an unsustainable path,everybody knows the fiscal course is going to have to change, but nobody knows how. And in particular, I think that‟s really important for business, because there‟s the opportunity for if weput more stability into the fiscal environment, businesses can really be the engine of growth tolead us into this stronger economic recovery that we need. And many of us believe that‟s notgoing to happen until we put in place a real plan.

And then finally, I think it‟s become clear that the policy changes that we‟re going toneed to tackle are large. And if they‟re done well both on the tax side, where we can look atfundamental tax reform – and we‟ll hear more about these in the next panels – and on thespending side, where we can sort of take this opportunity to rethink our budget and think aboutwhat actually works and what government spending is most effective and efficient and how totransfer a lot of our resources from consumption-oriented to investment-oriented spending, thisactually can be a huge opportunity.

All that said, it‟s a lot to do on a very short timeline. So the first thing that we‟re going todo in this panel is we‟re going to take advantage of three of truly the best, most well-knownexperts in the field to come talk to us about what the supercommittee, the 12 men and womenwho are going to be working on this issue for the next few months, are going to be tasked withand kind of the logistics of how that‟s going to work. And then we‟ll turn into more of thedetails of the policy in the next two panels.



So if our three panelists would come up and join me – Jim Gould is the – I think you haveall the bios, but he‟s the former staff director of the Senate Finance Committee; Bill Hoagland,former staff director of the Senate Budget Committee; and Rudy Penner, former director of theCongressional Budget Office – they‟re going to each work with us to talk about the questions of what the supercommittee is tasked with doing, many of the technical issues including baselines –

I have a feeling we‟re going to be talking this fall more about budget baselines than anybody wasever prepared to, but it‟s critically important in all of this – and the timing of the issues and howthis is all going to get done, and then think a little bit about what we can expect. That‟s whatwe‟ll hear from our three panelists.

And if your moderator is any good – and that may be a big “if” – we will then have timefor questions from the audience before we move to the next two panels.

So thanks again for joining the Business Roundtable today, and we will first turn it overto Jim for his comments.

JIM GOULD: Thank you, Maya. Unfortunately, I can‟t be as provocative as Maya, butI‟ll give it a try. Maya asked me to walk through some of the mechanics, the main mechanics, of the supercommittee process. So I‟ll do that, and if there‟s any time, I‟ll maybe make anobservation or two, but if you‟ll tug on my shoulder on time – that shouldn‟t take too long.

I‟ve got 10 kind of mechanical points about the supercommittee to walk through. One,(let‟s start ?) – is the name. The name is a huge problem because it‟s officially called the JointSelect Committee on Deficit Reduction, but the bill recites that the short name is the jointcommittee; and as a tax person – as all the tax people in the room k now, that‟s a problem that‟sgoing to cause endless confusion. So I‟m hoping there‟s going to be a technical correction thisfall – (laughter) – to call it the “Joint Select Committee” for short rather than the joint committee.

Point number two – membership. As everyone probably knows, the committee has 12members, three drawn from each of the four caucuses in the House and Senate, appointed by theleadership. Of note is that they‟re only drawn from among sitting members of Congress. Thereare no administration appointees, unlike various proposals for these supercommittees that havebeen made in the past that have included administration representatives. And there are noappointees on the private – from the private sector as well.

Also of note – and o bviously there‟s no partisan majority on – in either delegation, thedelegation from the House or the delegation from the Senate, which again is at odds with someof the proposals that have been made in the past – but it‟s purely split down the middle.

Point number three – the statutory goal for the committee, the expressed statutory goal isto – for the committee to write legislation that will reduce the deficit by $1.5 trillion or moreover the next decade. But as – and that‟s the number that‟s typically in the press, that you see inthe press – but as you probably know – a lot of you probably know – that‟s not the operativenumber. The operative number is deficit reduction of 1.2 trillion (dollars). And that‟spresumably what the main focus will be on for avoiding the sequester that I‟ll talk about.



Number – point number four – the general function of the committee. The committee is adifferent animal from the various commissions and blue-ribbon panels that have been convenedover the last 20 years to try to deal with the deficit and the debt, ranging from the Danforth-Kerry Commission in the „90s to the fiscal commission last year, in the sense that thosecommissions were an attempt, I would say, to outsource the solution to the deficit problem. And

then the blue-ribbon panel would supposedly come up with a plan, and Congress would pass it.But obviously that never happened.

A way to think of this is that now they‟re going to – the Congress is going to in-sourcethe solution to a group of its own members, its own sitting members. And instead of – so insteadof outsourcing it, they‟re going to create a procedural structure, A, that will attempt to forceaction in that new committee; and B, to facilitate passage of the bill, passage by an up or downvote in both the House and the Senate. Those are the key parts of what the – of what thesupercommittee is all about.

The means of forcing action – this is point number five – is of course the automatic

spending cuts that would kick in in – starting in 2013. The cuts would be $1.2 trillion over thenext decade if there is no supercommittee bill at all. If there is a supercommittee bill enactedthat is signed by the president that gets some distance towards that, then the sequester wouldmake up the difference. And the idea, of course, is that the sequester – the automatic cuts wouldbe a crude and blunt instrument and that the committee members will do whatever they can toavoid a sequester; they‟ll reach a deal and they‟ll pass it and then it‟ll go to the House and Senateand become law. That‟s the idea.

Of course, the $64,000 question is – that will be discussed more in this panel thancertainly in the other panels is, how much pressure will actually result from the sequester, orfrom the threat of the sequester? And we‟ll see this fall how that‟ll play out.

The second – the second procedural aspect in point number six is the fast-track procedurefor passage of the bill. And I would say that the fast-track procedure, as in this bill, is really oneof the two breathtaking aspects of the supercommittee process. Essentially, if the – if thesupercommittee meets the deadlines that are in the legislation, the House and Senate meet thedeadlines that are in the legislation and they write a bill with actual statutory language, then thebill can go through the House and Senate to an up-or-down vote without any filibuster, withoutany amendment, without any points of order, and most significantly, with passage by, like I said, just a simple majority.

And that is – if you think about it, recent proposals like the Conrad-Gregg proposal of last year and earlier years proposed that the bargain would be that the leaders – or the rank-and-file members of Congress would grant this power to the leadership; the leadership could comeout with a bill or a group selected by the leadership, but it‟d have to be a very popular bill andit‟d have to pass by a supermajority. This version that was actually enacted doesn‟t require that.It can pass the House and Senate by a simple majority, and that‟s – it‟s – as Governor Engler wassaying, it‟s a pretty extraordinary grant of power under any – under any measure for a smallgroup – the leadership and its appointees – to be able to produce a bill that can – that can gothrough and pass that way with nobody amending it or delaying it.



The legislation directs the joint committee bill to be referred to the standing committees

that have jurisdiction over its parts, but the committees have no power to hold it up, to block it oramend it. And they‟ll be discharged if they – if they don‟t make a recommendation one way or another on the bill.

Number seven – seventh point – on the deadlines. In order for the committee bill toqualify for the procedural protection, it has to meet two main deadlines; one by November 23rd,the – a majority, seven members, of the supercommittee has to approve an actual bill, actuallegislative language, making the recommendations of the supercommittee; and by no later thanDecember 23rd, both the House and the Senate have to pass that bill. Unlike in budgetreconciliation where the various statutory and procedural deadlines really don‟t matter byprecedent – they can be ignored – these deadlines apparently do matter. There‟s a specificprovision in the bill that says that if the deadlines are missed, the bill no longer qualifies for theprocedural protections. So those deadlines become critically important. You know, if they miss – if they pass the bill on November 24 th, apparently the bill will not qualify for the procedural

protections.

Also, the bill – one third point – the bill must be enacted, actually signed by the president,by January 15th. So if the president sits on it, then – and doesn‟t – and doesn‟t pass it, then Isuppose they couldn‟t – they couldn‟t restart the process, I guess, is what would happen.

Number eight – the content of the bill. This is, I guess I would label, the secondbreathtaking aspect of the supercommittee procedure because there basically is, as I read thelegislation, no limits on the content of the bill. There‟s no – unlike in reconciliation, there‟s noso-called Byrd Rule in the Senate that limits the bill to budgetary items. The Byrd Ruleprecludes extraneous non-budgetary items from a reconciliation bill. And as many of you know,reconciliation bills are subject to a host of points of order.

Here, on the other hand, all points of order are considered waived by the statute. Soapparently the committee can build in not only deficit reduction measures but any measures thatmight help get the bill – any other measures that might get the bill passed in the House andSenate – an extraordinary grant of power, again, which raises point number nine, which isexactly what does the bill have to look like for it to be eligible for fast-track status?

The statute says this – it says only this – the joint committee shall providerecommendations and legislative language that will significantly improve the short-term andlong-term fiscal imbalance of the federal government. That‟s the sole statutory guidance; thereare no numbers, there are no details – that‟s all it says. And – which raises the question of whodecides under that murky standard whether the bill meets that test? Will it be the joint chairs of the committee? Will it be the CBO? And – or will the parliamentarian – this matter is really inthe Senate – or will the parliamentarian conduct an independent review of whether the billqualifies?

And the answer is, I don‟t know the answer, and the statute doesn‟t say. It remains to beseen whether it will matter. I don‟t think it will matter, because the statute creates no



supermajority points of order against a bill that doesn‟t qualify. It rather says that – it anticipatesthat there might be – by the way, that there might be objections, parliamentary objections to thebill because it says specifically that any such objections – that is, any appeals from a ruling of thechair on an objection to the bill will be decided without debate.

So what that means essentially is that if the parliamentarian were to rule that the bill – asI understand it – that the bill does not qualify for the fast-track protections, that a member of theleadership presumably could move to appeal the ruling of the chair and that that would bedecided by an immediate majority vote, no debate. So presumably, if there – if there‟s a majorityof votes for the bill and a majority of members willing to vote to overturn the ruling of the chair,then presumably the committee can do whatever it wants, and the Congress will pass the bill.

There – oh, I meant – there‟s one exception to that, I might mention, that‟s interesting.The legislation – the Budget Control Act specifically provides that if there are any provisions inthe committee bill that would change House or Senate rules, those provisions would merely beregarded as advisory. And so rules changes would be getting a little close to home. (Laughter.)

Finally, point number 10 – termination. The statute formally terminates the jointcommittee at the end of next January. So there won‟t be – there‟s no wiggle room where theleadership could say that this process continues on, it appears to me, and that – it‟s over withouta new bill being passed extending the deadlines.

MS. MACGUINEAS: Thank you. I‟m going to bring up two quick points. This is on – is this on? One is the name – I‟ve had the same problem with the name but slightly different. Sothe supercommittee – since the group I run is called the Committee for a Responsible FederalBudget, I keep feeling like we need to rename it to be the “Supercommittee for a ResponsibleFederal Budget” – (laughter, inaudible) – upping the pressure on all of this.

If you wouldn‟t mind just taking two more minutes – so that was a great overview of thewhole design. Could you bring in what you think of the design, sort of how do you think that isgoing to – this is going to call for more of your prediction of where we‟re going – but how is thedesign going to impact the chances for success or what it‟s likely to lead to, if you have thoughtson that?

MR. GOULD: Sure. And that‟s – you could look both this fall, next year and then oninto the future in thinking about this committee, the supercommittee. I guess first of all, for thisfall, you can‟t scratch your head about whether the sequester is going to provide the necessarypressure this fall. People are going to debate that, but normally Congress reaches a deal, a harddeal – this will be a hard deal to reach by any measure – when they see – when they have to.And they‟re not going to have to do this until even early 2013 or the end of the next year. That‟swhen the automatic cuts will actually take effect. So you can scratch your head. Thoughobviously the committee will be under a spotlight, a huge spotlight this fall, and will be undertremendous pressure and they‟ll be under – the financial markets will be following it daily, so alot of pressure. But you can scratch your head about that.



But it just – in general, I – you know, one could rename this committee, as I was kickingaround with one of my colleagues this morning, the “Dirty Jobs Committee.” Somebody‟s got todo the dirty job of deficit reduction, and they‟ve delegated this to this committee. The membersshouldn‟t be too thank ful to be on this committee. But I can imagine – I could well imagine, justlike the base closing procedure, that the procedure will come to – the rank-and-file members and

committee chairs will come to like the procedure because arguably it will – if you outsource thedirty work and then can deal with the dirty work, get the budget back on track, then it could freethe standing committees to really refocus on responding to the demands of the public and theneeds – the immediate needs of the public.

And an example of that – and this is to be talked about later – but it is tax reform. Now,obviously the supercommittee could conceivably tackle tax reform. That‟s going to be thesubject of the third panel. But another way to look at it is if the – if the supercommittee actuallycan deal with the deficit – put the deficit on a sustainable track – then the odds that the standingtax-writing committees can do tax reform presumably goes way up because right now, for the – for the committees to tackle tax reform with the overhang of this huge deficit hanging over their

heads, it means that everyone will have an eye on – what should we use base broadening for if we want to eliminate tax credits, tax deductions, tax preferences, broaden the base – well, a lot of people are going to say, well, we‟ve got this gigantic deficit; how can we talk about cutting ratesand reform taxes at the same time? But if the deficit could be dealt with and the tax-writingcommittees were operating on a clean slate and not having to worry about deficit – (inaudible) – then the odds could go up.

So I kind of scratched my head that over time if this were to get institutionalized, which if it is successful this go-round, one would think that it could well get institutionalized, that itwould end up being a pretty popular, perhaps permanent feature of the budget process.

MS. MACGUINEAS: Bill – (off mic).

G. WILLIAM HOAGLAND: Thank you, Maya. And thank you, Business Roundtable,Governor Engler, for organizing this very timely discussion.

I‟m going to try to tie the first three items on this panel‟s list of items – the statutoryauthority, the tight deadlines and the rules of engagement – I‟m going to try to tie the three of them together. Some of this will overlap a little bit with Jim‟s comments.

On the statutory authority, it may be appropriate that a group of 12 would have apostolicpowers. (Laughter.) The – in fact, I was thinking here maybe we should rename it the – “(inaudible) – Apostolic Committee” or something like that. (Laughter.) The authorizing – authorization that‟s granted in this particular piece of legislation is, as has already beendiscussed, is broad, it‟s unique, and I would say it‟s unprecedented. And so if the jointcommittee, as Jim has indicated, if they report a bill by – I‟ll call it the select committee, Jim,OK? OK. If the select committee reports a bill by November the 23rd, it gets the expeditedconsiderations. In the Senate, there is no Rule 22. That means there is no motion to filibusterthe motion to proceed, to consider it. There are no points of order. All the points of order arewaived. In the Senate, there are 30 hours of debate. Even under the old budget resolutions, we



had at least 50 hours of debate. And under reconciliation, we had 20 hours. But under both of those, as many in this room will recall, that‟s not the end of it. We had the traditional vote-o-ramas that could go on endlessly even after that time had expired. No amendments in order ineither the House or Senate; no motion to postpone the consideration of this legislation.

If I read it correctly, Jim, there‟s only one motion that‟s in order, and I believe that‟s amotion to limit, cut back the time of debate, the 30 hours; but that even requires a supermajorityvote in the Senate of three-fifths.

And one last procedural issue that interests me at least as an old Senate staffer – if theSenate passes the legislation before the House passes its legislation and the House then sends tothe Senate its House-passed bill, it will have effectively been deemed to have passed in theUnited States Senate without another vote.

On the tight deadlines, Mr. Clyburn had a little piece in the paper this morning that raisedthis issue, which I want to touch on. From today, from September the 6th – and I would say till

November the 14

th

, or 70 days – and that‟s the date by which the estimates for the legislationhave to be completed by the Congressional Budget Office. So it‟s not – I would argue it‟s notthe 23rd; it‟s even less. That‟s 70 days. And, of course, if we let the members have Saturday andSunday off but not the staff, that‟s only 50 days, 10 weeks.

From November the 21st, when the committee‟s supposed to vote, you‟ve got 77 days or 55 if you take out Saturday and Sunday and holidays; and by November the 23 rd, 79 days. So webasically have 10 weeks to get all this done.

Why is this tight deadline important? And it leads me to the third issue in terms of therules of engagement. I think to be successful, to achieve both the, number one, mathematicaldeficit reduction target, and the number two, the political target of 51 votes in the United StatesSenate and 218 votes in the House, I think it‟s axiomatic – all – everything has to be on the table,both entitlements and revenues. And they‟ll both have to be considered. I will argue that you‟vealready done Congress the discretionary spending, but obviously that is still in the mix also.

Now, given the baseline – and I – I‟m with you, Maya. I don‟t want to talk baselines, andI hope – I pray to God that their first meeting of this select committee doesn‟t get into baselines – (laughter) – but – and there‟s a little bit of difference of opinion out here today about this – butthe law is clear that the Congressional Budget Office shall score whatever the committee doesagainst what we call current law – current law meaning, of course, existing tax cuts expire at theend of 2012.

Now, in fact, presumptuous on my part, I met with one of the apostles this morning. Andhe pointed out to me, well, you can score it against anything we want to. So I‟m sure. Andwhen you look at the 1.2 (trillion dollars), 1.5 (trillion dollars), it‟s not clear to me what you‟rescoring that against. But that be as it may, I think the law is clear that the Congressional BudgetOffice will have to go against current law.



Now, the revenue measures, as I say – I think scoring against current law means – andJim, you‟re the tax expert, and Rudy – I think that means that at least on this first round that thetax – that targeted so-called tax expenditures are on the table, such as credits, deductions andexemptions, and not so much rates since the rates will have already been assumed to have beentaken back by the expiring tax provision.

And given entitlement reform: Now, let‟s be honest, folks. I‟m an old ag economist, andsure, do whatever you want to do with the ag programs, but that‟s not the issue here. The issuehere is Medicare and Medicaid. And I don‟t believe that there‟s any possibility that either one,Medicare or Medicaid, can possibly be considered in this committee unless tax expenditures areon the table at the same time.

And this creates, at least for me, the first kind of a difficult complication. The interactionbetween the tax code and entitlement reform, I think, is bound to create some difficult estimatingprocedures for this – for the Congressional Budget Office and the joint tax committee. Let megive you an example: I think one of the issues, whether – I‟m – be careful about how I say this,

but one of the issues will be the elimination of the employer-sponsored health exclusion – healthinsurance exclusion, and that would score against current law. It‟s the number -one taxexpenditure, I believe, in the federal budget today – almost double the housing mortgagededuction.

But the interaction between that subsidy in the old days with health care reform havingpassed creates, I think, a real interesting issue about the exchanges in terms of those individualswho might leave employer-provided health insurance, move over to the exchanges with thesubsidies there – will offset that. So this is going to be a complicated procedure as it relates.

There‟s a second complication. The savings in this law – unlike our old days on the Hill,Jim, where we have a reconciliation instruction – it‟s not specific. It‟s 10 years. There‟s no one-year or two-year number. And so I am sure that jobs, with the president‟s address on Thursdaynight, will be in this discussion – extension (sic) the payroll tax holiday; infrastructureinvestment – all that will – all those will add to the deficit in the near term, and will need to beoffset with even greater savings in the entitlement (and revenue here ?) going forth.

And the third complication I see caused by this short timeframe – the short timeframe,from my perspective, will lead to policymakers making incremental changes – the low-hangingfruit – to both the entitlements and tax – and the tax code, leaving no time for what I think isreally needed here for the long term, and that‟s fundamental changes both to our Medicare program, as well as to the tax codes. I hope I‟m wrong.

So I think there‟s a possible solution – us old budget groupies over the years have talkedabout budget process reform, and one budget process reform was collapsing the House budgetcommittee and the Senate budget committee into one committee called a joint budget committee.I think this is a model for that type of approach.

And as a joint budget committee, then I can see the concept of a – of a broad – with the broad, apostolic powers that this committee has, it could first meet its initial target, whether it‟s



1.2 (trillion dollars) or something less than that, but also then go further and literally write asuper-reconciliation instruction for additional savings or additional tax reform at a certain date inthe future. The powers are very broad here – to April the 15th, if you like, for a second round.That does not eliminate the sequester, unless they meet the 1.5 (trillion dollars), but it does put uson a path to go much further than even the 1.5 (trillion dollars), should Congress show the will to

move there.

I don‟t think the joint committee can fail. I don‟t think they have any alternative – notonly as the American public watching this, but I think the world is watching. And failure isclearly not an option in this situation.

MS. MACGUINEAS: That‟s great, Bill. I think what – in many ways, what you did isyou laid sort of the foundation for what I think is going to happen and I hope is going to happen,which is that once people scratch the surface of the mission of the supercommittee and look atthe possibilities of pulling together the different policies to get there, I think people are going tocome to this conclusion that you actually have to go big, that this focus on $1.5 trillion may

actually be more difficult to get to than a larger-scale goal, which would actually stabilize thedebt and bring in, in more structural and fundamental ways, entitlement reform and tax reform.

Because if you try to get to 1.5 trillion (dollars), I think the focus will more be on parts of the budget like discretionary, other mandatories, not the big problem areas of the budget – andyou don‟t get the kind of grand bargain “pull everything in” that‟s going to have to happen toactually fix the problem.

And so we‟ve sort of looked at different models of how you get there, and it may turn outthat it‟s easier to get a bigger deal. I think it‟s critically important that you do get a bigger deal,otherwise we haven‟t really fixed the problem, right? If you only save $1.5 trillion, your debt isstill actually growing faster than the economy. And we‟ll have to go back and fix it again.

I also think one of the important related points that you brought up is sort of the windows,the different timing. And there are a lot of timing issues because in the very short term, we‟restill going to be focused on economic recovery. In the medium term, there‟s this goal of savings.But the real question is actually, what happens out of the 10-year window, which isn‟t part of thescoring of this whole exercise? So I guess I‟m curious if there‟s a way that you think you canbring in other fiscal objectives to focus more on the long-term measures that have to happen.

We know entitlement reform has to be center to this, and it‟s also necessary to getfundamental overhaul of the tax system, which is important for the economy and the fiscalsituation. Are there ways that you can sort of bring in the long term to it as well, though?

MR. HOAGLAND: Well, I do think that the law does make it very clear that, yes,there‟s 1.5 trillion (dollars) as the target over the 10 years, but it also has language in there thatsays that the Congressional Budget – at the request of the committee can request additionalestimates beyond the 10-year window.



I get a little nervous, to be quite frank with you, about very long-term projections, butnonetheless I do think that the authority is there for the committee to go further. And then, Iguess, tying back to my closing comments, I do think that the committee really wants to – it‟sgoing to be difficult; let‟s be honest about it. It‟s going to be difficult to achieve some of themajor fundamental changes to health care reform; you may not have liked the Ryan proposal, or

you may not have liked the Rivlin-Domenici proposal on Medicare. But most of those did notachieve savings in the 10-year window. Those are out beyond.

When you‟re talking about fundamental changes on, yes, changing the age of eligibilityfor Medicare – as an example – you‟re not going to get the savings in the 10-year window. Andtherefore, I do think the committee has the authority to look beyond 10 years. They have theauthority to ask for estimates beyond the 10 years, and that authority, along with tying it to someform of a multi-year reconciliation instruction beyond the 1.5 (trillion dollars) is an opportunityto go big, as you say, Maya.

MS. MACGUINEAS: And Rudy, will you share your optimism that you –

RUDY PENNER: (Chuckles.)

MS. MACGUINEAS: – currently have with the crowd?

MR. PENNER: Well, thanks, Maya. I‟ve been given the task on this panel to discusssome of the more boring, technical issues that the supercommittee will have to deal with. Butthat‟s not bad because I‟m very good at boring – (laughter).

There‟s a lot of concern about the short time the committee has to negotiate. I don‟t think that‟s the – that choosing the policy options here are the biggest problem because so manygroups have put so many o ptions on the table. You have the House budget, the president‟s fiscalcommission, the Bipartisan Policy Center, the Peterson Foundation – financed six think tanks toput out policy packages that would resolve the issue.

So the issues are very well-known. The areas of policy disagreement are well-known.There‟s no doubt that those disagreements are very profound ideologically. But I think thenegotiators can act quickly if they are forced, or they might find that there‟s little hope of agreement, and that is my major fear. Bill says they can‟t fail, but given my ordinarilypessimistic outlook on the world – (chuckles) – I think that is a possibility.

But there is an additional problem here. There are things that must be negotiated thatdon‟t directly involve policy, and I‟ll discuss two of them. Yes, one of them is this issue of baselines that nobody – (chuckles) – wants to talk about on this panel. But it is important because if you must cut $1.5 trillion from the deficit, it‟s an important question – what are youcutting from? That is, what is the baseline?

And it used to be, if we needed a baseline, we‟d just look at the implications of currentlaw. But the current law baseline is, to date, totally useless. And I‟m surprised, as Bill pointedout, that that was the recommended – (chuckles) – baseline for CBO to score from.



The problem with the current law baseline originates in Congress‟ recent propensity to

pass all of these temporary laws. They do that so they don‟t have to show the long-run deficitimplications of the various laws that they have to pass. And most important in all of that is theBush tax cuts, which are supposed to end at the end of 2012. And nobody believes, really, that

they all will.

And in addition to that, the Congress periodically adjusts the alternative minimum tax soit won‟t burden the middle class, but only for two years at the last time they fixed it. There are aplethora of temporary tax cuts like the research and experimentation tax credit that are extendedroutinely, but usually only one year at a time. Current law assumes unrealistically low Medicarereimbursements; Congress always fixes that, but again, only temporarily.

So a current law baseline starts with a deficit projection that is far, far too low to berealistic. There are some things that go the other way, like assuming the wars continue forever.But if they started with that baseline, presumably they‟d have to pay for things – (chuckles) –

like extending the Bush tax cuts, and in addition save 1.5 trillion (dollars), which is a implausiblekind of thing to expect them to do, I think.

So what do you assume instead? And that‟s going to be very contentious. You mighttake a whole list of more realistic policy assumptions that CBO puts in most of their reports onthe deficit outlook, but that assumes that all Bush tax cuts are continued, including those for therich. And that might appear to favor Democrats because ending the tax cuts for the rich wouldthen become more appealing because it‟d help count toward meeting the $1.5 trillion target. Inany case, arguments over such issues could consume many, many days, unfortunately.

Another different possible contentious points involves how policy changes are scored.Will macroeconomic effects of policy changes be considered, or not? If tax reform proposals areconsidered, for example, that would broaden the base and lower marginal rates, manyconservatives think that would be really good for economic growth, and therefore would reducethe deficits. And if you count that, then you would lower the amount of pain necessitated byhaving to choose deeper deficit cuts on the basis of policy.

But if the CBO analysis of these so-called dynamic effects was adopted, I think conservatives would be very disappointed. While CBO certainly believes that such reformswould be extremely good for the economy, their estimates of the amount of good that would bedone would fall far short of what conservatives expect, and they may be so disappointed thatthey demand a more conservative group do the estimating – and that would open – (chuckles) – an incredibly contentious debate with the Democrats.

As for any revenue cuts, if the committee, for some reason, proposed a revenue-reducingtax reform – and by the way, I do disagree a little bit with Jim on the dynamics – (chuckles) – of how tax reforms fit into all of this – but leaving that aside for the moment, if they were topropose such a thing, CBO would actually estimate that would do more harm than good. The taxrate effects would be good for economic growth, but the resulting deficit increase would crowd



out – would be presumed by CBO to crowd out investment in the long run or increase borrowingfrom abroad. And either effect would be bad from the point of view of future income growth.

So in CBO‟s analysis, I have little doubt that the bad effect would outweigh the goodeffect, and in most of the models that CBO now uses to estimate dynamic effects.

Well, I‟ve just scratched the surface on technical things that the supercommittee mightargue about. And I‟m afraid that such side arguments could be very time-consuming and make itextremely difficult to meet the deadline for cutting the 1.5 trillion (dollars).

(OK ?).

MS. MACGUINEAS: Thank you. Rudy, one thing that hasn‟t been mentioned yet – butis the design of a sequester. Do you want to comment just briefly on what you think of thatdesign?

MR. PENNER: Yeah, it‟s very tricky to design a sequester – (chuckles) – because if youmake it too gentle, obviously that doesn‟t do much for you. If you make it too harsh, then there‟sthe temptation for the Congress to walk away from it when it becomes too painful. And that, of course, is what they did ultimately with the Gramm-Rudman sequester that was created in 1985.

I guess – I think they‟re close to a happy medium with the kind of sequester that wasdesigned by the bill. And we could argue – (chuckles) – ferociously about that. But it seems tome that discretionary cuts – well, no across-the-board cut is wise by any standard – it might wellbe tolerable, especially if the committee gets a part of the way to the 1.5 trillion (dollars) – andthe residual, as I understand it, is supposed to come from the automatic cuts.

The thing I‟m really dubious about is that the automatic cuts yet again include cuts inMedicare reimbursements. And most people don‟t think that the cuts in reimbursements that arealready on the books as a result of the health reform law are at all practical. And we just run therisk of driving a lot of doctors out of the Medicare program, in which case you can assume thatthat will be reversed almost instantaneously. So I think that‟s a part of the whole thing that‟smost dubious.

MS. MACGUINEAS: OK, at this point, I‟d love to take questions f rom the audience, if there are questions from people who are here. So you don‟t have to use the word “budget baseline” in your question, but obviously – (laughter) – if you (pick ?) a new – the new happytopic –

Yes. Oh, there‟s a mic right here, actually, so folks on C-SPAN can hear.

Q: Yes, and the question may be just –

MS. MACGUINEAS: I‟m sorry, could you identify yourself –



Q: Sure. Joe Hezir from the EOP Foundation. Question I have may be directed mostlyto Jim Gould, but it picks up on the last comment made by Rudy Penner: If the supercommitteecomes up with a package that ends up being less than 1.2 trillion (dollars), does it still qualify forthe fast track procedures, and the rest of the process works as it is in the statute, and then thedifference is just made up at the back end through a sequester? Is that –

MR. GOULD: That‟s my reading –

Q: – correct?

MR. GOULD: – that, yes, that there‟s nothing in the statute saying that it – in the – thatis in the Budget Control Act to say that that bill would not qualify. And it – basically, it – I think it anticipates that possibility because it would – the sequester is adjusted based on a bill thatdoesn‟t meet the 1.2 (trillion dollars), but gets partway there. So that‟s my (read ?) – be fullyprotected, yes.

MR. HOAGLAND: Maya, while we‟re waiting for another question, could I just addresssomething that Rudy said at the end here? First of all, the estimates that we‟ve worked on – andI think you are familiar with, and Rudy is – that if we do not succeed, if they get nothing, if theyfail, you‟re looking at about a 10-percent across-the-board cut in defense in one year – or eachyear thereafter – and you‟re looking about 8- to 9-percent across-the-board cut in discretionaryprograms for a – excuse me – non-defense programs. And a number of programs are exemptfrom that – once again, the means test with low-income programs – but there‟s also a limitationof 2 percent in Medicare. And all I can say is, there are those, I am sure, in this town that arelooking at it and saying that 2 percent is better than what I would get if we actually let thecommittee go to work and actually reform health care, in which case it is a problem.

I don‟t think the 2 percent is a – is a real major factor here at this point, except for thosepeople who are trying to defend Medicare.

MR. GOULD: Could I make a – while we‟re commenting on Rudy‟s comments – on the – on the – (laughter) – likelihood of success and timing – in some ways, you scratch your head – I mean, clearly this fall, the committee is going to be under, you know, a really bright spotlight;there‟s no question about that. As Bill says, they can‟t fail.

But think about the possibility they‟re doing something broad on Medicare reform,Medicaid reform and perhaps taxes – some broad tax package. The idea that that can be written,drafted with a –

MR. : Yes.

MR. GOULD: – with transition rules, effective dates, special rules for special industries – I mean, the things you need to do to draft – you know, the actual language comes out of thiscommittee, and that bill – not a comma gets changed after it comes out of this committee, so – (inaudible) – unimaginable – (inaudible) – but I‟d be very, very confident in what they‟re doing.



To do that in the next three months, I can‟t imagine – and then, you add that to thepossibility – or not – excuse me – to the, you know, what is faced by Congress at the end of nextyear – I mean, as Rudy was saying, the Medicare cuts go into – for doctors, go into effect – thereimbursements. The alternative minimum tax fix ends; of course, the Bush tax cuts end.

And if they didn‟t do anything, what essentially gets added to that is the sequester. Andone would think that if there‟s going to be a grand bargain, and they are really going to do the big deal that you talked about, that‟s a more – that‟s a timing that might – that might actuallywork, gives them time. That requires, of course, that they persuade the financial markets and thepublic that they are going to be successful, that they‟re working along toward the end of the year,and persuading their colleagues to extend the effective dates and the deadlines. Whether any of that can happen, I don‟t know.

But you look toward the end of next year, it seems like a pretty logical time for thecompletion of a – of a big deal.

MR. PENNER: I guess one thing that isn‟t clear to me is, let‟s suppose everybody‟s rightin that they have to reverse some of the Medicare cuts in the health law. Is there any restraint onthem doing that immediately after this – (chuckles) – I mean, can they reverse through regularlegislation some of the things that go into place in this deal? I don‟t see anything. But is there,Jim, anything that restrains them at all?

MR. GOULD: You mean to use this process to change –

MR. PENNER: No, no. No. I mean just –

MR. GOULD: Oh, (just ?) –

MR. PENNER: – in the ordinary process. It seems to me if, you know, you cut Medicare2 percent one day – (chuckles) –

MR. GOULD: Oh, sure – (inaudible) – sure –

MR. PENNER: And then increase it 5 percent the next –

MR. GOULD: Sure.

MR. PENNER: And most people think they‟ll have to do something if we‟re going tohave doctors participate in the program.

MR. GOULD: True.

MR. HOAGLAND: And –

MS. MACGUINEAS: Is there another question – oh, (Bill ?) –



MR. HOAGLAND: And while reversing things for the budget groupies that have – look at this, and Chairman Nussle will be familiar with this – there – I‟m still confused – section 258of the budget act – (chuckles) – suspension in the event of war or low economic growth – I amnot clear if there is a – if the economy does not recover whether or not that suspension stillapplies or not. It‟ll be interesting to see how that‟s interpreted.

MR. PENNER: Gramm-Rudman allowed the Congressional Budget Office to announcethat there was a recession. I always kind of hoped I‟d be able to do that. (Laughter.)

MS. MACGUINEAS: Is there another question before I jump in – OK, yeah – take one,too. Please, go ahead.

Q: Peter Gilford (ph) from Deutsche Bank. The panel waxed from optimistic topessimistic as it – as it proceeded. Two questions – one: The baseline, I think, is critical. And just point of clarification – is the CBO charged with using current law? Is that a –

MR. HOAGLAND: That‟s the – that‟s the law. That is the law.

MR. PENNER: Yes, that is the law.

MR. HOAGLAND: Yeah.

Q: Given that –

MR. HOAGLAND: That doesn‟t mean the committee has to do that. (Chuckles,laughter.)

Q: Under current law, I think – I think CBO‟s baseline comes fairly close to stabilizingdebt to GDP over the next decade –

MR. PENNER: It does. Yes.

Q: – so that 1.5 trillion (dollars) would presumably put it on a more positive trajectory.

And Maya, starting out, you indicated – you thought that we needed more. Is that anissue of disagreement over the baseline, or do you think we really do need more? And I think given CBO‟s charge here, I agree with Rudy – it‟s going to be very tough to get this (hurdle ?).

MR. PENNER: But if they do use a current law baseline, they‟d have to pay for all of thethings that CBO calls realistic policy changes, plus – (chuckles) – 1.5 trillion (dollars). And Idon‟t –

Q: And one other – one other little wrinkle here is that as the economy is slowing, thebaseline path of GDP could well be lower, which would make things even more difficult.

MR. HOAGLAND: Except that‟s an absolute number.



MR. PENNER: Yeah. Yeah.

MR. HOAGLAND: It‟s an absolute number, so whatever the baseline is, it‟s a changefrom the – it‟s an absolute.

MR. GOULD: Remember, all these questions about baseline – I‟m not sure thecommittee can‟t do whatever it wants.

MR. HOAGLAND (?): It can.

MR. GOULD: I mean, there‟s no – as I was – (to me ?), at least the way I read it, as Idescribed earlier, I‟m not sure what there is to enforce, you know. So if the requirement is,actually, then the way the Supreme Court would read it, that the CBO current law baseline iswhat is supposed to be followed, how that gets enforced is not clear to me.

MR. HOAGLAND: Can I just make one quick observation? And if everything else goesto hell in a handbasket, remember that Congress has to pass the law to undo current law. There‟san election next November, and the expiration of those tax cuts is December. The person whohas the ultimate trigger, I think, is the president of the United States because if – he could vetothat and put his back to current law.

MR. PENNER: This goes beyond the charge of this panel, but the last point you made isextremely important. Ten-year projections are such that they can change radically – (chuckles) – very quickly. And CBO is fairly modest in reflecting the slower rate of growth that we areexperiencing in their mid-session update. It would not take much of a deterioration in theeconomic assumptions to make our debt problem look a lot more like Greece‟s than it doestoday. So – added something that everybody – (chuckles) – should worry a great deal about.

MS. MACGUINEAS: There‟s that kind of Rudy cheer that I – (inaudible, laughter).Yeah, and let me just sort of agree with that, that the way that the supercommittee is charged,they do – there are – things will be scored against current law, but they also have – there‟s a lotof fuzziness in how it can work. And they can also use scoring against different baselines. Andthat can either be used for terrible games – you know, if we start seeing savings from the wardrawdown that‟s already meant to happen, and we try to claim savings from that, you can see allsorts of gains from baselines.

But you can also see that fuzziness used as a way to help this negotiation move forward because we know everybody‟s going to have to put forth policies they don‟t really want to do.And so if we can use the baselines to help them get to yes, maybe that can be a good thing.

My only comment about saying 1.5 trillion (dollars) wasn‟t enough was the assumptionthat nobody needs to stick to the current law baseline, and that if what they do is pretend they‟regoing to save 1.5 trillion (dollars) and then go ahead and patch AMT and the doc fix and extendthe bulk of the tax cuts, we‟re not going to be where we need to be. And I think we know that



compared to any realistic baseline where there‟s political will towards sticking to, we‟re going toneed more.

Or if you want to say we‟re going to stick to current law, you need to put in real pay-go procedures; you need to have much higher hurdles than we‟ve had before, and have a process

that will actually keep us on track there.

And I think Rudy‟s absolutely right that the savings right now that we‟re talking about tostabilize the debt assume current economic projections. And unfortunately, the risk is on thedownside that things will get a lot of worse, and so that the savings that we‟ll have to get to getto the fiscal metric that I think most people agree to, which is, you want to stabilize the debt andbring it on a downward trajectory closer to historical levels. It‟s likely we‟re going to needmore, not less in savings.

I‟m going to take one final question for the panel, and it‟s just a quick question. But Iwould like to know the percentage chance that everybody – (laughter) – gives – the likelihood

that the su percommittee will meet or exceed its goal. We‟ll just take the one – the bareminimum, the 1.2 trillion (dollars) – but the chance you think of getting that in savings, or more,by the stated deadline.

MR. GOULD: Me first – oh, OK. (Chuckles.)

MS. MACGUINEAS: We‟re running our own – our own little market – (inaudible) – theodds of success. Yeah – Jim, you‟re first.

MR. GOULD: All right, and put it in percentage terms – I‟d say maybe 40 percent.(Laughter.)

MR. PENNER: I thought I was a pessimist.

MR. HOAGLAND: I don‟t think there‟s – I don‟t think there‟s any chance they willexceed 1.2 (trillion dollars), 1.5 (trillion dollars), in terms of real savings – doesn‟t mean theycan‟t propose additional savings beyond the 1.2 (trillion dollars), 1.5 (trillion dollars), but I don‟tthink there‟s any chance this – I‟d be very happy right now with 1.2 (trillion dollars).

MS. MACGUINEAS: But what‟s the chance – because you said they have to succeed, so –

MR. GOULD: That they get – they get there – that they get there. Once –

MR. HOAGLAND: Oh, I think it‟s 100 percent.

MS. MACGUINEAS: OK.

MR. PENNER: Well, I‟m at Jim‟s 40. (Laughter.)



MS. MACGUINEAS: OK. All right. Well, OK. We‟ve got a chance. (Laughter.) So – (chuckles) – with that, we will turn it over to the next panel. And thank you to our panelists.(Applause.)

MR. ENGLER: That‟s fine; that‟s a 60-percent average there.

MS. MACGUINEAS: Yeah. It‟s OK, right?

(END OF PANEL ONE)

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Panel 1 Transcript