Setting the Record Straight on Cooper-LaTourette
There have been a lot of claims circulating around about the "Simpson Bowles Alternative Budget Resolution" proposed by Congressmen Cooper, LaTourette, and others (see our initial praise for the proposal here). Some are true, some of misleading, and some are outright false. We wanted to clear up the confusion and separate fact from fiction.
Claim: The Cooper-LaTourette budget is not based on the Simpson-Bowles plan
Al Simpson and Erskine Bowles have expressed strong support for the Cooper-LaTourette budget, which is largely consistent with the Simpson-Bowles plan updated to account for actions taken by Congress and the President since the plan was released. Specifically, the amendment uses an updated baseline that reflects the bipartisan agreement at the end of 2010 to extend all of the 2001 and 2003 tax cuts and the enactment of the Budget Control Act. The amendment requires tax reform to raise $1 trillion in revenues through 2021 relative to a current policy baseline which assumes extension of all 2001 and 2003 tax cuts, instead of the plausible baseline used by the Fiscal Commission which assumed the tax cuts for taxpayers with incomes above $250,000 would expire at the end of 2010. On discretionary spending, the amendment applies the policy in the Simpson-Bowles report of applying limits on spending growth equally to security and non-security spending to the current levels of security and non-security spending set in the Budget Control Act. In both instances, the amendment takes the recommendation outlined in the report and applies them to circumstances that are different than they were in 2010.
Claim: The Simpson-Bowles Budget Resolution Extends the Bush Tax Cuts
The budget resolution makes no mentions of the 2001/03 tax cuts. For scoring purposes, it starts with the “baseline” presumption that these cuts are renewed – as does President Obama in his budget. However the budget itself calls for comprehensive tax reform to generate over $1 trillion in new revenues through 2021 while substantially lowering tax rates and broadening the base. This is the same approach as was taken by the Fiscal Commission, which called for using a “zero plan” with no tax expenditures as a starting point and then allowing the committees to “add back” various tax expenditures on a deficit-neutral basis.
Claim: Cooper-LaTourette will increase corporate tax avoidance
The U.S. corporate tax is a patchwork of overly complex and inefficient provisions that create perverse incentives for investment. Corporations engage in self-help to decrease their tax liability and improve their bottom line. Moreover, corporations are able to minimize their taxes through various tax expenditures inserted into the tax code as a result of successful lobbying.The Cooper-LaTourette bill would attack the primary causes of corporate tax avoidance: it would eliminate the myriad of tax loopholes and expenditures that litter the tax code; it would lower the statutory income tax rate to a level more in line with other economically advanced countries; and would further level the playing field by following the lead of most of our trading partners by transitioning to a territorial system of taxation.
Claim: Cooper-LaTourette raises taxes by nearly $2 trillion and will raise taxes on the middle class
Against realistic projections that assume lawmakers will continue various tax provisions in place right now, the Cooper-LaTourette budget would increase federal revenues by about $1.2 trillion over the next ten years - not $2 trillion. While some may call for more or less savings from revenues in any debt reduction package, it is simply a matter of fact that the budget would not raise another $2 trillion. Additionally, the desire of this tax reform plan is to raise revenues through eliminating or reducing many special tax rules and credits in the code which are closer to spending than tax provisions and which benefit higher income earners far more than the middle class. The Cooper-LaTourette budget requires any tax reform to be more progressive than if the upper income tax cuts were allowed to expire, so while middle income earners would see some reduction in their tax benefits the lion's share of the revenue would come from tax benefits going to higher earners. All earners, regardless of income, will face a simpler code which is less expensive to comply with.
Claim: Cooper-LaTourette will hurt the economic recovery
One of the key principles of the Simpson-Bowles plan was to avoid harming the fragile economic recovery. The Cooper-LaTourette budget reflects that principle by replacing the fiscal cliff at the turn of 2013 with sudden tax cut expirations and deep sequester spending cuts with gradual reductions in spending and pro-growth tax reform. The debt stabilization process called for in the Cooper-LaTourette budget, requiring action if the debt begins to grow as a percentage of GDP, gives Congress and the President flexibility to hold off on additional deficit reduction if economic conditions are weak. By putting in place a credible fiscal consolidation plan large enough to stabilize and begin to reduce the mounting debt as a percentage of GDP, the Cooper-LaTourette proposal will reassure markets and increase business confidence and growth prospects for the long term.
Claim: Repealing the Sequester will increase spending by $1 trillion
The sequester is not a deficit reduction policy, but rather an enforcement mechanism which was meant to force the Super Committee to identify at least $1.2 trillion in deficit reduction. The Cooper-LaTourette budget exceeds that mandate more than threefold, with nearly $4.2 trillion in debt reduction over ten years. The sequester was designed last summer both to pressure Congress to agree on additional savings through more specific, and ideally more substantial, reforms.
Claim: Cooper-LaTourette will disproportionately cut defense
While defense spending would grow more slowly under Cooper-LaTourette than under current law, it will not face a disproportionate amount of the cuts. Both defense and non-defense spending under the budget resolution would grow at about 1% below the rate of inflation each year. This means far less and more gradual reductions to defense than what is called for in the sequester, even as the defense budget will have spend wisely along with every other area of the budget.
Claim: Cooper-LaTourette cuts domestic discretionary more than the sequester
The Cooper-LaTourette budget calls for domestic discretionary spending levels well above those called for by the automatic sequester, both over ten-years and in every year through 2022. The budget calls for additional savings of about $625 billion than called for in the BCA, split proportionally between defense and non-defense programs. Conversely, the sequester would cut defense outlays by more than $500 billion through 2022 and non-defense spending by nearly $340 billion for a total of $845 billion in additional cuts. Moreover, the discretionary savings under Cooper-LaTourette are phased in gradually by limiting the growth of discretionary spending to one percent below inflation instead of the deep and immediate cuts that would be implemented under the sequester. One of the central premises behind the Cooper-LaTourette budget is to replace the blunt across the board spending cuts in the sequester with more targeted savings not only to discretionary programs, but throughout the budget.
Claim: The Cooper-LaTourette Budget Resolution substantially cuts Social Security benefits
Though the budget does not include reconciliation instructions on Social Security (which budget resolutions are not able to do), it does call for reform of the program. Social Security is on an unsustainable path to insolvency, and absent action all beneficiaries are scheduled to receive a 23 percent cut in 2036 – regardless of age or income. The Simpson-Bowles resolution instead calls for a balanced approach – like that proposed by the Fiscal Commission and Domenici-Rivlin – which slows the growth of benefits, mainly for higher earners and asking them to increase their contributions to the system while strengthening protections for low-income workers, the very old and long-term disabled and workers with physically demanding jobs.
Claim: The Cooper-LaTourette Relies on a GDP+1 health care spending growth cap, which will require deep cuts in health programs
The Cooper-LaTourette budget puts forward specific savings requirements for savings from federal health care programs over the next ten years that are based on the policies in the Simpson-Bowles report to help control rising spending on health care – a result of population aging and rising costs that threaten to push federal debt to dangerously high levels. The limit on health care spending growth at the rate of GDP+1 percent after 2020 as in the Fiscal Commission. That cap would not require any changes in the short-term, but would serve as a backstop down the road to ensure lawmakers act to control health care costs. Ideally, the reforms already in place and proposed in reconciliation as a result of the Cooper-LaTourette budget would exceed expectations and prevent costs from growing too quickly to avoid any further reforms. But a backstop is critical.