The King Plan: A Window Into a "Go Medium" Deal
In addition to CBO director Doug Elmendorf's testimony, yesterday's budget conference committee meeting produced another notable moment: a proposal from Sen. Angus King (I-ME) to replace part of the sequester with targeted and permanent reforms. The plan is an archetype of what a modest solution from the conference committee could look like, as it would replace the sequester responsibly. In fact, King referred to it as the "grande" plan, named after the medium size at Starbucks.
Specifically, King's proposal would replace about half the sequester through 2021 -- at a cost of $455 billion -- with $200 billion of revenue from corporate tax base-broadening and $255 billion of savings from mandatory programs. It would also reduce another $325 billion from eliminating or reforming many corporate tax expenditures to finance a reduction in the top corporate tax rate from 35 percent to 32.5 percent and a $50 billion of which would go to new infrastructure spending. After repealing half of the sequester, King would "smooth" the caps so there were fewer cuts in the earlier years and slower growth in the caps over time. We said that this could be a sensible approach yesterday while warning that if it's taken too far or done on its own, it could easily amount to a budget gimmick.
|Parameters of the King Plan (Billions)|
|Ten-Year Savings/Costs (-)|
|Half Sequester Replacement||-$455|
|Subtotal, Sequester Policies||$0|
|Additional Corporate Base-Broadening||$325|
|Corporate Rate Cut to 32.5%||-$275|
|Subtotal, Additional Policies||$0|
|Total Budget Impact Against Current Law
The King plan is a solid approach to the sequester. It does no harm to future debt levels compared to current law, replaces the mindless sequester with more targeted and gradual reforms, and would likely enhance economic growth in the short-term by providing some relief from the sequester (the effect on long-term growth would depend on the details). Senator King has presented a compelling plan that deserves serious attention. Ideally, lawmakers would go even further in finding targeted savings to truly put the debt on a downward path over the long-term, but Senator's King would be a good step in the right direction.
We welcome any additional details about the mandatory or tax savings involved, since filling in those details will be key to a potential agreement. For an idea of how the tax expenditure savings could be achieved, check out our corporate tax reform calculator.