The Republican Study Committee's Alternative Budget
Just after House Democrats released their budget this week, the Republican Study Committee has come out with its own proposal to balance the budget in just four years. The budget reduces spending by $7.4 trillion over ten years relative to their baseline, which includes a war drawdown. By 2024, the budget produces a surplus of nearly $300 billion, or 1.1 percent of GDP. As a result, debt declines from 74 percent of GDP in 2014 to under 50 percent by 2024, and debt remains close to flat in nominal dollars over that period of time. Revenue adheres to the current law levels (around 18 percent of GDP) while spending declines from 20.5 percent of GDP in 2014 to 17.3 percent by 2024. The RSC budget gets its savings in a similar way to the Ryan budget, but it goes further in a number of areas.
The RSC budget repeals the Affordable Care Act's coverage expansions and replaces them with a standard deduction for purchasing health insurance, an expansion of Health Savings Accounts, tort reform, and other reforms. Like the Ryan budget, it block grants Medicaid, but freezes the grants at FY 2015 levels for ten years, saving almost $460 billion more than Ryan's proposal. On Medicare, it enacts cost-sharing reforms like those in one of CBO's health budget options. It also would convert Medicare to a premium support system starting in 2019 for new beneficiaries -- with premium subsidies based on the average plan bid -- and would raise the Medicare retirement age to 67 starting in 2024.
Unlike Ryan's and President Obama's budgets, the RSC budget attempts to address the funding shortfall facing Social Security. It would use the more accurate chained CPI for cost-of-living adjustments and increase the normal retirement age to 70, up from the currently scheduled 67. It would also address the looming Disability Insurance trust fund shortfall in 2016 by encouraging beneficiaries to return to work, updating medical eligibility criteria, requiring beneficiaries to work more in recent years, and by prohibiting unemployment insurance beneficiaries from also collecting DI.
Other Mandatory Spending
The RSC budget block grants and reduces food stamp funding, increases federal employee pension contributions, reduces Pell Grants, reduces agriculture subsidies, and reduces transportation spending, among other things.
Total discretionary budget authority is reduced below sequester levels, frozen at $950 billion through 2018 and allowed to grow at about 2 percent per year after that. Defense spending is funded at pre-sequester levels starting in 2016, leaving the remaining reductions to be made up through deeper cuts on the non-defense side. The budget also outlines many reductions in discretionary program funding to help meet the lower NDD caps.
The RSC budget directs the Ways and Means Committee to come up with a tax reform plan that reduces the top individual and corporate rates to 25 percent, reduces capital gains and dividends tax rates to 15 percent, repeals the estate tax, and replaces the Earned Income Tax Credit with a payroll tax exemption, among other changes. Its tax reform effort would target revenue-neutrality on a dynamic basis, which is concerning given the uncertainty of dynamically-estimated revenue.
The RSC budget adds yet another approach to reducing deficits and debt, being the most aggressive of the plans that have come out. We will continue to provide analysis of other alternative budgets as they are released.