NAM Public Affairs Conference“Fiscal Shock”

April 15, 2013

Hazen MarshallThe Nickles Group, LLC

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Current Budget State of Play

• Budget Control Act sequester + FY13 minibus appropriations bill = a political yawn

• House, Senate, and President produce budgets messaging/negotiating documents

• What happens between now and August recess?

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Comparing House, Senate, and President’s Budgets

• Claims of how much “deficit reduction” has been enacted in recent years are subjective…depends on the starting point.

• Claims of how much a budget plan will reduce future deficits are even more subjective…depends on the baseline.

• Focus instead on the actual results a budget produces – not the change from some subjective starting point.

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House Budget

-$1.225 trillion

Senate Budget

-$5.198 trillion

President's Budget

-$5.270 trillion

Comparing the House, Senate, and President's BudgetsTotal Deficits 2014-2023

Sources: H.Con.Res. 25, S.Con.Res. 8, OMB

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

-$528

-$125

-$69 -$54 -$54-$97

-$122-$91 -$93

$7

-$744

-$576

-$528-$487 -$475

-$498 -$503 -$501-$519

-$439

Comparing the House & President's BudgetsDeficit Path - 2014-2023

House Budget deficit/surplus President's Budget deficit

Billi

ons o

f dol

lars

Sources: H.Con.Res. 25, OMB

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House Budget

$40.241 trillion

Senate Budget

$41.164 trillion

President's Budget

$41.231 trillion

Comparing the House, Senate, and President's BudgetsTotal Revenues 2014-2023

Sources: H.Con.Res. 25, S.Con.Res. 8, OMB

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

18.0%

19.1% 19.1%

18.9% 18.8% 18.7% 18.7%18.9%

19.0%19.1%

17.8%

18.6%

18.8% 18.8% 18.9%

19.2%

19.4%

19.7%19.8%

20.0%

Comparing the House & President's BudgetsRevenues as a Share of GDP

House Budget revenues President's Budget revenues 40-year average

<--17.9%

Sources: H.Con.Res. 25, OMB

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House Budget

$41.466 trillion

Senate Budget

$46.362 trillionPresident's Budget

$46.502 trillion

Comparing the House, Senate and President's BudgetsTotal Spending 2014-2023

Sources: H.Con.Res. 25, S.Con.Res. 8, OMB

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

21.2%

19.8%

19.5%

19.1% 19.1% 19.2% 19.3% 19.2%19.4%

19.1%

22.2%

21.8%21.6%

21.3% 21.2%21.5%

21.6% 21.7%21.9%

21.7%

Comparing the House & President's BudgetsSpending as a Share of GDP

House Budget spending President's Budget spending 40-year average

<--21.0%

Sources: H.Con.Res. 25, OMB

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House Budget

$14.211 trillion

54.8% of GDP

Senate Budget

$18.230 trillion

70.4% of GDP

President's Budget

$19.030 trillion

73.0% of GDP

Comparing the House, Senate, and President's BudgetsDebt Held by the Public in 2023

Sources: H.Con.Res. 25, S.Con.Res. 8, OMB

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2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

77.2%74.1%

70.4%66.9%

64.4%62.4% 60.5% 58.7% 56.9%

54.8%

78.2% 78.2% 77.7% 76.8% 75.9% 75.3% 74.9% 74.4% 73.9% 73.0%

Comparing the House & President's BudgetsDebt held by the Public as a Share of GDP

House Budget debt held by the public President's Budget debt held by the public 40-year average

<--39.2%

Sources: H.Con.Res. 25, OMB

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Tax Reform• Budget battles in the 112th Congress prevented serious tax reform

discussions as both parties waited to “win” the November 2012 elections.

• Behind the scenes, however, Congressional tax committees held hearings and laid the foundation for a tax reform effort…work which continues this year.

• Congressional Republicans insist on revenue-neutral tax reform for both individuals and businesses. The President insists on revenue-neutral corporate tax reform, but wants an additional $800 billion to $1 trillion from upper-income individuals.

• These divergent goals lead most observers to conclude that the fate of tax reform is tied inextricably to a larger budget agreement.

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Tax Reform - House• House Republicans are pursuing tax reform that would:

– Lower the top individual and corporate tax rates to 25% and broaden the tax base,– Shift to a territorial system of taxation for U.S. multinationals, and– Maintain revenue growth consistent with historical norms of 18 to 19 percent of GDP

• The Ways & Means Committee and it’s Chairman Dave Camp (R-MI) have done more than anyone else to advocate and prepare for tax reform with the release of three detailed tax reform discussion drafts:– International– Financial products (derivatives)– Small business / pass through entities

• Chairman Camp and Ranking Member Sander Levin (D-MI) have also formed bipartisan working groups that are tasked with examining various areas of the tax code and soliciting input from stakeholders, academics, practitioners, and the general public.

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Tax Reform - Senate• In the Senate, Finance Chairman Max Baucus (D-MT) and

ranking member Orrin Hatch (R-UT) are hosting tax reform meetings for their members and discussing options.

• The recently-passed Senate budget resolution called for an additional $1 trillion in new revenue from tax reform that “simplifies the tax code, increases fairness, generates economic growth, and improves the competitive position of U.S. businesses.”

• Interestingly…Chairman Baucus did not vote for the Senate budget…

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Tax Reform - President• In February 2012 Treasury released “The President’s Framework for

Business Tax Reform”, which suggested:– Lowering the corporate rate from 35% to 28%,– Continuation of the worldwide system of taxation for multinationals

including the imposition of a new “minimum” tax on foreign income, and– Consideration of a business-level tax on large pass-through entities.

• The President’s new budget released last week called for “revenue-neutral” business tax reform, and included $95 billion in specific business tax increases that could be used to reduce rates.

• Altogether, the President’s budget included $1.1 trillion of net new tax increases over ten years.

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Tax Reform – Major ExpendituresIndividual & corporate, revenue loss over ten years:• Health insurance/expenses $1.301 trillion• Retirement plans $1.032 trillion• Mortgage interest $640 billion• Capital gains preferential rate $331 billion• Charitable deduction $319 billion• State & local tax deduction $292 billion• Accelerated depreciation $274 billion• Deferral foreign income $220 billion• Municipal bond interest $178 billion• Domestic manufacturing deduction $75 billion