Fiscal Commission Targets Federal Spending

Continuing our analysis of the President’s Fiscal Commission Draft Report, let's look at what the Co-Chair proposal does on the spending side of the budget.

Overall, the proposal identifies $2.2 trillion in spending savings from 2012-2020, with about $730 billion coming from mandatory programs and about $1.5 trillion from discretionary programs, relative to the President's FY 2011 budget request.

On the discretionary budget, the Co-Chairs propose:

• Setting the 2012 discretionary budget at 2010 levels;
• Instituting a 1 percent nominal cut in the discretionary budget in 2013, 2014 and 2015;
• Limiting discretionary spending growth after 2015 to the rate of inflation.

These changes would save $204 billion versus the President's Budget and $127 billion below the CBO baseline.

On the mandatory spending side, the draft plan proposes a series of spending cuts to the entitlement programs such as changes in health care payments and government pension and retirement programs:

• Reform the "doc fix" through $282 billion in savings from 2011-2020 through options like tort reform, increased cost sharing in Medicare, and cuts to doctors and health provider payments;
• Strengthen the Independent Payment Advisory Board (IPAB);
• Expand successful cost-containment demonstration projects by 2015;
• Identify an additional $200 billion in federal health-care spending;
• $248 billion in other various mandatory spending cuts such as farm subsidy reductions ($22 billion), switching all programs to the chained CPI ($43 billion), and reforming the federal retirement and pension system ($73 Billion). 

Overall, their mandatory program changes save $733 billion from 2012-2020.

Spending Deficit Reduction (in billions)

Finally, the Co-Chairs makes recommendations for Social Security reform, although makes a note that none of these savings are used towards deficit reduction.  Their proposal would close the projected 75-year gap by 116 percent and the 75th year by 108 percent.

• Creation of a minimum benefit indexed to wages;
• Provide additional benefits to the oldest retirees most at risk of outliving their retirement savings;
• Recommend increasing the progressivism in the benefit program through changes to the benefit formula by creating a bend point at the 50th percentile while reducing benefits for upper-income earners slowly and over time past 2050;
• Index the retirement age to life longevity which put the normal retirement age to 68 in 2050 and 69 in 2075 with a hardship exemption for those unable to work beyond 62;
• Switch the chained CPI for COLA calculations;
• Include new state and local workers hired after 2020 into Social Security.

Overall, this plan offers significant reductions in spending and is a credible and fantastic reform package. We will continue to do more analysis of the individual spending provisions in the future leading up to the December 1 deadline. We send our thanks and offer a congratulations to the fiscal commission and its staff for developing such a great initial plan to kick off debate.

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