Republican Study Committee Adds to the Alternative Budgets

Mar 19, 2013 | Budgets & Projections

Yesterday, the House Republican Study Committee (RSC) released its "Back to Basics" budget, which aims to balance the budget in four years instead of ten years as the Ryan budget seeks to accomplish. It reaches a surplus of $22 billion in 2017 and has a ten-year surplus of $33 billion. The House Budget Committee's proposal was not that far from balanced in its fourth year, with a $54 billion deficit in 2017, so the RSC's budget did not need to go a lot further beyond that proposal to reach balance in 2017.

Like the Ryan budget, the RSC budget accomplishes its savings on the spending side. On discretionary spending, it allows defense spending to follow the levels in the discretionary spending caps (without the sequester) while it holds non-defense spending to below 2008 levels. Funding for the wars overseas is phased out after 2017. On health care, the budget repeals the spending increases in the Affordable Care Act, block grants Medicaid and freezes it at 2014 levels, transitions Medicare to a premium support system by 2019 for new beneficiaries, and raises the Medicare retirement age to 70 and indexes it to life expectancy. Unlike other budgets, this one also addresses Social Security specifically by switching to the chained CPI for cost-of-living adjustments and increasing the full retirement age to 70 and indexing it for life expectancy.

The budget also includes a number of other cuts to domestic spending, such as reducing crop insurance subsidies and eliminating direct commodity payments, eliminating the mandatory spending portion of the Pell Grant program, increasing federal employee retirement contributions, privatizing Fannie Mae and Freddie Mac, and eliminating the Consumer Financial Protection Bureau.

On taxes, the budget first repeals the tax increase from the American Taxpayer Relief Act, effectively enacting a full extension of the 2001/2003/2010 tax cuts. It then calls for tax reform, proposing an alternate system that taxpayers could choose to file under rather than the current one. The new individual income tax system would have two rates of 15 and 25 percent, a $12,500/$25,000 standard deduction and $12,500 dependent exemption, no estate tax, and a 15 percent top rate on investment income (capital gains taxes would be levied only on inflation-adjusted gains). On the corporate side, the new system would have a 25 percent tax rate and a territorial international tax system. Beyond this system, the budget calls for further tax reform, citing the Fair Tax system or a flat tax as models.

The budget contains some similarities to the Ryan budget. Both keep the sequester but shift it from defense to non-defense cuts (the RSC budget provides lower discretionary spending). Both propose block granting Medicaid, although the Ryan budget increases the block grant with inflation plus population growth, while the RSC budget freezes it. A difference between the two is that the Ryan budget draws down war spending to $35 billion a year through 2023, while the RSC cuts off that funding after 2017. In addition, the RSC budget implements premium support for Medicare five years earlier than the Ryan budget, so the savings from that policy show up in the ten-year window for the RSC.

Overall, the RSC budget includes about $7 trillion in deficit reduction, with $7.7 trillion of spending cuts netted against roughly $700 billion of tax cuts. You can see the breakdown of the budgetary impact, as we understand it, below.

RSC Savings/Costs (-) by Category (2014-2023 in billions)
  Compared to Current Law
Discretionary Spending $1,548
War Drawdown $840
Social Security $126
Medicare $129
Other Health Spending (including ACA) $2,696
Taxes -$685
Interest $1,029
Total $6,991

Source: RSC, CBO

As a result of these cuts, debt would fall from 77 percent of GDP in 2013 to 50 percent by 2023 and spending would fall from 22.3 percent of GDP in 2013 to 17.8 percent by 2023.

Republican Study Committee's FY 2014 Proposal (Percent of GDP)
  2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
RSC Budget
Outlays 20.9% 19.5% 19.0% 18.4% 18.1% 18.2% 18.1% 18.1% 18.2% 17.8%
Revenues 17.8% 18.9% 18.8% 18.6% 18.5% 18.4% 18.4% 18.5% 18.7% 18.8%
Deficit* 3.1% 0.7% 0.2% -0.1% -0.4% -0.2%  -0.3% -0.5% -0.5% -0.9%
Debt 77.2% 74.0% 70.1% 66.3% 63.1% 60.5% 57.9% 55.3% 52.8% 50.0%
Current Law
Outlays 21.7% 21.6% 21.6% 21.5% 21.7% 22.0% 22.2% 22.4% 22.9% 22.9%
Revenues 18.0% 19.1% 19.1% 18.9% 18.8% 18.7% 18.7% 18.9% 19.0% 19.1%
Deficit 3.7% 2.4% 2.5% 2.7% 2.9% 3.2% 3.5% 3.6% 3.8% 3.8%
Debt 77.7% 76.3% 74.6% 73.4% 73.1% 73.5% 74.2% 75.0% 76.0% 77.0%

Source: Republican Study Committee, CBO
*Positive number is a deficit, negative number is a surplus 

[chart:8314]

Source: HBC, RSC, SBC, CBO

The Republican Study Committee budget, like the other budget resolutions released thus far, puts the debt on a downward path as a share of the economy. It is clearly the most aggressive proposal to date on debt reduction, reducing debt by about 5 percentage points of GDP below the Ryan budget by 2023.

We will continue to analyze budgets as they come out and update our comparisons of the budgets.