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The Republican Study Committee's FY 2020 Budget: Preserving American Freedom

May 8, 2019 | Budgets & Projections

The Republican Study Committee (RSC) has released its own budget proposal for Fiscal Year (FY) 2020, calling for $10.7 trillion in deficit reduction over the coming decade and a balanced budget by 2025. The proposed budget would put debt held by the public on a downward path from 78 percent of Gross Domestic Product (GDP) today to 58 percent by 2029 instead of rising to 92 percent over the same period as the Congressional Budget Office (CBO) projects in its May 2019 baseline and rising to about 105 percent of GDP under its Alternative Fiscal Scenario (AFS).

The budget would reduce overall spending by $12.6 trillion over ten years, with spending falling from 21 percent of GDP in 2019 to 18 percent in 2020 (a $364 billion drop) and to 17 percent by 2029. Meanwhile, revenue would remain relatively stable at around 17 percent of GDP over the next ten years.

As a consequence of these cuts to spending, annual deficits under the proposed budget would fall dramatically, from $896 billion in 2019 to $371 billion in 2020, and would continue to fall thereafter until the budget reached balance in 2025 and a $96 billion surplus by 2029. As a share of GDP, deficits would fall from 4.2 percent in 2019 to 1.7 percent in 2020, and surpluses would total 0.3 percent of GDP by 2029.

This analysis walks through details included in the budget.

Policy Changes in the RSC Budget

Policy 2020-2029 Savings
Permanently Extend Individual Provisions and Business Expensing in the TCJA -$1,131 billion
Other Tax Cuts -$749 billion
Repeal the ACA (including taxes) and Block Grant Medicaid/CHIP $3,039 billion
Overhaul Medicare $1,859 billion
Reform Social Security $756 billion
Cut Discretionary Spending $1,852 billion
Reduce Other Mandatory Programs $3,486 billion
Interest Savings $1,588 billion
Net Savings $10.7 trillion

Sources: Republican Study Committee, CRFB Calculations.

Taxes

The RSC budget would permanently extend most of the individual tax cuts and business expensing provisions in the Tax Cuts and Jobs Act (TCJA), which would reduce revenue by more than $1.1 trillion through 2029.

The budget proposes an additional $750 billion of tax cuts by reducing the bottom two tax rates from 10 and 12 percent to 9.5 and 11 percent, reducing capital gains tax rates from 15 and 20 percent to 13 and 18 percent, consolidating the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC) into a new anti-poverty tax credit, repealing the estate tax, eliminating marriage penalties in the tax code, and other changes.

The budget also calls for repealing tax provisions (along with spending) from the Affordable Care Act (ACA),

Discretionary Spending

The RSC budget would cut overall discretionary spending by $1.9 trillion over ten years below current law sequester levels. This reduction would be more than entirely driven by a $2.6 trillion reduction in non-defense discretionary (NDD) spending.  NDD appropriations would fall from $638 billion in 2019 to $349 billion in 2020, a $219 billion reduction from current law. NDD appropriations would remain frozen around $358 billion from 2021 through 2024, and then would slowly increase until reaching $408 billion in 2029.

The budget matches the President's request on the defense side, though it does so through base defense spending rather than using the Overseas Contingency Operations gimmick. As a result, defense spending would rise from $716 billion in 2019 to $745 billion in 2020, a $98 billion increase from current law. Over a decade, defense spending would increase by $510 billion over current law.

Health Care

The RSC budget would reduce ACA and Medicaid spending by $3 trillion and Medicare by another $1.9 trillion.

The budget assumes full repeal of the Affordable Care Act (ACA or "Obamacare"), which would reduce spending by $1.3 trillion over the coming decade. While last year’s RSC budget proposed replacing the ACA with the RSC’s American Health Care Reform Act (AHCRA), this year’s budget does not propose replacing it with any one particular piece of legislation. However, it does propose implementing some of the elements of the AHCRA, such as creating a standard deduction for health insurance premiums.

The budget proposes turning Medicaid, the Children’s Health Insurance Program (CHIP), and the ACA’s exchange subsidies into five new block grants, which would save more than $3 trillion over ten years, according to the RSC. Four of these grants would cover low-income children, the elderly, people with disabilities, and pregnant women, while the fifth would be a “flex” grant that states could use to subsidize health care for other populations, subject to work requirements.

For Medicare, the budget proposes implementing a premium support system beginning in 2023 while maintaining traditional fee-for-service as an option. It would implement “Medigap” reform by establishing an annual cap on cost-sharing. It would also combine Medicare Parts A and B, increase the eligibility age to match Social Security, increase premiums and means testing, standardize reimbursement rates across delivery sites, allow seniors to use Health Savings Accounts, and cut down on waste, fraud, and abuse in Medicare spending.

Social Security

The RSC budget proposes to make Social Security solvent over the long term, saving more than $750 billion over the next decade.

The budget calls for implementing a modified version of former Representative Sam Johnson’s (R-TX) Social Security Reform Act, which would slow initial benefit growth for higher earners, gradually raise the normal retirement age to 70, and eliminate annual cost-of-living adjustments for higher earners while using the more accurate Chained Consumer Price Index (Chained CPI, currently used for the tax code) for other beneficiaries, among other reforms.

For Social Security Disability Insurance, the budget would adopt several reforms included in former Representative Todd Rokita’s (R-IN) Making DI Work for All Americans Act, which would implement a flat benefit for new beneficiaries, prevent double-dipping between SSDI and Unemployment Insurance, transition SSDI beneficiaries to the old-age program for those who have reached the early retirement age, tighten eligibility standards, and allow for optional private disability insurance. In addition, the RSC budget takes inspiration from several of the proposals from the McCrery-Pomeroy SSDI Solutions Initiative.

Other Mandatory

The budget reduces non-health, non-Social Security mandatory spending by about $3.5 trillion.

The budget would implement a broad work requirement for all federal benefit programs and limit welfare benefits to U.S. citizens, legal immigrants that have become U.S. citizens, and refugees during their first two years in the United States. It would block-grant the Supplemental Nutrition Assistance Program and require states to cover an increasingly large share of its costs, starting at 10 percent in 2021 and rising to 50 percent by 2029. It would also end categorical eligibility for SNAP and eliminate the ability for states to waive its work requirements, among other changes.

Other proposed reforms to mandatory spending programs include consolidating several overlapping rental housing assistance programs within the Department of Housing and Urban Development, reforming the Temporary Assistance for Needy Families program by adopting a modified version of Representative Kevin Brady’s JOBS for Success Act, adding a state cost share component to Unemployment Insurance that would begin at 10 percent in 2021 and rise to 50 percent by 2029, eliminating the in-school interest subsidy for student loans, and adopting Chained CPI government-wide (the budget cites CRFB's blog post in favor of Chained CPI).

Budget Process

The RSC budget includes a number of proposals to mend the broken federal budget process, many of which CRFB has supported in the past. For instance, the budget supports requiring the Office of Management and Budget (OMB) to issue a report on the cost of each piece of legislation signed by the President each year and requiring CBO to issue the same report for legislation passed by the House or Senate. The budget supports transitioning certain programs from the mandatory spending category to the discretionary spending category, as well as putting the Highway Trust Fund in either the discretionary or the mandatory category, not both as under current law. It supports aligning the budget cycle with the calendar year, identifying budget waivers and allowing members to move to strike them, and prohibiting adjournment until Congress completes the budget process.

The RSC budget also calls for giving congressional budget resolutions the force of law by turning it into a Joint Budget Resolution that involves and must be signed by the President. Some have argued this change could help avoid the kind of last-minute showdowns that have produced fiscally irresponsible spending deals in recent years.

In addition, the RSC budget embraces and expands upon an idea which we supported when put forward in the 2019 Financial Services and General Government appropriations bill, which would have taken a percentage of the overall funding in the bill and put it into a “Fund for America’s Kids and Grandkids,” which could only be tapped in years the federal government runs a surplus.

In terms of Congressional rules, the budget would reverse several of the changes to House rules adopted by the 116th Congress, including removing points of order against un-offset appropriations amendments, allowing for automatic passage of a debt limit suspension by the House when the House passes a budget resolution, and eliminating the requirement for CBO to use dynamic scoring for major legislation (the budget cites CRFB's explainer on dynamic scoring). CRFB supported some of those changes, like replacing CUTGO with PAYGO and eliminating the supermajority requirement for raising income tax rates, so seeing them reversed would be a step in the wrong direction. The budget also proposes extending non-defense mandatory sequestration through 2029 and expanding the budget reconciliation process to allow cuts to discretionary spending or modification of discretionary spending caps. Finally, it would make the ban on earmarks permanent, require a supermajority vote in order to fund the government through a continuing resolution, and direct CBO to adopt “zero-baseline” budgeting.

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The RSC should be commended for putting forward a plan that reduces deficits by $10.7 trillion over the next ten years, puts debt on a downward path, achieves primary balance within six years, and embraces the budget tradeoffs necessary to responsibly finance its priorities. However, it should be noted that many of the spending cuts included in the budget are likely too aggressive to be politically viable and might be too abrupt to be economically optimal. In addition, potential savings could be even larger were it not for the additional $1.9 trillion in tax cuts it proposes and $510 billion in additional defense spending. Nevertheless, this budget would represent a substantial improvement over our current debt trajectory, and we commend the RSC for taking seriously the threat of ever-rising levels of debt.