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, 20111:30 p.m.

Washington, D.C.

Transcript byFederal 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 Business Roundtable, and it is our privilege to welcome you to this Business Roundtable forum on the work of the Joint Select Committee on Deficit Reduction and our program, appropriately entitled: “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; the experts’ experts really are here today to help us focus on budget, taxation, the economy, the role of this incredible 12-member commission. And we hope to have time not only to have a – just a productive 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 our companies and our job providers as we seek to have the world’s most globally competitive nation. Our association is actually an association of chief executive officers of leading companies, but those companies are what really matter -- $6 trillion in annual revenue, more than 13 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 a bit – they comprise nearly a third of the total value of the U.S. stock market and invests more than $114 billion annually in research and development. And that’s nearly half of all the private R&D spending that takes place in the country. So the fiscal health of the nation – the host nation, the headquarters nation for virtually all of these companies – is something that’s highly significant, and their shareholders, their customers, their supply chains, their retirees as well as people 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 on Thursday. The Business Roundtable has the view that it will work with anyone who wants to help create jobs, to reduce the deficit and strengthen our economy. And there is much work to be done. 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 time at all. But what they lack in time, they make up in power. As near as I can tell, they’ve got unbelievable, awesome authority been delegated by their colleagues. And so the ability to put together 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 how much power do they have, how great is that opportunity, what can and maybe should the bipartisan, 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 dose probably 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. But what’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 jobs and economic growth and the role of tax reform. And again, without predetermined conclusions about our discussion today, I think there’s one thing that’s pretty clear. Without economic growth, you can’t cut the budget enough and you certainly can’t have enough jobs to really result in a strong, healthy fiscal condition for our nation. So time is short not just for deficit reduction and 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 is This Opportunity?” – 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 the Committee for a Responsible Federal Budget, a nonpartisan group, a who’s who of directors; and they’ve examined and explained budget issues to the public and policymakers for, oh, 30 or so years. Since 2003, Maya and the committee have also housed at – have been also located at the Center for a New America. Maya herself is one of the most respected analysts and commentators on budget matters – experience at Brookings, Wall Street and a number of other forums that she’s been part of. And so we’re just delighted. She’ll be provocative and lively, as always, today.

And Maya, why don’t you come forward, and you can present your first panel, and we can hear from them. And I’ll come back up and introduce our moderators of the second and third 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 – it was my son’s first day of second grade today, and so last night I had a midnight visit from him wanting to go over everything he was going to learn in second grade and whether he was going to have to dissect a deer, as I had told him I had in second grade. (Laughter.) So I’m going to now be provocative and lively.

Anyhow, thank you so much to the Business Roundtable for hosting this timely and important 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 as compartmentalized, 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 economic growth strategy?

And so I think the supercommittee, which we’re going to be focusing an awful lot on today, has a daunting and critically important task, and it’s made all the more important because it’s not just getting the numbers to add up. I think this is really a question of how you pull together 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 done on 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 is now 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’s done in a credible way that I think is going to have to be bipartisan, put in statute, enforced with a number of triggers – one of the things that does, is it actually buys us some fiscal space upfront to deal with the fact that we have an economic recovery that’s not as strong as we would like it to be.

Secondly, I would point out that sort of a wise plan that lays out where we’re headed adds stability 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 we put more stability into the fiscal environment, businesses can really be the engine of growth to lead us into this stronger economic recovery that we need. And many of us believe that’s not going 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 to need to tackle are large. And if they’re done well both on the tax side, where we can look at fundamental tax reform – and we’ll hear more about these in the next panels – and on the spending side, where we can sort of take this opportunity to rethink our budget and think about what actually works and what government spending is most effective and efficient and how to transfer a lot of our resources from consumption-oriented to investment-oriented spending, this actually 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 to do in this panel is we’re going to take advantage of three of truly the best, most well-known experts in the field to come talk to us about what the supercommittee, the 12 men and women who are going to be working on this issue for the next few months, are going to be tasked with and kind of the logistics of how that’s going to work. And then we’ll turn into more of the details 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 have all 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 the Congressional 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 was ever prepared to, but it’s critically important in all of this – and the timing of the issues and how this is all going to get done, and then think a little bit about what we can expect. That’s what we’ll hear from our three panelists.

And if your moderator is any good – and that may be a big “if” – we will then have time for 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 over to Jim for his comments.

JIM GOULD: Thank you, Maya. Unfortunately, I can’t be as provocative as Maya, but I’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 an observation 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 Joint Select Committee on Deficit Reduction, but the bill recites that the short name is the joint committee; and as a tax person – as all the tax people in the room know, that’s a problem that’s going to cause endless confusion. So I’m hoping there’s going to be a technical correction this fall – (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 12 members, three drawn from each of the four caucuses in the House and Senate, appointed by the leadership. Of note is that they’re only drawn from among sitting members of Congress. There are no administration appointees, unlike various proposals for these supercommittees that have been made in the past that have included administration representatives. And there are no appointees on the private – from the private sector as well.

Also of note – and obviously there’s no partisan majority on – in either delegation, the delegation from the House or the delegation from the Senate, which again is at odds with some of 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 is to – for the committee to write legislation that will reduce the deficit by $1.5 trillion or more over the next decade. But as – and that’s the number that’s typically in the press, that you see in the press – but as you probably know – a lot of you probably know – that’s not the operative number. The operative number is deficit reduction of 1.2 trillion (dollars). And that’s presumably 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 a different animal from the various commissions and blue-ribbon panels that have been convened over 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 those commissions 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-source the solution to a group of its own members, its own sitting members. And instead of – so instead of outsourcing it, they’re going to create a procedural structure, A, that will attempt to force action in that new committee; and B, to facilitate passage of the bill, passage by an up or down vote in both the House and the Senate. Those are the key parts of what the – of what the supercommittee 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 the next decade if there is no supercommittee bill at all. If there is a supercommittee bill enacted that is signed by the president that gets some distance towards that, then the sequester would make up the difference. And the idea, of course, is that the sequester – the automatic cuts would be a crude and blunt instrument and that the committee members will do whatever they can to avoid a sequester; they’ll reach a deal and they’ll pass it and then it’ll go to the House and Senate and become law. That’s the idea.

Of course, the $64,000 question is – that will be discussed more in this panel than certainly in the other panels is, how much pressure will actually result from the sequester, or from 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 procedure for passage of the bill. And I would say that the fast-track procedure, as in this bill, is really one of the two breathtaking aspects of the supercommittee process. Essentially, if the – if the supercommittee meets the deadlines that are in the legislation, the House and Senate meet the deadlines that are in the legislation and they write a bill with actual statutory language, then the bill can go through the House and Senate to an up-or-down vote without any filibuster, without any 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 come out with a bill or a group selected by the leadership, but it’d have to be a very popular bill and it’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 was saying, it’s a pretty extraordinary grant of power under any – under any measure for a small group – the leadership and its appointees – to be able to produce a bill that can – that can go through 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 or amend 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 to qualify 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, actual legislative language, making the recommendations of the supercommittee; and by no later than December 23rd, both the House and the Senate have to pass that bill. Unlike in budget reconciliation where the various statutory and procedural deadlines really don’t matter by precedent – they can be ignored – these deadlines apparently do matter. There’s a specific provision in the bill that says that if the deadlines are missed, the bill no longer qualifies for the procedural protections. So those deadlines become critically important. You know, if they miss – if they pass the bill on November 24th, 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 I suppose 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 second breathtaking aspect of the supercommittee procedure because there basically is, as I read the legislation, no limits on the content of the bill. There’s no – unlike in reconciliation, there’s no so-called Byrd Rule in the Senate that limits the bill to budgetary items. The Byrd Rule precludes 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. So apparently the committee can build in not only deficit reduction measures but any measures that might help get the bill – any other measures that might get the bill passed in the House and Senate – an extraordinary grant of power, again, which raises point number nine, which is exactly 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 provide recommendations and legislative language that will significantly improve the short-term and long-term fiscal imbalance of the federal government. That’s the sole statutory guidance; there are no numbers, there are no details – that’s all it says. And – which raises the question of who decides 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 in the Senate – or will the parliamentarian conduct an independent review of whether the bill qualifies?

And the answer is, I don’t know the answer, and the statute doesn’t say. It remains to be seen 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 anticipates that there might be – by the way, that there might be objections, parliamentary objections to the bill because it says specifically that any such objections – that is, any appeals from a ruling of the chair 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 – as I understand it – that the bill does not qualify for the fast-track protections, that a member of the leadership presumably could move to appeal the ruling of the chair and that that would be decided by an immediate majority vote, no debate. So presumably, if there – if there’s a majority of 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 in the committee bill that would change House or Senate rules, those provisions would merely be regarded 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 joint committee at the end of next January. So there won’t be – there’s no wiggle room where the leadership could say that this process continues on, it appears to me, and that – it’s over without a 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. So the supercommittee – since the group I run is called the Committee for a Responsible Federal Budget, I keep feeling like we need to rename it to be the “Supercommittee for a Responsible Federal 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 the whole design. Could you bring in what you think of the design, sort of how do you think that is going to – this is going to call for more of your prediction of where we’re going – but how is the design going to impact the chances for success or what it’s likely to lead to, if you have thoughts on that?

MR. GOULD: Sure. And that’s – you could look both this fall, next year and then on into the future in thinking about this committee, the supercommittee. I guess first of all, for this fall, you can’t scratch your head about whether the sequester is going to provide the necessary pressure this fall. People are going to debate that, but normally Congress reaches a deal, a hard deal – 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’s when the automatic cuts will actually take effect. So you can scratch your head. Though obviously the committee will be under a spotlight, a huge spotlight this fall, and will be under tremendous pressure and they’ll be under – the financial markets will be following it daily, so a lot 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 kicking around with one of my colleagues this morning, the “Dirty Jobs Committee.” Somebody’s got to do the dirty job of deficit reduction, and they’ve delegated this to this committee. The members shouldn’t be too thankful to be on this committee. But I can imagine – I could well imagine, just like 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 the dirty work and then can deal with the dirty work, get the budget back on track, then it could free the standing committees to really refocus on responding to the demands of the public and the needs – 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 the subject of the third panel. But another way to look at it is if the – if the supercommittee actually can deal with the deficit – put the deficit on a sustainable track – then the odds that the standing tax-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 rates and reform taxes at the same time? But if the deficit could be dealt with and the tax-writing committees 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 it would 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 statutory authority, 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 apostolic powers. (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 been discussed, is broad, it’s unique, and I would say it’s unprecedented. And so if the joint committee, 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 expedited considerations. In the Senate, there is no Rule 22. That means there is no motion to filibuster the motion to proceed, to consider it. There are no points of order. All the points of order are waived. 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 in either 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 a motion to limit, cut back the time of debate, the 30 hours; but that even requires a supermajority vote in the Senate of three-fifths.

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

On the tight deadlines, Mr. Clyburn had a little piece in the paper this morning that raised this issue, which I want to touch on. From today, from September the 6th – and I would say till November the 14th, or 70 days – and that’s the date by which the estimates for the legislation have to be completed by the Congressional Budget Office. So it’s not – I would argue it’s not the 23rd; it’s even less. That’s 70 days. And, of course, if we let the members have Saturday and Sunday 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 23rd, 79 days. So we basically 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 the rules of engagement. I think to be successful, to achieve both the, number one, mathematical deficit reduction target, and the number two, the political target of 51 votes in the United States Senate 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’ve already 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, and I 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 – but the law is clear that the Congressional Budget Office shall score whatever the committee does against what we call current law – current law meaning, of course, existing tax cuts expire at the end of 2012.

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

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

And given entitlement reform: Now, let’s be honest, folks. I’m an old ag economist, and sure, do whatever you want to do with the ag programs, but that’s not the issue here. The issue here 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 are on the table at the same time.

And this creates, at least for me, the first kind of a difficult complication. The interaction between the tax code and entitlement reform, I think, is bound to create some difficult estimating procedures for this – for the Congressional Budget Office and the joint tax committee. Let me give 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 – health insurance exclusion, and that would score against current law. It’s the number-one tax expenditure, I believe, in the federal budget today – almost double the housing mortgage deduction.

But the interaction between that subsidy in the old days with health care reform having passed creates, I think, a real interesting issue about the exchanges in terms of those individuals who might leave employer-provided health insurance, move over to the exchanges with the subsidies 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 Thursday night, will be in this discussion – extension (sic) the payroll tax holiday; infrastructure investment – all that will – all those will add to the deficit in the near term, and will need to be offset 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-hanging fruit – to both the entitlements and tax – and the tax code, leaving no time for what I think is really 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 talked about budget process reform, and one budget process reform was collapsing the House budget committee 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 a super-reconciliation instruction for additional savings or additional tax reform at a certain date in the 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 us on 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 – not only as the American public watching this, but I think the world is watching. And failure is clearly not an option in this situation.

MS. MACGUINEAS: That’s great, Bill. I think what – in many ways, what you did is you 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 at the possibilities of pulling together the different policies to get there, I think people are going to come 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 the debt 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 – and you don’t get the kind of grand bargain “pull everything in” that’s going to have to happen to actually fix the problem.

And so we’ve sort of looked at different models of how you get there, and it may turn out that 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 is still 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’re still 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 the scoring of this whole exercise? So I guess I’m curious if there’s a way that you think you can bring 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 get fundamental overhaul of the tax system, which is important for the economy and the fiscal situation. 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 that says that the Congressional Budget – at the request of the committee can request additional estimates beyond the 10-year window.

I get a little nervous, to be quite frank with you, about very long-term projections, but nonetheless I do think that the authority is there for the committee to go further. And then, I guess, tying back to my closing comments, I do think that the committee really wants to – it’s going to be difficult; let’s be honest about it. It’s going to be difficult to achieve some of the major 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 not achieve savings in the 10-year window. Those are out beyond.

When you’re talking about fundamental changes on, yes, changing the age of eligibility for Medicare – as an example – you’re not going to get the savings in the 10-year window. And therefore, I do think the committee has the authority to look beyond 10 years. They have the authority to ask for estimates beyond the 10 years, and that authority, along with tying it to some form of a multi-year reconciliation instruction beyond the 1.5 (trillion dollars) is an opportunity to 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 discuss some of the more boring, technical issues that the supercommittee will have to deal with. But that’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 many groups have put so many options on the table. You have the House budget, the president’s fiscal commission, the Bipartisan Policy Center, the Peterson Foundation – financed six think tanks to put 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 the negotiators 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 ordinarily pessimistic 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 that don’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 you cutting 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 current law. But the current law baseline is, to date, totally useless. And I’m surprised, as Bill pointed out, 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 deficit implications of the various laws that they have to pass. And most important in all of that is the Bush 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 so it won’t burden the middle class, but only for two years at the last time they fixed it. There are a plethora of temporary tax cuts like the research and experimentation tax credit that are extended routinely, but usually only one year at a time. Current law assumes unrealistically low Medicare reimbursements; 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 be realistic. 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 implausible kind of thing to expect them to do, I think.

So what do you assume instead? And that’s going to be very contentious. You might take a whole list of more realistic policy assumptions that CBO puts in most of their reports on the deficit outlook, but that assumes that all Bush tax cuts are continued, including those for the rich. And that might appear to favor Democrats because ending the tax cuts for the rich would then become more appealing because it’d help count toward meeting the $1.5 trillion target. In any 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 are considered, for example, that would broaden the base and lower marginal rates, many conservatives think that would be really good for economic growth, and therefore would reduce the deficits. And if you count that, then you would lower the amount of pain necessitated by having 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 reforms would be extremely good for the economy, their estimates of the amount of good that would be done would fall far short of what conservatives expect, and they may be so disappointed that they 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-reducing tax 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 to propose such a thing, CBO would actually estimate that would do more harm than good. The tax rate 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 borrowing from 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 good effect, 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 might argue about. And I’m afraid that such side arguments could be very time-consuming and make it extremely 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 – but is the design of a sequester. Do you want to comment just briefly on what you think of that design?

MR. PENNER: Yeah, it’s very tricky to design a sequester – (chuckles) – because if you make it too gentle, obviously that doesn’t do much for you. If you make it too harsh, then there’s the 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 was designed by the bill. And we could argue – (chuckles) – ferociously about that. But it seems to me that discretionary cuts – well, no across-the-board cut is wise by any standard – it might well be tolerable, especially if the committee gets a part of the way to the 1.5 trillion (dollars) – and the 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 in Medicare reimbursements. And most people don’t think that the cuts in reimbursements that are already on the books as a result of the health reform law are at all practical. And we just run the risk of driving a lot of doctors out of the Medicare program, in which case you can assume that that will be reversed almost instantaneously. So I think that’s a part of the whole thing that’s most dubious.

MS. MACGUINEAS: OK, at this point, I’d love to take questions from 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 happy topic –

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 mostly to Jim Gould, but it picks up on the last comment made by Rudy Penner: If the supercommittee comes up with a package that ends up being less than 1.2 trillion (dollars), does it still qualify for the fast track procedures, and the rest of the process works as it is in the statute, and then the difference 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 – that is 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 that doesn’t meet the 1.2 (trillion dollars), but gets partway there. So that’s my (read ?) – be fully protected, yes.

MR. HOAGLAND: Maya, while we’re waiting for another question, could I just address something that Rudy said at the end here? First of all, the estimates that we’ve worked on – and I think you are familiar with, and Rudy is – that if we do not succeed, if they get nothing, if they fail, you’re looking at about a 10-percent across-the-board cut in defense in one year – or each year thereafter – and you’re looking about 8- to 9-percent across-the-board cut in discretionary programs for a – excuse me – non-defense programs. And a number of programs are exempt from that – once again, the means test with low-income programs – but there’s also a limitation of 2 percent in Medicare. And all I can say is, there are those, I am sure, in this town that are looking at it and saying that 2 percent is better than what I would get if we actually let the committee 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 those people 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 this committee, 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 the possibility – or not – excuse me – to the, you know, what is faced by Congress at the end of next year – I mean, as Rudy was saying, the Medicare cuts go into – for doctors, go into effect – the reimbursements. 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. And one 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 actually work, gives them time. That requires, of course, that they persuade the financial markets and the public 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 the completion of a – of a big deal.

MR. PENNER: I guess one thing that isn’t clear to me is, let’s suppose everybody’s right in that they have to reverse some of the Medicare cuts in the health law. Is there any restraint on them doing that immediately after this – (chuckles) – I mean, can they reverse through regular legislation 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 Medicare 2 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 to have 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 258 of the budget act – (chuckles) – suspension in the event of war or low economic growth – I am not clear if there is a – if the economy does not recover whether or not that suspension still applies or not. It’ll be interesting to see how that’s interpreted.

MR. PENNER: Gramm-Rudman allowed the Congressional Budget Office to announce that 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 to pessimistic 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 stabilizing debt 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 an issue 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 the things that CBO calls realistic policy changes, plus – (chuckles) – 1.5 trillion (dollars). And I don’t –

Q: And one other – one other little wrinkle here is that as the economy is slowing, the baseline 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 change from the – it’s an absolute.

MR. GOULD: Remember, all these questions about baseline – I’m not sure the committee 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 I described 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 is what 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 goes to hell in a handbasket, remember that Congress has to pass the law to undo current law. There’s an election next November, and the expiration of those tax cuts is December. The person who has the ultimate trigger, I think, is the president of the United States because if – he could veto that and put his back to current law.

MR. PENNER: This goes beyond the charge of this panel, but the last point you made is extremely 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 are experiencing in their mid-session update. It would not take much of a deterioration in the economic assumptions to make our debt problem look a lot more like Greece’s than it does today. 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 lot of fuzziness in how it can work. And they can also use scoring against different baselines. And that can either be used for terrible games – you know, if we start seeing savings from the war drawdown that’s already meant to happen, and we try to claim savings from that, you can see all sorts 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 assumption that nobody needs to stick to the current law baseline, and that if what they do is pretend they’re going to save 1.5 trillion (dollars) and then go ahead and patch AMT and the doc fix and extend the 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 to need 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 to stabilize the debt assume current economic projections. And unfortunately, the risk is on the downside that things will get a lot of worse, and so that the savings that we’ll have to get to get to the fiscal metric that I think most people agree to, which is, you want to stabilize the debt and bring it on a downward trajectory closer to historical levels. It’s likely we’re going to need more, not less in savings.

I’m going to take one final question for the panel, and it’s just a quick question. But I would like to know the percentage chance that everybody – (laughter) – gives – the likelihood that the supercommittee will meet or exceed its goal. We’ll just take the one – the bare minimum, 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) – the odds 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 will exceed 1.2 (trillion dollars), 1.5 (trillion dollars), in terms of real savings – doesn’t mean they can’t propose additional savings beyond the 1.2 (trillion dollars), 1.5 (trillion dollars), but I don’t think 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)