President Barack Obama Deficit Reduction Plan

8/4/2019 President Barack Obama Deficit Reduction Plan

http://slidepdf.com/reader/full/president-barack-obama-deficit-reduction-plan 1/80

Living Within Our Meansand Investing in the FutureThe President’s Plan for Economic

Growth and Deficit Reduction

September 2011

OFFICE OF MANAGEMENT AND BUDGET

BUDGET.GOV



OFFICE OF MANAGEMENT AND BUDGET

BUDGET.GOV

Living Within Our Meansand Investing in the FutureThe President’s Plan for Economic

Growth and Deficit Reduction



i

THE MESSAGE OF THE PRESIDENT

TO THE CONGRESS OF THE UNITED STATES:

This continues to be a time of challenge for our country. We face an economic crisis that has left millions

of our neighbors jobless, and a political crisis that has made things worse. Millions of Americans arelooking for work. Across our country, families are doing their best just to scrape by—giving up nights outwith the family to save on gas or make the mortgage, or postponing retirement to send a child to college.

These men and women grew up with faith in an America where hard work and responsibility paidoff. They believed in a country where everyone gets a fair shake and does their fair share; theybelieved that if you worked hard and played by the rules, you would be rewarded with a decentsalary and good benefits. If you did the right thing, you could make it in America.

For decades now, Americans have watched that compact erode. They have seen the decks too oftenstacked against them. And they know that Washington has not always put their interests first. Toooften, our Nation’s capital has been consumed by partisanship. Too often, the needs of special interests

or politics have been put ahead of what is best for the country.

That is what must change. The American people work hard to meet their responsibilities. Now, as the Nationfaces an economy that is not growing and creating jobs as it should, so must its leaders. While the continuedrecovery of our economy will be driven by the businesses and workers across our land, policymakers inWashington can take steps to help Americans right now and set the most favorable conditions we can forgrowth and job creation for years to come. We can live within our means and invest for the future.

That is why last week I presented to the Congress and the American people the American Jobs Act, toprovide a jolt to the economy and give companies confidence that if they invest and hire, there will becustomers for their products and services. This jobs bill will put more people back to work and moremoney in the pockets of those who are working. It will create more jobs for construction workers, more

jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide atax break for companies that hire new workers, and it will cut payroll taxes in half for every working American and every small business. It will create jobs for people to rebuild our aging infrastructureand repair and modernize at least 35,000 schools. Moreover, the proposals in the American Jobs Act arethe kind of proposals that have been supported by Democrats and Republicans in the past.

I am committed to paying for this jobs bill. The Budget Control Act that I signed into law last monthwill cut annual Government spending by about $1 trillion over the next 10 years. It also charges theJoint Select Committee on Deficit Reduction with finding an additional $1.5 trillion in savings. Aspart of this jobs bill, I am asking the Congress to increase that amount so that it covers the full costof the American Jobs Act. In addition, I believe that the Congress should seize the opportunity thatthis new Committee presents and do much more so that we can put the country on a sustainable

fiscal path, which is critical for our long-term economic growth and competitiveness.

For this reason, I am sending to the Congress this detailed plan to pay for this jobs bill and realizemore than $3 trillion in net deficit reduction over the next 10 years. Combined with the approximately$1 trillion in savings from the first part of the Budget Control Act, this would generate more than$4 trillion in deficit reduction over the next decade. This would bring the Nation to the point wherecurrent spending is no longer adding to our debt and where our debt is no longer increasing as ashare of our economy—an important milestone on the way to restoring fiscal discipline and movingus toward balance.



This plan is a balanced one that asks everyone to do their part. It includes nearly $580 billion in cutsand reforms to mandatory programs, of which $320 billion is savings from Federal health programssuch as Medicare and Medicaid. These changes are necessary to maintain the promise of Medicare aswe know it.

The plan also realizes more than $1 trillion in savings over the next 10 years from our drawdownsin Afghanistan and Iraq. And the plan calls for the Congress to undertake comprehensive tax reformthat lowers tax rates, closes loopholes, boosts job creation here at home, cuts the deficit by $1.5trillion, and observes the Buffett Rule—that people making more than $1 million a year should notpay a smaller share of their income in taxes than middle-class families pay. To assist the Committee inits work, I also included specific tax loophole closers and measures to broaden the tax base. Togetherwith the expiration of the high-income tax cuts from 2001 and 2003, these measures would be morethan enough to reach this $1.5 trillion target.

They include cutting tax preferences for high-income households, eliminating tax breaks for oil andgas companies, closing the carried interest loophole for investment fund managers, and eliminatingbenefits for those who use corporate jets.

In sum, the plan I am sending to the Congress today is a blueprint for how we can reduce this deficit, paydown our debt, and pay for the American Jobs Act in the process. I have little doubt that some of theseproposals will not be popular with those who benefit from these affected programs. And some of thesechanges are ones that we would not make if it were not for our fiscal situation. But we are all in thistogether, and all of us must contribute to getting our economy moving again and on a firm fiscal footing.

After all, we are all connected. No single individual built America on his or her own. We built ittogether. We have been, and always will be, “one Nation, under God, indivisible, with liberty and justicefor all.” We have always been a people with responsibilities to ourselves and with responsibilities toone another. This means that as Americans work hard to find a job, keep their businesses afloat andgrow, and provide for their kids, their representatives in Washington must meet their responsibilities

and make the tough choices needed to get our economy back on track.

This plan lives up to a simple idea: as a Nation, we can live within our means while still making theinvestments we need to prosper. It follows a balanced approach: asking everyone to do their part, so noone has to bear all the burden. And it says that everyone—including millionaires and billionaires—has to pay their fair share.

These may be tough times for our country, but I have a deep faith in the American spirit, and weare tougher than the times we live in and bigger than the politics we have recently seen. If we allput partisanship aside and roll up our sleeves, I have no doubt that we can meet the challenges of the moment and show the world once again why the United States of America remains the greatestcountry on Earth.

B ARACK OBAMA

THE WHITE HOUSE,SEPTEMBER 19, 2011.



http://www.budget.gov/



v

LIST OF TABLES

Table S–1. Bridge between OMB Mid-Session Review Baseline and Deficit AssumingEnactment of Recommendations to the Joint Select Committee ...............................55

Table S–2. Bridge between OMB Mid-Session Review BEA Baseline Deficitand Adjusted Mid-Session Review Baseline Deficit .....................................................56

Table S–3. Bridge between CBO August Baseline Deficit and Deficit AssumingEnactment of Recommendations to the Joint Select Committee ................................57

Table S–4. Bridge between CBO August Baseline Deficit and Adjusted CBO August Baseline Deficit .........................................................................58

Table S–5. Joint Committee Recommendations .................................................................................59

Table S–6. Deficit Reduction since January 2011 ..............................................................................65

Page

LIST OF CHARTS

Chart 1. Annual Deficits as a Percent of GDP ................................................................................66

Chart 2. Debt Held by the Public as a Percent of GDP ..................................................................67

Page



INTRODUCTION

1

At the beginning of this year, our economy wasfinally gaining some traction after enduringa historic recession and coming back from thebrink of a depression. During the previous sixquarters, real gross domestic product (GDP)had grown at an average rate of 3 percent and,over the previous 12 months, the private sectorhad created 1.3 million new jobs. The financialsystem was no longer in crisis. The credit andcapital markets were functioning, and the cost of stabilizing the financial and automobile sectorswas amounting to a fraction of initial estimates.

Yet we also learned that the recession was

deeper than many experts first thought: revisedestimates showed that the economy contractedat a 7.8 percent annualized rate in the lastquarter of 2008 and first quarter of 2009, thesteepest six-month period of contraction onrecord. Then, this past spring, a trio of worldevents created strong headwinds to continuedstrong growth: uprisings in the Middle Eastsent oil prices skyrocketing; an earthquake inJapan prevented American auto companiesfrom getting the parts they needed to keep ourfactories churning; and a widespread debt crisisin Europe roiled markets across the globe.

Taken together, this has meant that economicgrowth and job creation, while remainingpositive, have not been strong enough tosignificantly bring down a persistently highunemployment rate.

At the same time, our country must addressyears of fiscal irresponsibility. When thePresident took office, he faced an annualdeficit of $1.3 trillion and projected deficits of trillions more in the years thereafter. Drivingthese deficits were decisions made over the

previous eight years not to pay for two tax cutsand a Medicare prescription drug benefit. Thesharp decline in receipts along with the steepincrease in automatic outlays to help thosein need and the efforts needed to jumpstarteconomic growth also added to these deficits.

Even as the President has focused on gettingthe economy going again, he also has worked

to get the Nation’s fiscal house in order. ThePresident insisted on new transparency andaccountability in budgeting, for instance,bringing the costs of overseas contingencyoperations (OCO) onto the budget. ThePresident signed into law statutory pay-as-you-go legislation, a key ingredient in previousyears of fiscal responsibility and budgetsurpluses. In March 2010, the Presidentsigned into law the Affordable Care Act, whichwill cut the deficit by more than $200 billionin its first 10 years and more than $1 trillionin its second, as well as addressing the central

driver of our long-term debt: rising health carecosts. And, this summer, he signed into lawthe Budget Control Act of 2011 (BCA), whichrepresents a major down payment on deficitreduction by capping discretionary spendingand reducing it to its lowest level as a shareof the economy since the middle of the lastcentury. Now that the economy is no longerin freefall, it is time to redouble this effortto put the Nation on the path toward fiscalsustainability.

The President’s recommendations to the

Joint Select Committee on Deficit Reductionbuild on what we have accomplished so farand address the twin challenges that thecountry now faces. In the short term, wemust reinvigorate the economic recovery withmeasures to boost economic growth, and mostcritically, to spur job creation by passing the

American Jobs Act—and we must pay for thesemeasures over time. In the medium and longterm, we must reduce the deficit and stabilizethe debt as a share of the economy in order toput the country on firm fiscal footing. Takentogether, the plan would produce net savings

of more than $3 trillion over the next decade,on top of the roughly $1 trillion in spendingcuts from the BCA—for a total savings of more than $4 trillion over the next decade.This would bring the country to a place, by themiddle of this decade, where current spendingis no longer adding to our debt, debt is fallingas a share of the economy, and deficits are at asustainable—if not preferable—level.



2 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

To win the future and thrive in a competitive,global economy, the United States must focuson both job creation and deficit reduction. Wemust get our economy growing and peopleworking, and at the same time, live withinour means so that we can invest in the thingsthat will power economic growth for decadesto come: education, innovation, clean energy,and infrastructure. To do this, we must pursuea balanced approach that looks at all parts of the budget and that does not put too much of aburden on any one part of society.

Pursuing a balanced approach is what thePresident did in his 2012 Budget releasedin February, in the Framework for SharedProsperity and Shared Fiscal Responsibility

released in April that built on the Budget toidentify $4 trillion in deficit reduction, and in asimilarly sized plan presented to congressionalRepublicans during negotiations this summer.Unfortunately, partisan divides precludedcoming to agreement on a balanced packagethat included revenue increases.

Instead, the President signed into law theBCA, which put in place a down paymenttoward deficit reduction and a structure toaccomplish even more. With approximately $1trillion in deficit reduction achieved over the

next decade through the use of discretionaryspending caps, it took a substantial steptoward bringing down our deficit. Yet, withdiscretionary spending projected to reachhistorically low levels, we need to look atother parts of the budget for savings so thatwe pursue deficit reduction in a balanced way.This is not only critical to future economicgrowth, but if the Committee fails to achieveat least $1.2 trillion in deficit reduction, thena sequester would be triggered that could havedevastating consequences for both defense andnon-defense programs.

The Administration believes that theCongress can and should enact sound policiesand not rely on an automatic sequesterto reduce our deficits. Accordingly, the

Administration believes that the Committeeshould use its unique standing to put forwardan ambitious, comprehensive, and balanced

deficit reduction plan that would place thecountry on firm fiscal footing by the middle of this decade and jumpstart economic growthand job creation.

THE AMERICAN JOBS ACT

To create jobs, the President on September 8th unveiled the American Jobs Act—a plan madeup nearly entirely of the kind of proposals thathave been supported by both Democrats andRepublicans, and that the Congress shouldpass right away to get the economy movingnow. The purpose of the American Jobs Act issimple: put more people back to work, put moremoney in the pockets of working Americans,and do so without adding a dime to the deficit.

First, the American Jobs Act will providetax cuts to help America’s small businesseshire and grow. The American Jobs Actwould cut payroll taxes in half to 3.1percent up to their first $5 million in wages,providing broad tax relief to all businessesbut targeting it to the 98 percent of firmswith wages below this level, and it wouldcompletely eliminate payroll taxes next yearfor any business that increases its payrollby hiring new workers or increasing wagesfor existing workers. The Act would also

extend 100 percent expensing through 2012,allowing all firms—small and large—to takean immediate tax deduction on investmentsin new plants and equipment.

Second, this jobs bill will put workers backon the job while rebuilding and modernizing

America. Specifically, the President isproposing tax credits to hire veterans, includingthose with a service-connected disability, whohave been unemployed for more than sixmonths. He supports investing $35 billion toprevent up to 280,000 teacher layoffs and to

keep police officers and firefighters on the job. And to upgrade the Nation’s infrastructure, thePresident is proposing a $30 billion investmentin modernizing public schools and communitycolleges; an immediate $50 billion investmentin America’s roads, rails, and airports; a $10billion investment to establish a NationalInfrastructure Bank; and an expansion of



3INTRODUCTION

high-speed wireless networks to 98 percent of Americans. In addition, the President is callingfor a $15 billion investment in a nationaleffort to put construction workers on the jobrehabilitating and refurbishing hundreds of thousands of vacant and foreclosed homes andbusinesses.

Third, the American Jobs Act puts forwardpathways back to work for Americanslooking for jobs. It accomplishes this byundertaking the most significant reformsto the Nation’s unemployment system in 40years to help those without jobs transitionto the workplace. Also, the Act will extendunemployment insurance, preventing 6million people looking for work from losing

their benefits and offers employers a taxcredit of up to $4,000 for hiring workerswho have been looking for a job for over sixmonths. And the President’s plan will providehundreds of thousands of low-income youthand adults with opportunities to work and toachieve needed training in growth industriesthrough a new Pathways Back to Work fund.

Fourth, the American Jobs Act will putmore money in pockets of every Americanworker and family. The Act will expand thepayroll tax cut passed last December by

cutting workers payroll taxes in half nextyear. This provision will provide a tax cut of $1,500 to the typical family earning $50,000a year.

Taken together, these measures will providea needed boost to our economy and do so in away that maximizes the impact of every dollarinvested and puts a premium on creating orretaining jobs. Moreover, the American Jobs

Act will not add a dime to the deficit. It includesspecific offsets that will, in combination, morethan fully pay for its cost. These offsets are part

of the larger deficit reduction plan detailed inthis volume, but have been specifically madepart of the American Jobs Act to ensure that itis paid for. This is accomplished by a provisionin the American Jobs Act that increases the$1.5 trillion Joint Committee deficit reductiontarget by $450 billion to cover the full costof the jobs creation provisions. The bill then

specifies that if the Joint Committee meetsthe increased deficit reduction target, thespecific offsets in the American Jobs Act willbe turned off. Thus, whatever the outcome of the Joint Committee’s efforts, the deficit willnot increase if the American Jobs Act is signedinto law.

DEFICIT REDUCTION

The President is asking the Joint Committeeto take into account the costs of the jobsbill and make sure that it proposes enoughdeficit reduction to cover these costs, the $1.5trillion it is charged to identify in the BCA,and additional deficit reduction that will putthe country on a fiscally sustainable path. In

total the plan, together with the spendingcuts already enacted in the Budget Control

Act, would cut the deficit by more than $4trillion over the next decade, with nearly $2of spending cuts for every $1 raised throughtax reform. As a result of this plan, the deficitwould fall from 8.8 percent of GDP this yearto 2.3 percent of GDP, while the Budget wouldbe in what economists call “primary balance”by the middle of the decade. The debt underthis plan would be on a declining path as ashare of the economy over the next decade,falling from a high of 77 percent of GDP in

2013 to 73 percent of GDP in 2021.

To reach these amounts, the President isputting forward a balanced approach that bothasks for shared sacrifice from all Americansand draws from across the budget. This shouldinclude additional spending cuts in mandatoryprograms, modest adjustments in importantentitlement programs such as Medicare andMedicaid, capping spending on OverseasContingency Operations (OCO), and reformingour tax code so that we ask our biggestcorporations and wealthiest Americans to pay

their fair share.

Specifically, the President is proposing $257billion in cuts and reforms to a wide range of mandatory programs from Federal retirementto agricultural subsidies, reform of thePension Benefit Guaranty Corporation, newprogram integrity initiatives, and getting rid




of unneeded Federal real property to reducethe deficit.

In health care programs, the President isrecommending a series of reforms that buildon the historic savings in the AffordableCare Act. Overall, these proposals will save$248 billion in Medicare over 10 years and$73 billion in Medicaid and other healthprograms—and more than a trillion dollarsin deficit reduction in the second decade. Theyaccomplish this in a way that does not shiftsignificant risks onto the individuals theseprograms serve, slash benefits, or underminethe fundamental compact they represent toour Nation’s seniors, people with disabilities,and low-income families. Even though these

reforms can and will save money, they also willstrengthen these vital programs and ensurethat they are robust and healthy to serve

Americans for years to come.

In OCO, the Administration believes thatthe Joint Committee should reflect the

Administration’s current policy of drawingdown our troop presence in Afghanistan andthe transition from a military to a civilian-ledmission in Iraq. Accordingly, the funding levelmatched to this plan caps OCO over the 10-year budget window for a savings of more than

$1 trillion.

Finally, the President is calling on theCongress to undertake comprehensive taxreform that meets five key principles: 1)lowers tax rates, 2) ends inefficient tax breaks,3) cuts the deficit by $1.5 trillion, 4) increases

job creation and growth in the United States,and 5) observes the Buffett Rule that peoplemaking over $1 million should not pay lowertaxes than those in the middle class.

To advance tax reform, the President is

offering a detailed set of specific tax loopholeclosers and measures to broaden the tax basethat, together with the expiration of the high-income tax cuts, would be more than sufficientto hit the $1.5 trillion target for tax savings.These measures include cutting tax preferencesfor high-income households, eliminating taxbreaks for oil and gas companies, closing the

carried interest loophole for investment fundmanagers, and eliminating benefits for thosewho use corporate jets.

Tax reform should draw on these specificproposals, together with elimination of additional inefficient tax breaks. ThePresident’s preference would be to incorporatethese specific tax measures into comprehensivetax reform that lowers rates and reducescomplexity. However, they could also bepassed on a standalone basis to help reducethe deficit in a balanced way. Either approachwould significantly improve the country’sfiscal standing, represent an important steptoward more fundamentally transforming ourtax code, and serve as a strong foundation for

economic growth and job creation.

If the Joint Committee is unable to undertakecomprehensive tax reform, the Presidentbelieves the discrete measures he has proposedshould be enacted on a standalone basis.

All together, the President’s plan would, asof 2014, cut the debt as a share of the economyand put the country on a sustainable fiscalcourse. However, the President believes thatwe must lock in that path and make surefuture policymakers do not roll back what we

accomplish now as well as encourage furtheraction if actual results turn out worse thanexpected. That is why he is including in hisplan a debt cap which will ensure that ourNation’s debt is on a declining path as a shareof our economy.

If by 2014, budget projections do not showthat the debt-to-GDP ratio has stabilizedand is declining in the second half of thedecade, the debt cap will trigger an across-the-board spending reduction, includingspending through the tax code. The trigger

will ensure that deficits as a share of theeconomy average no more than 2.8 percentof GDP in the second half of the decade.Consistent with prior fiscal enforcementmechanisms put in place by PresidentsRonald Reagan, George H.W. Bush, andBill Clinton and agreed to by Republicansand Democrats under the BCA, the trigger



5INTRODUCTION

would not apply to Social Security, low-income programs, or benefits for Medicareenrollees. The cap would not apply duringan economic downturn or interfere withour Nation’s ability to respond to a nationalsecurity emergency. Rather, it is in place asinsurance against future political inaction oran unfortunate turn of events.

CONCLUSION

There are those who will oppose some of theseproposals, whether it is savings in Medicareand Medicaid or revenue increases of anykind. There are powerful and vocal interestswho will vigorously object to any changes to

their programs. The President believes that weneed to put aside politics as usual. We cannotafford the finger-pointing and kicking the candown the road. If we are all willing to sacrificea little to put our fiscal house in order, thenno one will have to sacrifice a lot. While therewill be some worthy programs that will be cutand some revenue that will be raised from thewealthiest two percent of Americans, if we do

not act now, it will be more difficult to takeaction in the years to come. Moreover, if we donot act now, we will fail to get our economy outof its rut and millions of Americans back towork and put our Nation on firm fiscal footing.

For all that we have been through, theUnited States of America still has thecapacity to meet big challenges. We havenot lost the ability to shape our own destiny.We remain the wealthiest nation on Earth.We have the best workers and universitiesas well as the most daring innovatorsand entrepreneurs. Our problems todaylie not with the character of our country,but with the state of our politics. Gridlockand partisanship are nothing new in

Washington, but the American people havenever been more fed up with this city thanthey are today. At this moment, we need tocome together as Americans and do the workof the American people. That is the promiseof the Joint Committee and the opportunitybefore it. The Administration hopes theserecommendations assist the Joint Committeein its vital work.



THE AMERICAN JOBS ACT

7

While our economy is no longer at thebrink of the second Great Depression, thereare still millions of Americans who havenot yet felt the effects of the recovery. Toomany have spent months looking for a jobto no avail. Others are doing their best justto scrape by—giving up a night out with thefamily to save on gas, spending less at thegrocery store, or postponing their retirementto send a child to college—and know thatthey have no room for error. These men andwomen believe in the promise of America:that if you work hard and play by the rules,

you will be able to provide for your familyand give your children a brighter future.For too long, that promise has come upempty for too many Americans. They aremeeting their responsibility, and now thosein Washington must meet theirs by endingthe political games, doing what they can tohelp the economy grow, providing the toolsand assistance our businesses and workersneed to succeed, and restoring some of thefairness and security that has made Americathe engine and envy of the world.

Policy pursued in Washington cannotsolve our problems, but there are specificsteps we can take immediately that willmake a real difference in the economy andin people’s lives. That is why the Presidentsent to the Congress the American Jobs Act.The American Jobs Act will put more peopleback to work, put more money in the pocketsof those who are working, and do so withoutadding a dime to the deficit. It will createmore jobs for construction workers, more jobsfor teachers, more jobs for veterans, and more

jobs for the long-term unemployed. It will

provide a tax break to companies that hirenew workers, a tax break for small businessowners, and a middle-class tax cut for 150million workers.

Moreover, this jobs bill will help the countrynot just recover from this economic crisis, butalso rebuild the economy the American way:based on balance, fairness, and the same set

of rules for everyone from Wall Street to MainStreet. It will create the jobs of the futureby helping small business entrepreneurs, byinvesting in education, and by making thingsthe world buys.

The planks of the American Jobs Act are thekind of proposals that have been supported byboth Democrats and Republicans, and it willbe fully paid for with specific offsets.

T AX CUTS TO HELP AMERICA’S SMALL

BUSINESSESHIRE AND GROW

Growing the economy and spurring jobcreation by America’s businesses, especiallythe small businesses which are so importantto our economic health, is the President’s toppriority. That is why, over the course of thelast year, he pushed for additional measuresto jump-start our economic recovery and helpsmall businesses: tax credits for businessesthat hire unemployed workers, and taxcuts and expanded access to credit for smallbusinesses. In December, the Presidentsigned into law a bipartisan measure that

provided tax cuts that also gave businessestwo powerful incentives to invest and create

jobs: 100-percent expensing on the purchase of equipment, and an extension of the researchand experimentation tax credit.

With the President’s jobs and growth plan,he builds on those steps that have been socritical to America’s families and businessowners by providing new tax cuts for millionsof small businesses to provide incentives forinvestments and hiring. These tax cuts wouldbe available to all businesses, regardless of

size, but are designed to target their impacttoward the smallest businesses.

Provide a payroll tax cut to businesses,with a focus on small employers. ThePresident’s plan will extend the payroll taxcut to firms by cutting in half their payroll taxon the first $5 million in payroll. Next year,instead of paying 6.2 percent on their payroll




expenses, firms would pay only 3.1 percent.The President’s plan would provide tax cutsfor all of America’s six million firms, withfocused relief for the Nation’s five millionsmall firms with fewer than 20 employees.The Congressional Budget Office (CBO)estimates that every dollar in payroll taxcuts for employers increases economic outputby $0.40 to $1.20 over the next five years.Under the President’s plan, a typical companywith 12 employees and an annual payroll of $392,000 would get a tax cut of $12,200 nextyear. Because of the additional employee-side payroll tax cut, its workers would get taxcuts that averaged $1,000. There has beenbipartisan support for a payroll tax cut foremployers as a means to spur job growth.

Establish a complete payroll taxholiday for new jobs or wage increases. In addition to the 3.1 percent payroll tax cutfor all firms, the President’s plan provides adirect incentive to encourage firms to hireadditional employees or raise wages fortheir current employees. The American Jobs

Act would completely refund payroll taxespaid on added workers or wage increases forcurrent workers above the level of last year’spayroll. To focus the benefit of this tax cuton small businesses, payroll tax relief would

be capped at $50 million in new wages.For example, under the President’s plan,a warehouse with a payroll last year of $7million that hires 40 new workers this yearand adds $2 million in payroll would get a fullrefund on the 6.2-percent payroll taxes paidon the added $2 million in payroll—for a taxcut of $124,000. (That tax cut would come ontop of the maximum 3.1-percent payroll taxreduction of $155,000 on its base payroll.)This tax holiday would be augmented bytargeted tax cuts for hiring the long-termunemployed as well as veterans who have

been out of work six months or more. CBOhas identified this type of job creation taxcut as one of the most effective ways to helpaccelerate job growth.

Extend 100 percent business expensingthrough 2012. The President is proposingan extension of the 100-percent expensing

provision that he signed into law in 2010,which rewards firms for making investmentsby allowing them to deduct the full value of those investments from their tax obligationsthrough 2012. Extending 100-percentexpensing for an additional year would putan additional $85 billion in the hands of businesses in 2012. Most of this relief would berecouped by the Treasury as businesses regaintheir strength. An analysis of the 100-percentexpensing provision in the December tax dealby the Treasury Department found that thispolicy would lower the average cost of capitalfor business investment by 75 percent and in2011, businesses have cited the benefits of such policies.

Help entrepreneurs and smallbusinesses access capital and grow. ThePresident also supports administrative,regulatory and legislative measures—including those developed and recommendedby the President’s Jobs Council—tohelp small firms start and expand. Thisincludes changing the way the Governmentdoes business with small firms. The

Administration recently announced aplan to accelerate Government paymentsto small business contractors to help putmoney in their hands faster. The President

has also charged his Chief InformationOfficer and Chief Technology Officer tostand up a one-stop, online portal for smallbusinesses to easily access Governmentservices. As part of the President’s Startup

America initiative, the Administration willwork with the Securities and ExchangeCommission to conduct a comprehensivereview of securities regulations from theperspective of these small companies toreduce the regulatory burdens on smallbusiness capital formation in ways thatare consistent with investor protection,

including expanding “crowdfunding”opportunities and increasing mini-offerings.In addition, the President’s plan calls forthe Congress to increase guarantees forbonds to help small businesses competefor infrastructure projects and removeburdensome withholding requirements thatkeep capital out of the hands of job creators.



9THE AMERICAN JOBS ACT

PUTTINGWORKERS B ACK ON THE JOBWHILE

REBUILDING ANDMODERNIZINGAMERICA

The President’s plan will put Americansback to work in key areas that are centralto America’s future competitiveness. It willrepair and modernize classrooms across thecountry and make sure that teachers whohave been laid off because of budget cutscan be brought back to work. It will take onthe fact that the American Society of CivilEngineers awarded the United States a ‘D’for the overall condition of its infrastructure.Both to modernize the Nation’s roads,railways, airports, and schools and to puthundreds of thousands of workers back onthe job, the President is proposing a strategy

that combines immediate investments ininfrastructure with innovative reforms toensure that the best projects get financing.These investments in infrastructure wouldnot only put people to work now, but alsoyield lasting benefits for the economy,increasing growth in the long run. In fact,we know that investments in infrastructurehave a substantial multiplier effect—creating economic growth and jobs now andlaying the foundation for the future as well.The Administration is proposing to:

Offer tax credits and career readinessefforts to boost veterans’ hiring. ThePresident believes we have an obligationto make sure our veterans are able tonavigate this difficult labor market andsucceed in the civilian workforce, and thatis why he is proposing a plan to lower

veteran unemployment and ensure thatservicemembers leave the military career-ready with a new Returning Heroes TaxCredit of up to $4,800 for unemployed

veterans, and a Wounded Warriors TaxCredit of up to $9,600 that will increase

the existing tax credit for firms that hireunemployed veterans with service-connecteddisabilities. The President also plans to forma Department of Defense-led task forceto maximize the career-readiness of allservicemembers, and enhancing job searchservices through the Department of Laborfor recently-transitioning veterans.

Prevent teacher layoffs and keep policeofficers and firefighters on the job.As manyas 280,000 education jobs are on the choppingblock in the upcoming school year due tocontinued State budget constraints. These cutscould have a significant impact on children’seducation, through the reduction of school days,increased class size, and the elimination of key classes and services. The President’s planwill support State and local efforts to retain,rehire, and hire early childhood, elementary,and secondary educators (including teachers,guidance counselors, classroom assistants,afterschool personnel, tutors, and literacyand math coaches). The President’s planwill invest $30 billion to ensure that schoolsare able to keep teachers in the classroom,

preserve or extend the regular school day andschool year, and also support important after-school activities. The President’s plan alsoincludes $5 billion to support the hiring andretention of public safety and first responderpersonnel. By supporting such jobs, the planaims to keep communities safe from crime andable to maintain critical emergency responsecapabilities.

Modernize at least 35,000 schools. The President’s plan calls for substantialinvestments in our school infrastructure,

modernizing and upgrading America’s publicschools to meet 21st Century needs. The cost of maintaining more than 100,000 public schoolsis substantial for already overstretcheddistricts. The accumulated backlog of deferredmaintenance and repair amounts to at least$270 billion. Schools spend over $6 billionannually on their energy bills, more than theyspend on computers and textbooks combined.For children in the Nation’s poorest districts,these deferred projects too often meanovercrowded schools with crumbling ceilingsand a lack of the basic wiring infrastructure

needed for computers, projectors, and othertechnology. The President’s plan will invest$30 billion in enhancing the condition of ourNation’s public schools—with $25 billion goingto K-12 schools, including a priority for ruralschools and dedicated funding for Bureauof Indian Education funded schools, and$5 billion to community colleges (including




tribal colleges). The range of critical repairsand needed construction projects wouldput hundreds of thousands of Americans—construction workers, engineers, maintenancestaff, boiler repairmen, and electricalworkers—back to work.

Make an immediate investment in ourroads, rails, and airports. In order to

jumpstart critical infrastructure projectsand create hundreds of thousands of jobs,the President’s plan includes $50 billion inimmediate investments for highway, highwaysafety, transit, passenger rail, and aviationactivities—with one fifth of the fundingadvancing a transformation of how we financetransportation infrastructure and what we

finance.

!" Investments in making our Nation’shighway systems safer and moreefficient. The President’s plan includesinvestments totaling $27 billion to makeour Nation’s highway systems moreefficient and safer for passenger andcommercial transportation.

!" Repairing transit systems and im-proving our rail systems. The planincludes $9 billion of investments to

repair our Nation’s transit systems,many of which are desperately in needof modernization. It also includes $2billion in funding to improve intercitypassenger rail service. These funds willconnect communities, reduce traveltimes and congestion, and create skilledmanufacturing jobs.

!" Improving our airports. The plan alsoincludes airport improvement grants of $2 billion to improve safety, add capacity,and modernize airport infrastructure

across the country.

!" Opportunities for all in the trans-portation sector. The President’s planwill invest an additional $50 millionin 2012 to enhance employment and

job training opportunities that willbenefit minorities, women, and socially

and economically disadvantagedindividuals in transportation-relatedactivities, including construction,contract administration, inspection,and security. His plan will also invest anadditional $10 million in 2012 to helpminority-owned and disadvantagedbusiness enterprises gain better accessto transportation contracts. And it willensure that infrastructure investmentsallow for the hiring of local workers,to maximize economic benefits forcommunities where projects are located.

!" Funding for innovative transportation. The plan includes $10 billion forinnovative mechanisms to finance and

invest in infrastructure. This includes$4 billion to develop high-speedrail corridors; $1 billion to supportNextGen Air Traffic Modernizationefforts, which will employ technologyto make the National Airspace Systemsafer and more efficient; and $5 billionfor the TIGER and TIFIA programs,which target competitive dollars toinnovative, multi-modal transportationprograms.

!" Expediting high-impact infrastructure

projects. The President recentlyissued a Presidential Memorandum incoordination with his Jobs Councildirecting departments and agenciesto identify high impact, job-creatinginfrastructure projects that can beexpedited through outstanding reviewand permitting processes within thecontrol and jurisdiction of the FederalGovernment. The President alsodirected the creation of a ProjectsDashboard to ensure the details of each project identified will be available

for stakeholders to follow through theexpedited review process and providepublic input. This initiative will createinfrastructure related jobs and use thelessons learned to develop best practicesthat can be applied more broadly topermitting and review processes goingforward.




Establish a National InfrastructureBank. To direct Federal resources forinfrastructure to projects that demonstratethe most merit and may be difficult to fundunder the current patchwork of Federalprograms, the President is also calling for thecreation of a National Infrastructure Bank(NIB), based on the bipartisan model proposedin the Senate. The NIB would represent abold reform of our Nation’s infrastructurefinancing, independent of the politicalprocess. It would fund the most important andeconomically viable infrastructure projects tothe Nation across the transportation, energy,and water sectors. The NIB would also relyon the private sector, never extending loansor loan guarantees that finance more than 50

percent of a project’s costs, and in many casesproviding much less, just enough to induceprivate investment. The NIB’s key provisionswould include:

!" Independent, non-partisan operationsled by transportation and financialexperts. While the NIB would be aGovernment-owned entity, it would notbe controlled by any Federal agency andinstead would operate independently.No more than four voting members of its seven-member board could be from

the same political party. Board memberswould have to possess significantexpertise either in the management of a relevant financial institution or in thefinancing, development, or operation of infrastructure projects.

!" Broad eligibility for infrastructureand unbiased project selection. Eligible projects would includetransportation, water, and energyinfrastructure. In general, projectswould have to be at least $100 million

in size and be of national or regionalsignificance. Projects would have a clearpublic benefit, meet rigorous economic,technical and environmental standards,and be backed by a dedicated revenuestream. Geographic, sector, and sizeconsiderations would also be taken intoaccount.

!" Addressing market gaps forinfrastructure financing. The NIBwould issue loan and loan guaranteesto eligible projects. Loans issued byNIB would use approximately thesame interest rate as similar-lengthU.S. Treasury securities and could beextended up to 35 years, giving the NIBthe ability to be a “patient” partner side-by-side with State, local, and privateco-investors. To maximize leverage fromFederal investments, the NIB wouldfinance no more than 50 percent of thetotal costs of any project.

Put people back to work rehabilitatinghomes, businesses, and communities.

The recession has left communities acrossthe country with large numbers of foreclosedhomes and businesses, which is weighingdown property values, increasing blight andcrime, and standing in the way of economicrecovery. In these same communities, thereare also large numbers of people looking forwork, especially in the construction industry,where more than 1.9 million jobs have beenlost since the beginning of the recession inDecember 2007. The President is proposingProject Rebuild to help address both of theseproblems by connecting Americans looking for

work in distressed communities with the workneeded to repair and repurpose residential andcommercial properties. Building on successfulmodels piloted through the NeighborhoodStabilization Program, Project Rebuildwill invest $15 billion in proven strategiesthat leverage private capital and expertiseto rehabilitate hundreds of thousands of properties in communities across the country.Key components include:

!" Focus on distressed commercialproperties and redevelopment to

stabilize communities. Many regionswith concentrated home foreclosuresalso have concentrations of vacantcommercial structures that weigh onproperty values and make it less likelythat new businesses will come into thecommunity and invest new capital.Project Rebuild will tackle this problem




directly by allowing grantees to rebuildand repurpose distressed commercialreal estate.

!" Participation of for-profit entities togain expertise, leverage Federal dollarsand speed program implementation. Many successful redevelopmentstrategies involve unique collaborationsbetween local governments, non-profitorganizations, and developers and otherprivate actors. Project Rebuild will seekto empower and expand these typesof collaborations by allowing Federalfunding to support for-profit developmentwhen consistent with project aims andsubject to strict oversight requirements

to ensure that the funds are being usedas intended.

!" Increase support for “land banking.” Land banks work with communitiesto buy, hold, and redevelop distressedproperties as part of a long-termredevelopment strategy and haveshown impressive results in stemmingproperty price declines and stabilizingcommunities across the country. ProjectRebuild will seek to scale successful landbank models, providing much needed

infusions of capital that they can leverageto raise private sector investment. Thiswill increase the breadth and depthof their reach in helping communitiesbetter handle their distressed properties.

!" Create jobs to maintain propertiesand avoid community blight. In addition to creating jobs in theconstruction and redevelopment industry,Project Rebuild will enable granteesto use funds to establish propertymaintenance programs to create jobs and

mitigate “visible scars” left by vacant orabandoned properties.

Expand nationwide wireless Internetservices for the public and the firstresponders and reduce the deficit. The President’s plan follows the model inbipartisan legislation from Senators Jay

Rockefeller and Kay Bailey Hutchison andincludes an investment to develop and deploya nationwide, interoperable wireless networkfor public safety. The plan includes reallocatingthe D Block for public safety (costing $3 billion)and an additional $7 billion to support thedeployment of this network and technologicaldevelopment to tailor the network to meetpublic safety requirements. This is part of abroader deficit-reducing wireless initiativethat would free up public and private spectrumto enable the private sector to deploy high-speed wireless services to at least 98 percentof Americans, even those living in remote ruraland farming communities. In addition, freeingup spectrum from the private sector through

voluntary incentive auctions that were

included in both the Rockefeller-Hutchison billand the House-passed budget resolution wouldraise money to pay for these investments inpublic safety and also reduce the deficit.

P ATHWAYS B ACK TOWORK FOR

AMERICANS LOOKING FOR JOBS

The President is proposing the mostinnovative reforms to the unemploymentinsurance (UI) system in more than 40 years,including changes that will prevent layoffs andgive States more flexibility to use Federal UI

funds to get Americans who have lost their jobsback to work. The President’s plan is targetedto address unemployment in an aggressive,multi-pronged way, drawing from ideas aboutwhat is working from around the countryand from both parties. First, the President’splan marks the most comprehensive attemptin decades to reshape the unemploymentinsurance system to grapple with long-termunemployment and scarce job openings.Second, the President’s plan will providedirect support to put hundreds of thousandsof Americans back to work with tax credits

for hiring people who have been unemployedthe longest, and prevent six million Americanslooking for work from losing their benefits. The

Administration is proposing to:

Reform the UI system to provide greaterflexibility while preserving benefits for sixmillion people. Drawing on the best ideas of




both parties and the most innovative States, thePresident’s plan will equip the UI system to betteraddress our current long-term unemploymentchallenge. In these times, the Federal emergencyunemployment system must offer not just aweekly check, but also an aggressive strategyto connect the unemployed to work—throughreforms ranging from rigorous assessment and

job-search assistance to flexible work-based usesof Federal funds to smart strategies to preventlayoffs in the first place:

!" Rigorous reemployment assistance.Research has shown that providingmore job search assistance can speedindividuals’ return to work. Robustreemployment services combined with

eligibility assessments provide anopportunity to review the claimant’swork-search activities—a step thatnot only reduces improper payments,but that also provides an opportunityfor UI recipients to receive face-to-face

job search counseling. By requiringthese services for all new claimantsfor Emergency Unemployment Comp-ensation (EUC, the Federal UI programfor the long-term unemployed), thePresident’s plan will ensure that thelong-term unemployed receive maximum

assistance and services to speed theirreturn to work.

States will be required to conductReemployment and Eligibility Assess-ments, to review most EUC claimants’eligibility for benefits, and providethem with reemployment and careerinformation to develop a work-searchplan. New EUC claimants will berequired to check-in with their localOne-Stop Career Centers. This willserve three purposes: to provide the

claimant with labor market and careerinformation and support the claimant’sdevelopment of a reemployment andwork-search plan; to refer the claimantto reemployment services deliveredthrough the One-Stop Career Center;and to review the claimant’s eligibilityfor EUC benefits.

!" Work Sharing: UI reform to preventlayoffs. Preventing layoffs in the firstplace is a win-win for workers andbusinesses. The President’s plan—consistent with proposals championedby leaders like Senator Jack Reed—calls for work sharing that would letworkers receive pro-rated UI benefits ascompensation for a reduction in hoursat businesses that would otherwise layworkers off.

!" State flexibility for bold reforms toput the long-term unemployed backto work. The President is proposing toprovide additional funds to allow Statesto introduce new programs aimed at long-

term unemployed workers, including:

Bridge to Work. A number of Stateshave innovative programs thatgive workers the opportunity totake temporary, voluntary workto keep up their skills and train atthe workplace for a new job, whilecontinuing to receive unemploymentinsurance. The President’s planbuilds on what works in programslike Georgia Works and OpportunityNorth Carolina, while instituting

important fixes and reforms thatensure minimum wage and fairlabor protections are being enforced.This plan would authorize Statesto implement “Bridge to Work”programs to help connect the long-term unemployed to employers—through temporary work that allowsemployers to bring on potential newemployees and helps the unemployedmaintain or learn new skills.

Wage insurance to support paths to re-

hiring through a different career. Wageinsurance compensates workers whotake a new job for lower pay ratherthan claiming unemployment benefits.The President’s plan would give Statesflexibility to set up wage insuranceprograms for older workers who take aloss of pay to return to work.




Starting a new business. A number of States—including Delaware, Maine,Maryland, New Jersey, Oregon, andPennsylvania—have self-employmentassistance programs that encourageand enable unemployed workers tocreate their own jobs by starting theirown small businesses. The President’splan would allow States across theNation to support programs like thesewith Federal UI funds, rewardingdislocated workers willing to strikeout on their own and removingbarriers that discourage participationin existing programs.

!" Continue unemployment benefits

next year. To support unemployed peopleas they work their way back to a job, weneed to make sure that benefits do not runout next year. EUC will prevent six million

Americans from losing benefits in 2012.

Provide tax credits for businessesthat hire the long-term unemployed. The President’s plan includes a special bonuscredit of $4,000 for firms that hire the long-term unemployed. On top of cutting payrolltaxes in half for all American businesses, anda full payroll tax holiday for hiring or raising

wages, this credit will add $8 billion to the“bang-for-the-buck” of dollars employers spendto hire unemployed workers. With 6.2 millionpeople unemployed for at least six months,providing a targeted incentive to hire theseout-of-work individuals ensures that we donot waste the skills and ambitions of thosebearing the brunt of the painful recovery fromrecession. As economists across the politicalspectrum have noted—including FederalReserve Chairman Ben Bernanke in recentweeks—long-term unemployment poses arisk to long-term growth by eroding skills and

reducing attachment to the labor force.

Invest in low-income youth and adults. The President is proposing an aggressivestrategy to expand employment opportunities forcommunities that have been particularly hardhit by the recession, and that may take longerto get back on their feet due to greater income

losses and smaller savings than higher-incomeworkers. In August 2011, African Americanshad an unemployment rate of 16.7 percentand Hispanics had an unemployment rate of 11.3 percent. The numbers were even worse foryouth: 45 percent of all youth between the agesof 16 to 24 were employed last month, and only33.8 percent of African American youth. In fact,only 21 out of every 100 teens in low-incomefamilies had a job this past summer. Buildingon highly successful Recovery Act programs thatprovided job opportunities for low-income adultsand youths, the President’s “Pathways Back toWork” Fund will make it easier for workers toremain connected to the workforce and gain newskills for long-term employment. This $5 billioninitiative will include:

!" Support for summer and year-round jobs for youth. The Recovery Act providedover 367,000 summer job opportunitiesthrough the public workforce investmentsystem to young people in the summersof 2009 and 2010. Such programs notonly provided young people with theirfirst paycheck, but taught them life-long employment skills. Building on thissuccess, the new Pathways Back to WorkFund will provide States with support forsummer job programs for low-income youth

in 2012, and year-round employment foreconomically disadvantaged young adults.

!" Subsidized employment opportunitiesfor low-income individuals who areunemployed. This effort builds off thesuccessful TANF Emergency Fund wagesubsidy program that supported 260,000

jobs through the recovery. According toan analysis by the Center on Budget andPolicy Priorities, this flexible programallowed States to reduce the cost and riskassociated with new hiring, encouraging

private-sector businesses to hire newworkers.

!" Support for local efforts toimplement promising work-basedstrategies and to provide trainingopportunities. This initiative wouldsupport efforts that have good records




of placing low-income adults andyouths in jobs quickly. Local officials, inpartnership with local workforce boards,business, community colleges, and otherpartners, will be able to apply for fundingto support promising strategies designedto lead to employment in the short-term.

Combat discrimination againstthe unemployed. Recent reports havehighlighted companies that are increasinglyexpressing preferences for applicantswho already have a job. Specifically, somecompanies are posting job listings thatinclude language such as “unemployedcandidates will not be considered” or “mustbe currently employed” or “must be employed

within the last six months.” The exclusionof unemployed applicants is a troubling andarbitrary screen that is bad for the economy,bad for the unemployed, and ultimately badfor firms trying to find the best candidates.This is particularly true at a time when somany Americans have found themselves outof work through no fault of their own. NewJersey has passed legislation to address thispractice, and members of the Congress alsohave introduced legislation. The Presidentis calling for legislation that would make itunlawful to refuse to hire applicants solely

because they are unemployed or to includein a job posting a provision that unemployedpersons will not be considered.

MOREMONEY IN THE POCKETS OF E VERY

AMERICANWORKER AND F AMILY

The President’s plan would put more moneyin the pockets of working and middle-class

Americans by providing tax relief to 160million workers—extending the payroll taxcut passed last December. He is proposing to:

Cut the employee payroll tax in half next year for 160 million workers. Almostevery working American pays payroll taxes,and middle-class Americans face a higherburden because more of their income comesfrom wages and salaries. The President’s planwill cut payroll taxes in half for employees

next year. Rather than having 6.2 percent of their wages deducted in payroll taxes, workerswill only pay 3.1 percent next year. This buildson the 2 percentage point payroll tax reductionthat the President secured for workers in2011—providing 160 million Americans thecertainty of ongoing tax relief and increasingthe amount of that relief by more than 50percent. Independent forecasters have statedthat a failure to extend last year’s payroll taxcut would reduce growth next year by one-half to two-thirds of a percentage point. ThePresident’s plan would not only extend thiscut, but expand it by 50 percent.

Cutting the payroll tax cut in half foremployees in 2012 will provide a tax cut of

$180 billion to American workers. A payrolltax cut provides middle-class families withsubstantial tax relief. This measure will resultin a tax cut of more than $1,500 for the typicalfamily earning $50,000. That represents acontinuation of the $1,000 tax cut they arereceiving this year, plus an additional $500 tohelp pay bills and cover expenses. For a familyearning $80,000 per year, the President’s planwould cut their taxes by about $2,500. That isa continuation of the $1,600 tax cut from lastyear, plus an additional $900 tax cut next year.Providing certainty to American families now

that they will receive a generous tax cut intheir paychecks next year is a common senseidea that has enjoyed bipartisan support inthe past.

Help more Americans refinance mort-gages at today’s historically low interestrates. The President has instructed hiseconomic team to work with Fannie Maeand Freddie Mac, their regulator the FederalHousing Finance Agency, major lenders andindustry leaders to remove the barriers thatexist in the current refinancing program

(Home Affordable Refinance Program) tohelp more borrowers benefit from today’shistorically low interest rates. This has thepotential to not only help these borrowers, buttheir communities and the American taxpayer,by keeping borrowers in their homes andreducing risk to Fannie Mae and Freddie Mac.



MANDATORY SAVINGS

17

In the Budget Control Act, the Presidentsigned into law a measure that will generateapproximately $1 trillion in deficit reductionover the next decade through the use of dis-cretionary spending caps. With discretion-ary spending projected to reach historicallylow levels, we need to look at other parts of the budget for savings. Mandatory programs,those that are not generally appropriated onan annual basis, are an important area to findsavings. In some areas, these programs havenot been updated or reformed for years. Inothers, parochial politics has allowed waste to

pile up or programs to stray from their mis-sion. The President is proposing $257 billionin savings over 10 years in mandatory pro-grams outside of the health area. This listdoes not include mandatory savings in highereducation programs, because savings fromthese types of programs should be directedback into helping America’s students enterand finish college.

AGRICULTURAL SECTOR

A strong agricultural sector is important

to maintaining a strong rural economy. The Administration supports the farm and ruralsectors through a number of means, includ-ing funding agricultural research programs,providing assistance to beginning and dis-advantaged farmers, pursuing trade agree-ments, and increasing funding for programsto expand U.S. agricultural exports. Forthe past decade, the agricultural sector hasbeen extremely strong. Farm income hasbeen high and continues to increase, withnet farm income forecast to be $103.6 bil-lion in 2011, up $24.5 billion (31 percent)

from the 2010 forecast—the highest infla-tion-adjusted value for net farm income re-corded in more than 35 years. The top fiveearnings years for the past three decadeshave occurred since 2004, attesting to theprofitability of farming this decade. The

Administration remains committed to astrong safety net for farmers, one that pro-tects them from revenue losses that result

from low yields or price declines, and strongcrop insurance programs. But there are pro-grams and places where funding is unneces-sary or too generous. To reduce the deficit,the Administration proposes to eliminate orreduce those programs, while strengtheningthe safety net for those that need it most.The Administration is proposing to:

Eliminate direct payments. The directpayment program provides producers fixedannual income support payments for hav-ing historically planted crops that were sup-

ported by Government programs, regardlessof whether the farmer is currently producingthose crops—or producing any crop, for thatmatter. Direct payments do not vary withprices, yields, or producers’ farm incomes. Asa result, taxpayers continue to foot the bill forthese payments to farmers who are experi-encing record yields and prices; more than 50percent of direct payments go to farmers withmore than $100,000 in income. Economistshave shown that direct payments have pricedyoung Americans out of renting or owning theland needed to enter into farming. In a period

of severe fiscal restraint, these payments areno longer defensible, and eliminating themwould save the Government roughly $3 bil-lion per year.

Reduce subsidies to crop insurancecompanies. Crop insurance is a foundationof our farm safety net. Our Nation’s farm-ers and agricultural bankers understand the

value of this effective risk management pro-gram, and currently 83 percent of eligible pro-gram crop acres are enrolled in the program.However, the program continues to be highly

subsidized and costs the Government approx-imately $8 billion a year to run: $2.3 billionper year for the private insurance companiesto administer and underwrite the programand $5.7 billion per year in premium subsi-dies to the farmers. The Administration hasmade a continued effort to improve the cropinsurance program by covering more crops,while implementing it more efficiently.




In 2010, the U.S. Department of Agriculture(USDA) and the crop insurance companiesagreed to changes that saved $6 billion over10 years from administrative expense reim-bursement and underwriting gains while alsoimproving service to underserved States. The

Administration believes there are additionalopportunities for streamlining of the admin-istrative costs of the program. A USDA com-missioned study found that when comparedto other private companies, crop insurancecompanies’ rate of return on investment(ROI) should be around 12 percent, but thatit is currently expected to be 14 percent. The

Administration is proposing to lower the cropinsurance companies’ ROI to meet the 12 per-cent target, saving $2 billion over 10 years. In

addition, the current cap on administrative ex-penses is based on the 2010 premiums, whichwere among the highest ever. A more appro-priate level for the cap would be based on 2006premiums, neutralizing the spike in commodi-ty prices over the last four years, but not harm-ing the delivery system. The Administration,therefore, proposes setting the cap at $0.9billion adjusted annually for inflation, whichwould save $3.7 billion over 10 years. Finally,the Administration proposes to price more ac-curately the premium for catastrophic (CAT)coverage policies, which will slightly lower the

reimbursement to crop insurance companies. The premium for CAT coverage is fully subsi-dized for the farmer, so the farmer is not im-pacted by the change. This change will save$600 million over 10 years.

The Administration also proposes modestchanges in subsidies for producers. Today, pro-ducers only pay 40 percent of the cost of theircrop insurance premium on average, with theGovernment paying for the remainder. Thiscost-share arrangement was implemented in2000, when very few producers participated

in the program and “ad-hoc” agricultural di-saster assistance bills were regularly enacted.The Congress increased the subsidy for mostinsurance coverage by over 50 percent at thetime to encourage greater participation. Today,participation rates are 83 percent on average,and the rationale for high subsidy rates hasweakened. The proposal would shave two ba-

sis points off any coverage premium subsidylevels that are currently offered above 50 per-cent, saving $2 billion over 10 years. Farmerswho have premium subsidies of 50 percent orless would not be affected.

Better target agricultural conserva-tion assistance. Farmers, ranchers, andforest landowners share a critical role in con-serving the Nation’s soil, water, and relatednatural resources. The Administration is

very supportive of programs that create in-centives for private lands conservation andhas made great strides in leveraging theseresources with those of other Federal agen-cies towards greater landscape-scale con-servation; however, the dramatic increase

in funding (roughly 500 percent since en-actment of the Farm Security and RuralInvestments Act of 2002) has led to difficul-ties in program administration and redun-dancies among our agricultural conservationprograms. At the same time, high crop priceshave both strengthened market opportuni-ties to expand agricultural production on theNation’s farmlands and decreased producerdemand for certain agricultural conservationprograms. These current economic realitiesand the ability to better target existing fund-ing for maximum environmental outcomes

support a proposal to reduce the deficit whilepreserving the most important agriculturalconservation programs. To reduce the deficit,the Administration proposes to reduce con-servation funding by $2 billion over 10 yearsby better targeting conservation funding tothe most cost-effective and environmentally-beneficial programs and practices. Even un-der this proposal, conservation assistance isprojected to grow by $60 billion over the nextdecade.

Extend mandatory disaster assistance.

The Administration strongly supports disas-ter assistance programs that protect farm-ers in their time of greatest need. The Food,Conservation, and Energy Act of 2008 provid-ed producers with mandatory disaster assis-tance programs for the 2008 to 2011 crops. Tostrengthen the safety net, the Administrationproposes to extend these programs, or simi-



19MANDATORY SAVINGS

lar types of disaster assistance that are of asimilar cost, for the 2012 to 2016 crops. Theprograms provide financial assistance to pro-ducers when they suffer actual losses in farmrevenue, loss of livestock or the ability to grazetheir livestock, loss of trees in an orchard, andother losses due to diseases or adverse weather.To be eligible for the programs, farmers mustpurchase crop insurance. The SupplementalRevenue Assistance Program provides wholefarm revenue coverage to farmers at a revenuelevel that is essentially 15 percent higher thantheir crop insurance guarantee. Payments arelimited so that the guaranteed level cannot ex-ceed 90 percent of expected farm income in theabsence of a natural disaster.

FEDERALWORKER ANDMILITARY

RETIREMENT PROGRAMS

The men and women who serve their fel-low Americans in the Armed Forces and civilservice are patriots who work for the Nationoften at great personal sacrifice. Just as fami-lies and businesses must tighten their belts tolive within their means, so must the FederalGovernment. One area to examine is the retire-ment and health benefits offered to the Federalmilitary and civilian workforce. Over the pastseveral years, there have been significant shifts

both in how people work and how their benefitsare structured. Organizations of all sizes havehad to reform and alter the retirement benefitsthey give in order to remain competitive and, insome cases, solvent. As a result, compared to theprivate sector, the Federal retirement programcan seem generous. For example, defined bene-fit pensions are becoming increasingly rare, andare now available to only one-third of private in-dustry workers in large firms and 21 percent of all private employees. Some estimates put thesplit between employer and employee contribu-tions in the private sector at 55 percent paid

by employers and 45 percent paid by employ-ees (combining defined benefit and defined con-tribution plans), whereas on average Federalemployers pay 67 percent of contributions tothe Federal Employees Retirement System(FERS), while employees pay 33 percent. In ad-dition, a marked disparity exists between thefees most retired private sector workers pay for

health care services and what retired militarypersonnel pay. The Administration is proposinga group of reforms to better align these retire-ment programs with the private sector, whilestill preserving the Federal Government’s abil-ity to recruit and retain the personnel that the

American people need. The reductions soughtin these programs are evenly split between ci-

vilian and military retirement programs. The Administration proposes to:

Reform civilian Federal workerretirement. Whether it is defending ourhomeland, restoring confidence in ourfinancial system and administering a historiceconomic recovery effort, providing healthcare to our veterans, or searching for cures to

the most vexing diseases, we rely on a highlyskilled workforce committed to public service.The Administration has implemented effortsto reform the hiring process and improveemployee engagement, satisfaction, andwellness. In line with its strong commitmentto Federal employees, the Administrationbelieves that we can make modest changesto Federal worker retirement contributionswhile maintaining the ability to attract andretain highly qualified individuals to handlethe challenging and complex work the FederalGovernment is expected to do.

The Administration is proposing that theemployee contribution toward accruing retire-ment costs would increase by a total of 1.2percent (0.4 percent a year over three yearsbeginning in 2013), but the employee’s totalpension would remain unchanged. In addition,the Administration is proposing to eliminatethe FERS Annuity Supplement for new em-ployees. While Federal agency contributions forcurrently accruing costs of employee pensionswould decline, these employers would pay anadditional amount toward unfunded liabilities

of the retirement system that would leave totalagency contributions unchanged over the 10-year budget window. The Administration doesnot anticipate this policy change will negativelyaffect its human capital planning and manage-ment, nor inhibit the Government’s ability toserve the American people. This proposal is es-timated to save $21 billion over 10 years.




While the modest retirement system changeproposed above is important, we also needbroader reform. The Federal personnel sys-tem that governs pay and performance for themajority of Federal employees was codified in1949, when Government was composed of farmore lower-grade employees handling rela-tively routine tasks that required few special-ized or advanced skills and when computerswere massive mainframes. Despite employeesurveys revealing that Federal employees be-lieve the current work environment fails to ef-fectively deal with poor performers and doesnot reward innovation, reform efforts to datehave not been able to address this foundationalissue of Government performance.To managethe complex work agencies perform today in or-

der to meet the needs of the American people,Federal managers and employees need a mod-ernized personnel system that reflects the re-ality of the 21st century—where agencies offercompensation reflecting competing marketsfor employees, facilitate career-developmentmobility across agencies and with the privatesector, address poor performers consistentlyand fairly, develop staff, and motivate betterperformance using the best evidence-basedpublic and private sector practices. To advancethis effort, the Administration recommendsthat the Congress establish a Commission

on Federal Public Service Reform comprisedof Members of the Congress, representativesfrom the President’s Labor-ManagementCouncil, members of the private sector, andacademic experts. The Commission would de-

velop recommendations on reforms to modern-ize Federal personnel policies and practiceswithin fiscal constraints. Such reforms couldinclude but would not be limited to compensa-tion, staff development and mobility, and per-sonnel performance and motivation.

Initiate annual fees for TRICARE-For-

Life enrollment (TFL). One of the waysmilitary retirees and their families are rec-ognized for their essential service is throughhealth insurance coverage called TRICARE.Upon turning 65, beneficiaries transition toMedicare coverage, with TFL becoming sec-ond payer. The TFL program pays the ben-eficiaries’ Medicare out-of-pocket costs for

medical services, generally leaving the ben-eficiary with no out-of-pocket costs aside fromMedicare Part B premiums and drug co-pays.In the private sector, this type of “Medigap”policy would likely require premiums, deduct-ibles, and co-pays. In 2009 the average annualpremium for a “Medigap” policy was $2,100.By contrast, there are no premiums underthe TFL programs. The Administration is pro-posing to introduce modest annual fees forthe TFL program, beginning with a $200 an-nual fee in 2013. The fee then would increaseto align with the modest increase in the feesunder the regular TRICARE program for in-dividuals under age 65 that was proposed inthe President’s 2012 Budget. This proposal isestimated to save approximately $6.7 billion

in mandatory spending over 10 years.

Targeted increases to TRICAREpharmacy benefit co-payments. The

Administration supports a generous healthcare benefit to recognize the service of mili-tary members and retirees. This includes pro-

viding affordable options to access prescrip-tions. However, the co-payments for militarymembers have lagged behind other Federaland private plans. For example, the averageco-payment for a costly brand-name drug pur-chased at a drug store by a Federal retiree in

the most popular Federal Employees HealthBenefits Program (FEHBP) plan option is es-timated to be $45, compared to $9 for a mili-tary retiree. In an effort to slow the growth inDOD’s health care costs, the President’s 2012Budget included minor pharmacy co-payadjustments, for which both the House andSenate indicated support. This new proposalwould move the TRICARE pharmacy programcloser to parity with the most popular Federalemployee health plan, BlueCross BlueShieldStandard and closer to the health plans thatmost Americans have from their employers.

The proposal would provide an incentive forconsumers to choose less expensive pharma-cy options by eliminating co-pays for genericmail-order drugs while, at the same time,shifting retail co-pays from a dollar figure toa percentage co-pay. This option would haveno impact on active duty members, but wouldaffect active duty families and all military re-



21MANDATORY SAVINGS

tirees regardless of the age of the beneficiary.The Administration’s proposal is estimatedto save $15.1 billion in mandatory funds and$5.5 billion in discretionary funds over 10years.

Establish a commission to review mil-itary retirement benefits. The currentmilitary retirement system has served themilitary well in past years.In an era whendefined-benefit plans were common, it helpedthe military to retain the personnel neededto maintain a vigorous and highly effectiveforce. But the system was designed for adifferent era of work, and is now out of linewith most other Government or private re-tirement plans. The non-disability program

provides generous benefits to the relativelyfew members who stay for at least 20 yearsand no benefits for the roughly 80 percent of servicemembers who stay less than 20 years.To consider reforms the Administrationplans to set up a commission to develop rec-ommendations for reforming the currentmilitary retirement system.The commissionwill review the impacts of reform propos-als on military readiness, recruiting, reten-tion, costs, and the quality of the force.The

Administration plans to propose that theCommission’s recommendations be han-

dled in a manner similar to the 2005 BaseRealignment and Closure Commission’s rec-ommendations. Under this approach, DODwould make a proposal to the commission,which can alter the proposal as it deems ap-propriate. The commission proposals thengo to the President, who may not alter theproposals but can decide whether to forwardthem to the Congress. The Congress mustapprove or disapprove without any modifica-tions. The Administration believes that anymajor military retirement reforms should in-clude grandfathering provisions that ensure

that the country does not break faith withmilitary personnel now serving, includingthose serving in Afghanistan and Iraq.

End the overpayment of Federal con-tractor executives. Just as the Governmentmust be prudent in paying Federal employees,it must also not overpay contractors.Each year,

the Government is required to establish a dol-lar cap on the amount that the Government willreimburse Federal contractors for the compen-sation they pay to their senior-most executivesunder cost-based contracts, which account forroughly $160 billion each year. The cap doesnot limit how much contractors pay their ex-ecutives—only how much the Government willreimburse them. A statutory formula sets theGovernment’s reimbursement cap to the annu-al compensation for the five top managementemployees at publicly-traded companies withannual sales over $50 million. The cap start-ed at $250,000 in 1995, but rose to $693,951last year in line with the rapid growth of private sector executive compensation overthe past 15 years. Application of the current

statutory formula could push the reimburse-ment cap to $750,000 for 2011.However, the

Administration believes the Government is re-imbursing too much for contractor executives,and the cap’s amount cannot be justified. Asa result, the Administration proposes to abol-ish the formula and instead tie the cap to thesalary of senior-most Federal officials—specifi-cally, Executive Schedule Level I, currently ap-proximately $200,000. Setting the cap at thislevel will bring greater parity between Federaland contractor executives’ compensation.

GOVERNMENT LIABILITIES AND OPERATIONS

Increase fees charged by Fannie Maeand Freddie Mac. Since taking office inJanuary 2009, the Administration has takennumerous actions to help stabilize the housingmarket and provide critical support for strug-gling homeowners. This has included continu-ing the financial support for Fannie Mae andFreddie Mac under agreements initiated in2008 that ensure they have sufficient capitalto honor their guarantees, meet their debt ob-ligations, and facilitate the flow of mortgage

capital to homeowners. To protect taxpayersand help rebuild the robust private mort-gage market necessary to our Nation’s long-term economic well-being, the Administrationproposes to modestly increase the fees thatFannie Mae and Freddie Mac charge mortgagelenders to guarantee repayment of new mort-gage loans.




Because of their Government support,Fannie Mae and Freddie Mac are able to pricetheir mortgage guarantees below what itwould cost private banks or financial institu-tions to provide the same guarantee. These“guarantee fees” should be increased over timeto help the private market compete on a levelplaying field and reimburse taxpayer assis-tance, although the pace of these price changeswill depend significantly on market conditions.The President is proposing to begin this pro-cess with a modest increase of 10 basis points,or one-tenth of one percent, to Fannie Mae andFreddie Mac’s existing fees. Existing mort-gages would be unaffected by this change andthe monthly cost of a typical $220,000 newmortgage would increase by less than $15.

These small changes would reduce costs to theGovernment by $28 billion over 10 years.

Reform the Aviation Passenger SecurityFee to more accurately reflect the costs of aviation security. Reflecting its commitmentto keeping air travel and commerce safe, the

Administration has invested heavily in person-nel, technology, and infrastructure to mitigatethe constantly-evolving risks to aviation secu-rity. As risk changes, however, so too must theway in which we fund our aviation security ef-forts. In 2001, the Aviation and Transportation

Security Act created the Aviation PassengerSecurity Fee, which was to be collected to off-set the costs of the Transportation Security

Administration’s (TSA’s) aviation security-re-lated activities. The fee, in conjunction witha separate fee charged directly to air carriers,was put in place to ensure that the costs of aviation security were borne by the direct ben-eficiaries (e.g., air passengers, airlines) of avia-tion security services. The fee was originallyintended to recover the full costs of aviationsecurity. Since its establishment, however, thefee has been statutorily limited to $2.50 per

passenger enplanement with a maximum feeof $5.00 per one-way trip. This recovers only43 percent of TSA’s aviation security costs,which have risen over the years while the feehas remained the same.

The Administration proposes both to raisethe fee and change the manner in which

it is collected. Modeled after ChairmanPaul Ryan’s proposal in the House’s 2012Concurrent Resolution on the Budget, the

Administration’s proposal would:

!" Replace the current “per-enplanement”fee structure with a “per one-way trip”fee structure so that passengers pay thefee only one time when travelling to theirdestination.

!" Remove the current statutory fee limitand replace it with a statutory fee mini-mum of $5.00, with annual incrementalincreases of 50 cents from 2013 to 2017,resulting in a fee of $7.50 in 2017 andthereafter.

!" Allow the Secretary of HomelandSecurity to adjust the fee (to an amountequal to or greater than the new statu-tory fee minimum) through regulationwhen necessary.

!" Set aside a specific amount of fee revenueto be returned to the General Fund fordeficit reduction over 10 years.

The proposed fee would collect an estimat-ed $8.8 billion in additional fee revenue over

five years, and $24.9 billion over 10 years. The Administration’s proposal would direct $15billion to be deposited into the General Fundfor debt reduction, with any additional reve-nues in excess of this amount being applied asoffsets to TSA’s discretionary appropriations.

More equitably share payments for airtraffic services. Roughly two-thirds of theair traffic control system’s current costs arefinanced by aviation excise taxes. Most of thetax revenue is collected from commercial avia-tion through ticket taxes, segment fees, inter-

national head taxes, and fuel taxes. Generalaviation users currently pay a fuel tax, but thisrevenue does not cover their fair-share-use of air traffic services. All flights that use con-trolled air space require a similar level of airtraffic services. However, commercial and gen-eral aviation can pay very different aviationfees for those same air traffic services. For ex-



23MANDATORY SAVINGS

ample, a large commercial aircraft would paybetween $1,300 to $2,000 in taxes for a flightfrom Los Angles to San Francisco while a cor-porate jet flying the same route and using thesame Federal Aviation Administration (FAA)air traffic services would pay about $60 intaxes. To reduce the deficit and more equitablyshare the cost of air traffic services across theaviation user community, the Administrationproposes to establish a new mandatory sur-charge for air traffic services. This proposalwould create a $100 per flight fee, payable tothe FAA, by aviation operators who fly in con-trolled airspace. Military aircraft, public air-craft, recreational piston aircraft, air ambu-lances, aircraft operating outside of controlledairspace, and Canada-to-Canada flights would

be exempted. The revenues generated by thesurcharge would be deposited into the Airportand Airway Trust Fund. This fee would gen-erate an estimated $11 billion over 10 years.

Assuming the enactment of the fee, totalcharges collected from aviation users would fi-nance roughly three fourths of airport invest-ments and air traffic control system costs.

Provide Postal Service financial relief and undertake reform. The Administrationrecognizes the enormous value of the U.S. PostalService (USPS) to the Nation’s commerce and

communications, as well as the urgent needfor reform to ensure its future viability. USPSfaces a long-term, structural operating deficitthat has been exacerbated by the precipitousdrop in mail volume in the last few years dueto the economic crisis and the continuing shifttoward electronic communication. Absent leg-islative intervention, USPS will be insolventby the end of September 2011 when it willbe unable to make the statutory $5.5 billionRetiree Health Benefit prefunding payment tothe Office of Personnel Management, will haveexhausted its cash reserves, and will have hit

its cumulative statutory Treasury borrowingceiling of $15 billion. Bold action is needed toensure that USPS can continue to operate inthe short-run and achieve viability in the long-run. To that end, the President is proposing acomprehensive reform package that would: 1)restructure Retiree Health Benefit pre-fund-ing in order to accelerate moving these Postal

payments to an accruing cost basis and reducenear-year Postal payments; 2) provide USPSwith a refund over two years of the $6.9 billionsurplus in Postal contributions to the FERSprogram; 3) reduce USPS operating costs bygiving USPS authority, which it has said it willexercise, to reduce mail delivery from six daysto five days; 4) allow USPS to offer non-postalproducts and increase collaboration with Stateand local governments; and 5) give USPS theability to better align the costs of postage withthe costs of mail delivery while still operatingwithin the current price cap, and permit USPSto seek the modest one-time increase in post-age rates it proposed a year ago. These reformswould provide USPS with over $20 billion incash relief over the next several years and in

total would reduce the Federal deficit by $19billion over 10 years.

Strengthen the safety net for workers’retirement benefits. All Americans deservea secure retirement. The Administrationhas proposed to create new opportunities tosave for retirement by establishing a systemof automatic workplace pensions and dou-bling the small employer pension plan start-up credit. In addition, the Administrationhas issued regulations that would increase401(k) fee disclosure, so that workers can

make more informed choices about how toinvest their retirement savings. The PensionBenefit Guaranty Corporation (PBGC),which protects the retirement security of 44 million workers in defined benefit pen-sion plans, is also critical to the success of a robust pension system. When underfundedplans terminate, PBGC assumes responsi-bility for paying the insured benefits. PBGCis responsible for paying current and futureretirement benefits to more than 1.5 millionworkers and retirees.

PBGC receives no taxpayer financing, andrelies primarily on premiums paid by insuredplans. PBGC premiums are currently muchlower than what a private financial institu-tion would charge for insuring the same riskand are insufficient for PBGC to meet its long-term obligations. As of the end of September2010, PBGC faced a $23 billion deficit. The




Administration proposes to encourage compa-nies to fully fund their pension benefits andensure PBGC’s continued financial soundnessby giving the PBGC Board the authority to ad-

just premiums to better account for the riskthe agency is insuring. This proposal wouldraise much-needed revenue for PBGC whileproviding incentives for firms both to continueoffering pensions and to improve plan fund-ing so they can keep their pension promises.Without action, the PBGC’s deficit will in-crease and we may face, for the first time, theneed for an infusion of taxpayer funds to keepPBGC solvent.

The proposal consists of two parts: 1) agradual increase in the single-employer flat-

rate premium that will raise approximately$4 billion by 2021; and 2) PBGC Board dis-cretion to increase the single-employer vari-able-rate premium to raise $12 billion by2021. Beginning in 2014, the Board wouldbe given discretion to increase variable-ratepremiums, which are based on plan under-funding. Currently, premiums are set at $9per $1,000 of underfunding. Under the pro-posal, two-thirds of the Board would have tocertify that changes to the variable premiumschedule would be estimated to generate atleast $12 billion through 2021. If the Board

were unable to certify the premium schedule,it would be required to make adjustments toensure generated revenues of at least $12billion. The Board would be prohibited fromraising premiums to generate more than $13billion. In determining variable-rate premi-ums, the Board would consider a number of factors, including a plan’s risk of losses toPBGC, the amount of a plan’s possible claims,and other factors the Board’s directors de-termine appropriate. In addition, the Boardwould be required to consult with stakehold-ers prior to setting a new premium schedule

and would also establish a hardship waiverand other limitations on plan-specific pre-mium increases. PBGC would be required topublish a notice of its determination in theFederal Register, including the basis for thedetermination and the amount of the expect-ed increase in income. This proposal wouldsave $16 billion over the next decade.

Reform the National Flood InsuranceProgram (NFIP) by eliminating the pre-mium subsidy for certain properties.Currently, 1.2 million or 20 percent of all NFIPproperties are charged premiums well belowthe actuarial value of the insured liability. Onaverage (including subsidized and unsubsi-dized policies) NFIP premium collections cov-er approximately 70 percent of the actuarial

value of the insured liability. To address thisconcern, the Administration supports a pro-posal, as passed by the House in H.R. 1309,which would impact approximately 375,000 or30 percent of the 1.2 million subsidized poli-cies. Specifically, the proposal would:

!" Increase premiums over five years for a

subset of subsidized properties: non-res-idential or non-primary residences, resi-dences sold to new owners, and severerepetitive loss properties.

!" Redefine severe repetitive loss proper-ties as residences with at least four paidclaims greater than $5,000 or with twopaid claims that cumulatively exceed themarket value of the house.

!" One year after enactment, increase pre-miums for all policy holders fitting the

above named categories (non-residentialor non-primary residences, residencessold to new owners, and severe repetitiveloss properties) by no more than 20 per-cent per year until the amount collectedcovers the full expected cost of the insur-ance.

!" New policies that fit this category of sub-sidized properties one year after enact-ment would immediately pay the full costactuarial premium.

The Administration also supports othermeasures in H.R. 1309 that would increasethe maximum policy coverage for structureand contents and authorize studies and pilotsto test alternative approaches to flood insur-ance that are sustainable and cost-effective.The NFIP would collect about $700 million inadditional premium revenue over five years



25MANDATORY SAVINGS

and approximately $4.2 billion over 10 years.These increased revenues could be depositedin either the National Flood Insurance Fundor into the General Fund.

GOVERNMENTASSETS

Auction radio spectrum to expandwireless broadband and invest in abroadband network for public safety us-ers. Expanding access to mobile Internet andother wireless communications will benefit

American families and businesses and sup-port a more competitive economy. The FederalCommunications Commission (FCC) estimatesthat mobile data use will increase by 35 timesover 2009 levels by 2014, thus creating greater

demand for spectrum. Recognizing this, the Administration committed last year to repur-pose 500 megahertz of spectrum through auc-tions and other means to meet the growingdemand for spectrum placed on commercialnetwork capacity from smartphones and othermobile technologies. The Administration alsohas strongly promoted vital improvementsin the communication capabilities of first re-sponders and other public safety users. A wide

variety of public safety organizations and theNational Governors Association have also sup-ported a first responders broadband network.

To further these goals, the Administrationproposes to raise more than $24 billion by ex-tending the FCC authority to auction spectrumand by providing new authority to hold incen-tive auctions, through which current spectrumlicensees voluntarily relinquish spectrumrights in exchange for a fair portion of auc-tion proceeds. In addition, the Administrationwould free-up spectrum currently used byFederal agencies for auction, including by pro-

viding enhanced flexibility through the exist-ing Spectrum Relocation Fund to help agencies

repurpose and relocate. This will enhance the Administration’s ongoing interagency effort todevelop options for relocating Federal agenciesfrom valuable spectrum. In cases where auc-tions are not appropriate, the FCC would bedirected to collect $4.8 billion in fees over thenext 10 years to promote efficient resource use.Spectrum assigned to television broadcasters

and public safety uses would be exempt fromthis fee. The proposal would also allow spec-trum licenses for satellite services that are pri-marily domestic (such as satellite TV services)to be assigned via competitive bidding, as theyhad been prior to a 2005 court decision.

As long envisioned by the Administrationand members of both parties in the Congress,the Administration would invest $7 billion of spectrum auction proceeds and reserve spec-trum valued at nearly $3 billion for use in amodern, nationwide, and interoperable pub-lic safety broadband network. This networkwill provide first responders access to secure,interoperable video and voice communica-tions. By achieving interoperable communi-

cations nationally and utilizing commercialinfrastructure tailored to the requirementsof first responders, this investment holds thepotential to improve public safety communica-tions and applications, promote cost-efficientnetworks through greater economies of scale,and achieve the security and reliability neces-sary for first responder communications. The

Administration believes the build-out of a pub-lic safety network would be best managed bya new independent corporation—with a Boardrepresenting local, State and Federal publicsafety users—to promote nationwide interop-

erability and meet the collective requirementsof public safety users. In total, the proposalwould provide nearly $10 billion in funds andspectrum for a public safety broadband net-work, while reducing the deficit by over $18billion over 10 years.

Get rid of unneeded Federal real prop-erty. The Administration proposes to createan independent real property board to rec-ommend disposal and consolidation oppor-tunities to the Congress. The Government

Accountability Office (GAO) has recognized

longstanding inefficiencies in the Federal realestate portfolio, identifying it as a prime candi-date for reform in its recent March 2011 reporton proposals to reduce the cost of Governmentoperations. Within the 1.1 million buildings,structures, and land parcels that the FederalGovernment owns or operates are significantopportunities to sell unneeded property, con-




solidate agency leases, co-locate agency op-erations, and improve the sustainability of the Government’s operations. The CivilianProperty Realignment Act (CPRA) would es-tablish an independent board of experts toexpedite the disposal of unneeded propertiesand the consolidation of properties across andwithin agencies. Modeled after the success-ful Base Realignment and Closure (BRAC)Commission, the board would achieve this dis-posal and consolidation of Federal real prop-erty through a process that forwards bundledrecommendations to the Congress for a direct

vote. Although the Congressional BudgetOffice (CBO) does not score savings for thisproposal, the Administration believes that thisprocess would save the Federal Government at

least $4 billion over 10 years from sales pro-ceeds. In addition, the Administration believesthe proposal would result in decreased operat-ing costs and efficiencies through better spacemanagement.

PROGRAM INTEGRITY

For many years, the Federal Governmenthas erroneously cut checks to the wrong per-son at the wrong time or for the wrong reason.Cutting waste and combating these kinds of erroneous payments has been a priority for

President Obama. He set a goal of prevent-ing $50 billion in improper payments and re-capturing $2 billion by the end of 2012. The

Administration has taken important steps to-wards achieving the President’s goals, whichhave yielded early results.The Administrationbegan using cutting edge forensic technologyto detect and prevent fraud and error beforeit happens and implemented new account-ability to these errors, posting details of er-ror rates at PaymentAccuracy.gov, and forthe first time adding sanctions for programsthat fail to meet a minimum threshold for er-

ror. In 2010, the Government-wide improperpayment rate declined to 5.49 percent, a de-crease from the 5.65 percent reported in 2009.

Agencies also reported that they recaptured$687 million in improper payments in 2010—the highest amount recovered to date. ThePresident’s 2012 Budget proposes even moreaggressive tools that will help drive down this

waste. If enacted, these proposals will resultin over $160 billion in savings to the FederalGovernment over 10 years.Building on theseefforts the Administration proposes to:

Crack down on tax cheats and delin-quents through investments in InternalRevenue Service (IRS) tax enforcementand compliance. In the BCA, fundingwas provided for program integrity effortsin the Social Security Administration andDepartment of Health and Human Services,but not the IRS. Yet the IRS’s tax enforcementand compliance activities are critical to thefairness and integrity of the U.S. tax system,and also generate a positive ROI for taxpayersof roughly $7-to-$1. Because of this contribu-

tion to deficit reduction, the Administrationhas consistently proposed high-priority in-creases in IRS tax enforcement. Putting pro-gram integrity funding in the Joint Committeepackage is now especially urgent becausetight discretionary caps will otherwise forcelower investment and higher deficits. The

Administration is seeking an incremental 10-year tax enforcement investment which in-cludes more than $350 million in new tax en-forcement and compliance initiatives, plus theinflationary costs of maintaining current IRSenforcement activities. This additional 2012

funding will support new initiatives capable of bringing in over $2 billion in additional reve-nue when the new resources reach maturity in2014. Subsequent increases in 2013 through2016 will include further additional fundingincrements for new revenue-generating initia-tives, all of which will be sustained through2021. CBO has scored such a policy as reducingthe deficit by about $3.2 billion over 10 years.OMB believes that relative to the current lawBEA baseline, and particularly in light of thetight discretionary caps, a provision that pro-

vides protected funding for program integrity

efforts will have a significantly larger effect,saving an estimated $30 billion or more.

Reduce the improper payment rate inthe Unemployment Insurance (UI) pro-gram. The Administration is proposing a setof innovative reforms to the UI program, in-cluding changes that will prevent layoffs and



27MANDATORY SAVINGS

give States more flexibility to use Federal UIfunds to get Americans who have lost their

jobs back to work. The President’s plan istargeted to address unemployment in an ag-gressive, multi-pronged way, drawing fromideas about what is working from around thecountry and from both parties. As we makeUI more flexible and responsive to the needsof the unemployed and the Nation, we can-not tolerate waste in the program. However,UI is run as a Federal-State partnership;the error rates vary widely by State; and thehigh error rates in some States lead the UIprogram to have one of the highest improp-er payment rates of any Federal program.Reemployment and Eligibility Assessments(REAs)—in-person interviews with UI claim-

ants to determine continued eligibility for ben-efits and whether additional reemploymentassistance is needed—are an important partof the Administration’s strong improper pay-ments reduction strategy. The Administrationproposes a multi-year discretionary alloca-tion adjustment starting with $10 million in2012 along with $60 million in base fundingto allow States to conduct REAs. These assess-ments will strengthen UI program integrity byidentifying ineligible claimants and reducingimproper payments.They will also help reduceUI benefit costs by helping unemployed indi-

viduals return to work more quickly than theywould were this targeted assistance not pro-

vided. This policy would reduce the deficit by$256 million over 10 years.

Improve Collection of Pension Infor-mation from States and Localities. TheSocial Security Windfall Elimination Provision(WEP) and Government Pension Offset (GPO)provisions are adjustments to the SocialSecurity formula which ensure that non-cov-ered workers do not receive a higher propor-tional benefit than workers with similar earn-

ings who worked their entire careers in coveredemployment. Currently, WEP and GPO adjustments are only applied when an individ-ual worker attests that he or she has a pen-sion in non-covered employment or the SocialSecurity Administration (SSA) discovers thatan individual is receiving a non-covered pen-sion.While SSA is able to conduct data match-

es with the Office of Personnel Managementto identify Federal workers who have beenemployed in non-covered employment, thereis currently no similar data system to obtaininformation on State or local pensioners. Thisproposal provides up to $50 million to Stateand local governments to develop such a sys-tem for more timely and accurate data collec-tion and direct pension information reportingto SSA. This proposal would improve enforce-ment of the current law WEP and GPO provi-sions, resulting in improved payment accuracyfor the Old-Age and Survivor, and DisabilityInsurance Programs, and is projected to saveapproximately $3.1 billion over 10 years bypreventing overpayments.

Step up collection of debts owed to theFederal Government. The Department of the Treasury manages the collection of de-linquent tax and non-tax debt owed to vari-ous State and Federal agencies through theTreasury Offset Program (TOP), which col-lects delinquent non-tax debts (includingchild support) by offsetting outgoing Federalpayments, and the Federal Payment LevyProgram, which employs a continuous levy(deduction) on Federal payments to collect de-linquent taxes from individual taxpayers. As of June 30, 2011, the Treasury’s debtor database

included approximately $437 billion in delin-quent debts, including $308 billion in Federaldebts (of which $200 billion is tax debt), and$129 billion in State debts (including $111 bil-lion in child support). In 2007, GAO estimatedthat approximately 60,000 Federal contractorswere delinquent on over $7 billion in Federaltaxes, and in 2008, it found that over 27,000Medicare providers owed more than $2 billionin tax debt. This is money owed the FederalGovernment, and allowing those who cheatthe system is unfair to us all. That is why the

Administration is proposing the following re-

forms that will generate $911 million in sav-ings over 10 years:

!" Increase IRS levy authority to 100percent for Federal contractor pay-ments. The tax code was amended bythe American Jobs Creation Act of 2004,which sought to authorize a 100 per-




cent levy of Federal vendor payments.However, a technical error had the un-intended effect of limiting the levy to 15percent. This proposal, which was alsoincluded in the 2012 Budget, would cor-rect the error and allow the Treasury tocollect some of the sizable delinquent taxdebt owed by Federal contractors. Thiswill yield $141 million over 10 years.

!" Increase IRS levy authority to 100percent for Medicare payments. TheCongress recently authorized the levy(tax) and offset (non-tax) of Medicare pay-ments to collect delinquent tax and non-tax debts through the Federal PaymentLevy Program (FPLP); however, the

Treasury currently levies only up to 15percent of a payment to Medicare provid-ers with delinquent tax debt. This reformwould increase the levy to 100 percentwhen collecting tax debts, which wouldbring it in line with the 100 percent pay-ment offset (through TOP) applied tonon-tax debt collection. This will gener-ate $770 million in savings over 10 years.

!" Offset Federal tax refunds to col-lect State income taxes from debtorswho currently reside in other States.

Under current law, Federal tax refundsmay be offset to collect delinquent Stateincome taxes only if the delinquent tax-payer resides in the State collecting thetax. This proposal would allow Treasuryto offset tax refunds to collect delinquentState tax obligations regardless of wherethe debtor resides; however, collectionsare returned to States and do not scoreas Federal savings.

!" Allow agencies to contact delinquentdebtors via their cellular phones.

The Administration also proposes toamend the Communications Act of 1934to facilitate collection of debts owed to orguaranteed by the Federal Government,by facilitating contact of delinquent debt-ors who are most readily reached on theircell phones. This provision is expected toprovide substantial increases in collec-

tions, particularly as an increasing shareof households no longer have landlinesand rely instead on cell phones.

OTHER REFORMS AND S AVINGS

Reform Abandoned Mine Lands (AML)payments. The coal industry as a whole iscurrently held responsible for cleaning upabandoned coal mines by paying a fee that fi-nances grants to States and Tribes for recla-mation. This linkage was lost, however, whenthe Congress in 2006 authorized additionalunrestricted payments to certain States andTribes that had already completed their coalmine reclamation work. In addition, regularreclamation funds are not well targeted at

the highest priority abandoned mine lands,because amounts are distributed by a produc-tion-based formula so that funding goes to theStates with the most coal production, not thegreatest reclamation needs. States can usetheir funding for a variety of purposes, includ-ing the reclamation of abandoned hardrockmines, for which there is no other source of Federal funding.

The Administration proposes to reform thecoal AML program to reduce unnecessaryspending and ensure that the Nation’s high-

est priority sites are reclaimed. First, the Administration proposes to terminate unre-stricted payments to the States and Tribesthat have been certified for completing theircoal reclamation work, since these paymentsdo not contribute to reclaiming abandoned coalmines. Second, the Administration proposesto reform the distribution process for the re-maining funds to allocate available resourcescompetitively to the highest priority coal AMLsites. Through a competitive grant program,a new AML Advisory Council will review andrank the abandoned mine lands sites, so that

the Department of the Interior, in coordinationwith States and Tribes, can distribute grantsto reclaim the highest priority coal sites eachyear.

Mining for hardrock minerals (e.g., silver andgold) has also left a legacy of abandoned minesacross the United States. The Administration



29MANDATORY SAVINGS

proposes to create a parallel AML programfor abandoned hardrock sites. Like the coalprogram, hardrock reclamation would be fi-nanced by a new AML fee on the production of hardrock minerals on both public and privatelands. This would hold the hardrock mining in-dustry responsible for cleaning up the hazardsleft by its predecessors. The funds would be dis-tributed through a competitive grant programto reclaim the highest priority hardrock siteson Federal, State, tribal, and private lands.

Altogether, this proposal will save $1.3 billionover the next 10 years. Equally important, itwould focus available coal fees to better ad-dress the Nation’s most dangerous abandonedcoal mines and establish a new approach tocleaning up abandoned hardrock mines across

the country.

Restore the solvency of the Unem-ployment Insurance system by helpingemployers now and restoring State fiscalresponsibility. Unemployment Insurance(UI) provides a vital safety net for workerswho are laid off. Over the past several years,UI benefits have kept many families afloatduring tough financial times, and in 2010these benefits prevented 3.2 million individu-als—including nearly 1 million children—from falling into poverty. UI is also one of

the most effective levers we have for promot-ing economic growth—generating up to $2of economic activity for every $1 spent. ThePresident has strongly supported expandingthis critical safety net and has called for anextension of unemployment benefits for an-other year. At the same time, we must recog-nize the fact that the economic downturn hastaken a toll on the solvency of the UI program.Twenty-eight States currently owe more than$37 billion to the Federal UnemploymentTrust Fund, and many have little prospectof paying these loans back in the foreseeable

future. Employers in those States are nowfacing Federal tax increases as a result of this indebtedness. The Administration pro-poses to put the UI system back on the pathto solvency by providing immediate relief toemployers to encourage job creation now andreestablishing State fiscal responsibility go-ing forward.

The Administration’s proposal provides twoforms of up-front, two-year relief to employersin indebted States: relieving States of interestpayments on Federal borrowing that are typi-cally paid through an automatic surtax on em-ployers; and suspending automatic increasesin Federal UI taxes on employers in indebtedStates. These two forms of relief would signifi-cantly reduce employers’ UI tax burden, allow-ing them the flexibility to create jobs that theeconomy desperately needs.

The proposal also would encourage States toput their programs on sounder financial foot-ing by increasing the Federal UI taxable wagebase in 2014 from $7,000 to $15,000—near thesame real level as set under President Ronald

Reagan in 1983—and indexing it to averagewages. At the same time, the Federal tax ratewould be decreased to ensure that the FederalUI taxes employers pay are held roughly con-stant. States would also maintain flexibility inhow they set the tax rate paid by employers tofinance their own UI trust funds. While Stateswould be required to set a wage base at leastequal to the new Federal level by 2014, theycould also choose to reduce their tax rates inresponse to the wage base increase.

Although States have been hit hard by the

economic downturn, many have chronicallyunderfunded their UI programs and relied onborrowing from the Federal Government tomake up the shortfall. This borrowing oftenleads States to increase taxes on employersduring recessions, when businesses can leastafford the added burden. Increasing the wagebase would encourage these States to adopt aresponsible tax structure that is able to fullyfund their UI benefits. By 2020, this proposalis projected to reduce the number of State pro-grams still in debt to the Federal Governmentfrom 17 to 2. Taken together, this package of

reforms will reduce the deficit by $33 billionover 10 years.

Require the financial services industryto pay back taxpayers. The Administrationis calling for a Financial Crisis ResponsibilityFee on the largest financial institutions to ful-ly compensate taxpayers for the extraordinary




support they provided to the financial sectorthrough the Troubled Asset Relief Program(TARP) and other Government actions. Theassistance given to the largest financial firmsrepresented an extraordinary step that noone wanted to take, but one that was neces-sary in order to stem a deeper financial crisisand set the economy on a path to recovery. Thecost associated with the excessive risk-takingby the largest financial institutions continuesto ripple through the economy. Furthermore,although many of the largest financial firmshave repaid the Treasury for their TARP assis-tance, they continue to implicitly benefit fromthe TARP funds that bolstered their balancesheets during a period of great economic up-heaval. While the expected deficit cost of the

TARP program has fallen by $66 billion sincethe 2011 Mid-Session Review to approximate-ly $48 billion in the 2012 Budget, shared re-sponsibility requires that the largest financialfirms pay back the taxpayer for the extraordi-nary support they received. The fee will be re-stricted to financial firms with assets over $50billion and will be imposed until all TARP costshave been recouped. The Administration’sFinancial Crisis Responsibility Fee aligns withthe congressional intent of the TARP legisla-tion that requires the President to propose away for the financial sector to pay back taxpay-

ers so that not one penny of the Government’sTARP-related debt is passed on to the nextgeneration. It would extend beyond 2021 asnecessary to achieve these ends. The structureof this fee would be consistent with principlesagreed to by the G-20 Leaders and similar tofees proposed by other countries. This fee willreduce the deficit by $30 billion over 10 years.

Increase pesticide user charges. TheEnvironmental Protection Agency (EPA)screens and registers new pesticides before theyreach the market and ensures that pesticides

already in commerce are safe when used in ac-cordance with the label. Presently, EPA collectsfees from entities seeking to register their pes-ticides and from entities seeking to maintaintheir existing registrations; however, the feesonly cover a small portion of the full cost forEPA to register a pesticide. The Administrationproposes to better cover the costs of EPA’s pes-

ticide registration services by increasing theamount charged for currently authorized pesti-cide user charges. Amendments to the FederalInsecticide, Fungicide, and Rodenticide Act re-quire EPA to review all registered pesticideson a 15-year cycle to ensure that registrationsreflect current science. The Administration’sproposed increases to registration and mainte-nance fees are intended to cover the increasedcosts posed by these reviews and a greater por-tion of overall program costs. In addition, al-though the Federal Food, Drug, and Cosmetic

Act of 1938, as amended, requires EPA to col-lect fees for the establishment and reassess-ment of pesticide tolerances, the collection of these fees has been blocked through 2012 bystatute. The Administration proposes to elimi-

nate this prohibition and collect the tolerancefee beginning in 2012. This will save $740 mil-lion over 10 years.

Lift the cap on pre-manufacture noticeuser charges. EPA presently collects feesfrom chemical manufacturers seeking to mar-ket new chemicals. These fees are authorizedby the Toxic Substances Control Act and aresubject to a statutory cap. The Administrationproposes to lift the cap so that EPA can recovera greater portion of the program cost. This willsave $76 million over 10 years.

Establish a hazardous waste electronicmanifest system. The Resource Conservationand Recovery Act of 1976, as amended, (RCRA)requires transporters of hazardous waste todocument information on the waste’s genera-tor, destination, quantity, and route. Currently,the tracking system relies on paper copies thatare not frequently digitized for data analysisor quality control. The Administration propos-es to collect fees from users of a new electronicmanifesting system beginning in 2014. Use of electronic records will allow EPA to more effi-

ciently monitor and analyze future waste ship-ments. Full implementation of the electronicsystem may reduce industry reporting costsunder RCRA by $77 million to $126 millionannually. This proposal is supported by indus-try stakeholders and members of the Congressas an efficient cost-saving measure.This willsave $31 million over 10 years.



31MANDATORY SAVINGS

Reauthorize the special assessmentfrom domestic nuclear utilities. The

Administration believes nuclear energy mustbe part of our energy mix and is commit-ted to its safe development to help support alow-carbon energy future. For example, toadvance the Nation’s nuclear industry, the

Administration has offered conditional com-mitments for $8.33 billion in nuclear loanguarantees for two new nuclear reactors ata plant in Burke, Georgia and $2 billion for

AREVA’s Eagle Rock Enrichment Facility nearIdaho Falls, Idaho.

Along with this commitment to the in-dustry is a shared responsibility to makesure our cleanup liabilities are met. The

Department of Energy’s Uranium EnrichmentDecontamination and Decommissioning Fundwas established in 1992 to pay the decontami-nation and decommissioning (D&D) costs of the Department of Energy’s gaseous diffu-sion plants in Tennessee, Ohio, and Kentucky.These uranium enrichment plants served ourdefense mission as well as nuclear industryneeds. The authorization of the special assess-ment from domestic utilities and Federal con-tribution expired in 2007, and there is current-ly insufficient funding to cover the remainingcosts of D&D of the plants. The Administration

proposes to reauthorize the special assessmentfrom domestic utilities and Federal contribu-tion into the Fund for another 15-year period.The amount collected from industry for a fis-cal year would be $200 million and the Federalcontribution would be $463 million (both an-nually adjusted for inflation). This proposalreiterates the ongoing need to decontaminate,decommission, and remediate the uraniumprocessing facilities, and provides $2 billion insavings over 10 years.

Repeal mandatory oil and gas research

and development program. To foster theclean energy economy of the future and reduceour reliance on fossil fuels that contribute toclimate change, the Administration proposesto repeal provisions in the 2005 Energy Policy

Act which establish and fund the mandatoryoil and gas research and development (R&D)program that promotes fossil fuel production.

These R&D activities have historically fundeddevelopment of technologies that can be com-mercialized quickly, and are thus activitieswhich should instead be funded by the compa-nies that benefit from the projects.Mandatoryfunding for this program sunsets in 2014.Repeal of this program, effective for 2012 andbeyond, will save $150 million over the 10-yearbudget window.

Realize savings at the Department of the Interior (DOI). The Administration isproposing six mandatory savings proposals atDOI that would provide a total savings of $1.6billion over 10 years. These proposals wouldgive taxpayers a fair return from energy de-

velopment and mining on Federal lands and

waters, while providing incentives for compa-nies to get leases into production or relinquishthem. In some cases, the proposals seek toshare equitably the costs of oversight with theStates or companies that benefit.

!" Institute a fee on non-producing oiland gas leases. The Administrationproposes to encourage energy productionon Federal lands and waters leased fordevelopment. As noted in the March 2011Blueprint for a Secure Energy Future,more than 70 percent of the tens of mil-

lions of offshore acres under lease areinactive. A $4 per acre fee on non-pro-ducing Federal leases on lands and wa-ters would provide a financial incentivefor oil and gas companies to either gettheir leases into production or relinquishthem so that the tracts can be leased toand developed by new parties. The pro-posed $4 per acre fee would apply to allnew leases and would be indexed annu-ally. In October 2008, the GAO issued areport critical of past efforts by Interiorto ensure that companies diligently de-

velop their Federal leases. Although theGAO report focused on administrativeactions, this legislative proposal is con-sistent with the GAO recommendationsand is similar to other non-producingfee proposals recently considered by theCongress. This will save $1 billion over10 years.




!" Make permanent net receipts shar-ing for energy minerals. Mineral andenergy leases on Federal lands gener-ate significant revenue, half of whichis shared with the States. The costs of administering these leases should alsobe shared with the States, which is nowaccomplished through an annual appro-priations provision, referred to as netreceipts sharing. This proposal wouldmake this equitable arrangement perma-nent, beginning in 2013. This will save$412 million over 10 years.

!" Reform hardrock mining on Federallands. The Administration proposes pro-

viding a fair return to the taxpayer from

hardrock production on Federal lands byestablishing a leasing program under theMineral Leasing Act of 1920 for certainhardrock minerals (e.g., gold, silver, lead,zinc, copper, uranium, and molybdenum)currently covered by the General MiningLaw of 1872. After enactment, mining forthese metals on Federal lands would begoverned by the new leasing process andsubject to annual rental payments and aroyalty of not less than five percent of grossproceeds. Half of the receipts would be dis-tributed to the States in which the leases

are located and the remaining half wouldbe deposited in the Treasury. Existingmining claims would be exempt from thechange to a leasing system, but would besubject to increases in the annual mainte-nance fees under the General Mining Lawof 1872. Holders of existing mining claimsfor these minerals could, however, volun-tarily convert claims to leases. This willsave $36 million over 10 years.

!" Boost Federal share of geothermalenergy receipts. This proposal would

provide a fair return to taxpayers fromgeothermal leases on Federal lands.Traditionally, the Treasury receives 50percent of revenues from mineral leaseson Federal lands, with the States receiv-ing the rest. This proposal would restorethis practice for geothermal leases, whichcurrently return 25 percent of receipts to

the Treasury. This will save $70 millionover 10 years.

!" Repeal oil and gas fee prohibitionand mandatory permit funds. The

Administration supports the environmen-tally sustainable development of energyresources on Federal lands, with indus-try sharing in the cost of administeringpermits. To facilitate this process, theBureau of Land Management (BLM) re-lies on cost recovery fees for processingapplications for oil and gas permits todrill. The Congress has implemented per-mit fees through appropriations languagefor the last several years and the 2012Budget proposes to continue this practice.

This proposal would make permanentthe authority to establish fees, providingcertainty to companies submitting appli-cations. Fee receipts could then replace amandatory funding account, which wouldbe terminated to generate savings. Thiswill save $66 million over 10 years.

!" Reauthorize the Federal LandTransaction Facilitation Act (FLTFA)of 2000. FLTFA allows BLM to sell landsidentified as suitable for disposal in re-cent land use plans and use the revenue

to fund the acquisition of environmental-ly sensitive lands. The Administrationproposes to reauthorize FLTFA, whichrecently expired, with small savings gen-erated from a lag in spending revenue.This will save $20 million over 10 years.

Reform inland waterways funding. Inallocating funds within the Army Corps of Engineers (Corps) budget, the Administrationgives priority to those projects that offer thegreatest returns to the Nation in achievingeconomic, environmental, and public safety

objectives. This includes providing priorityfunding for the maintenance of existing high-performing inland waterways. However, it hashad to limit capital spending because the cur-rent way of producing the funds that supportthe user-financed share of these costs is notworking as intended.



33MANDATORY SAVINGS

The Corps constructs and rehabilitates thelocks, dams, channels, and other features thatenable barges to travel along 12,000 miles of developed inland waterways. Some of thesewaterways, such as the Mississippi and OhioRivers and the Illinois Waterway, support ahigh level of commercial traffic. In 1986, theCongress authorized use of an existing in-land waterways fuel tax (now 20 cents pergallon) to finance 50 percent of the cost of most inland waterways capital investments.The general taxpayer pays all of the remain-ing capital costs and all of the operation andmaintenance (O&M) costs of inland water-ways navigation.

While spending for capital investments on

these waterways has increased significant-ly in recent years, revenue from the fuel taxhas declined. The fuel tax now only covers

about eight percent of the total costs that theCorps spends on behalf of the users, whichmake barge transportation possible (includingO&M, all of which the general taxpayer pays).By contrast, non-Federal partners in all of theother Corps programs contribute on average35 percent or more.

To address these concerns, the Admini-stration supports enactment of a new user fi-nancing structure for the inland waterways tosupplement the existing diesel fuel tax. Thisnew fee would generate about $1 billion of ad-ditional revenue into the Inland WaterwaysTrust Fund over the next 10 years. This ad-ditional revenue would enable a more robustlevel of funding for safe, reliable, highly cost-

effective, and environmentally sustainablewaterways, and contribute to deficit reduc-tion and economic growth.



HEALTH SAVINGS

35

For years, we have known that highhealth care costs are a major driver of ourlong-term deficits. The United States spentapproximately $2.6 trillion on health carein 2010, or 17.6 percent of our GDP—morethan any other developed nation. Familieswith health insurance are seeing theirtake-home pay reduced and their budgetsstrained by high costs and spiralingpremiums. State and local governmentsare alsofeeling this pinch. That is why thePresident signed into law the AffordableCare Act (ACA), which not only eliminated

insurance company abuses and expandedaccess to health insurance to tens of millionsof Americans but also took steps to reducehealth care cost growth.The CongressionalBudget Office (CBO) estimates that the

ACA will reduce the deficit by over $200billion over the next 10 years and over $1trillion in the following decade. Beyondthese savings, the ACA puts into place themost aggressive combination of reforms yetto cut waste, reduce errors and inefficiency,boost quality, and reduce the rate of healthcare cost growth.

While the ACA was an historic step towardgetting health care costs under control,there is still more that we can do to realizeefficiencies, cut waste, and improve Federalhealth care programs. Most importantly, wecan make modest adjustments to strengthenMedicare and Medicaid in a way that doesnot undermine the fundamental compact theyrepresent to our Nation’s seniors, children,people with disabilities, and low-incomefamilies. The Administration’s proposals willsave approximately $320 billion over the next

decade. As these reforms save money, theyalso will strengthen these vital programsso that they are robust and healthy to serve

Americans for years to come.

MEDICARE

The Medicare program helps give roughly50 million seniors and individuals with

disabilities access to affordable health care.While the ACA helped extend Medicare’ssolvency by encouraging high-quality,efficient health care and addressingwasteful spending, the Medicare Trusteesstill estimate trust fund exhaustion in 2024.The new proposals would make changesto Medicare that are gradual, protectcurrent and middle-class beneficiaries, andstrengthen Medicare overall. These proposalswould save about $224 billion over 10 yearsby better aligning payments with the costsof care and improving providers’ payment

incentives to provide high quality care. Theproposals also make structural changesthat include reducing Federal subsidiesfor high-income beneficiaries and creatingfinancial incentives for newly eligiblebeneficiaries to seek high-value health careservices to achieve an additional $24 billionin savings. These measures are expectedto extend the solvency of the MedicareHospital Insurance Trust Fund by aboutthree years. These proposals are presentedin the context of a Medicare baseline thatassumes legislative action to permanently

prevent current law reductions in Medicarephysician payment rates consistent withthe Administration’s commitment to fix thesustainable growth rate policy in a fiscallyresponsible way. Failing to do so simplymasks the worsening long-run deficit. Tosave money and strengthen Medicare, the

Administration proposes to:

Reduce Medicare coverage of bad debts.For most eligible provider types, Medicarecurrently generally reimburses 70 percent of bad debts resulting from beneficiaries’ non-

payment of deductibles and copayments afterproviders have made reasonable efforts tocollect the unpaid amounts. Similar to theFiscal Commission, this proposal will alignMedicare policy more closely with private sectorstandards by reducing bad debt payments to25 percent for all eligible providers over threeyears starting in 2013. This proposal will saveapproximately $20 billion over 10 years.




Better align graduate medical educationpayments with patient care costs.Medicare compensates teaching hospitals forthe indirect costs stemming from inefficienciescreated from residents “learning by doing.”The Medicare Payment Advisory Commission(MedPAC) has determined that these IndirectMedical Education (IME) add-on payments aresignificantly greater than the additional patientcare costs that teaching hospitals experience,and the Fiscal Commission, among others,recommended reducing the IME adjustment.This proposal would reduce the IME adjustmentby 10 percent beginning in 2013, and saveapproximately $9 billion over 10 years.

Better align payments to rural

providers with the cost of care. Medicaremakes a number of special payments to accountfor the unique challenges of delivering medicalcare to beneficiaries in rural areas. Thesepayments continue to be important; however, inspecific cases, the adjustments may be greaterthan necessary to ensure continued access tocare. The Administration proposes to improvethe consistency of payments across rural hospitaltypes, provide incentives for efficient deliveryof care, and eliminate higher than necessaryreimbursement. First, the Administrationproposes to end an add-on payment for hospitals

and physicians in low-population States.Currently, hospitals and physicians in certainlow-population States receive a special paymentadjustment that exceeds the amount indicatedby their labor costs or certain other costs. Thisproposal would end this add-on payment in 2013,to better align providers’ payments with theircosts, and will save approximately $2 billionover 10 years. Secondly, to improve paymentaccuracy for Critical Access Hospitals (CAHs),the Administration proposes to reduce paymentsfrom 101 percent to 100 percent of reasonablecosts and to eliminate the CAH designation

for those that are fewer than 10 miles from thenearest hospital. This will ensure that this uniquepayment system is better targeted to hospitalsmeeting the eligibility criteria. These two CAHproposals will save approximately $4 billion over10 years. Together, these rural proposals will saveapproximately $6 billion over 10 years.

Encourage efficient post-acute care.Medicare covers services in skilled nursingfacilities (SNFs), long-term care hospitals(LTCHs), inpatient rehabilitation facilities(IRFs) and home health. Over the years,expenditures for these services haveincreased dramatically, and payments inexcess of the costs of providing high qualityand efficient care place a drain on Medicare.Recognizing the importance of theseservices, the Administration supports thefollowing policies that will save $42 billionover 10 years and improve the quality of care:

!" Adjust payment updates for certainpost-acute care providers. MedPAC

analysis indicates that Medicarepayment significantly exceeds thecost of patient care in post-acute caresettings, resulting in high Medicaremargins.This proposal would graduallyrealign payments with costs throughadjustments to payment rate updatesin 2014 through 2021 for theseproviders. These adjustments buildon recommendations from MedPAC’sMarch 2011 Report to the Congress,in which they recommended that theCongress eliminate payment updates

for each of these provider types in2012.This proposal will save $32 billionover 10 years.

!" Equalize payments for certainconditions commonly treated inIRFs and SNFs. Post-acute care relatedto a number of conditions, including hipand knee replacements, hip fractures,and certain pulmonary diseases arecurrently provided in both IRFs andSNFs, although Medicare paymentsare significantly greater when treated

in IRFs. This policy would reduce thedifferences in payment for treatment of specified conditions to encourage care inthe most clinically appropriate settingbeginning in 2013. This proposal willsave approximately $4 billion over 10years.



37HEALTH SAVINGS

!" Encourage appropriate use of inpatient rehabilitation hospitals.Medicare pays IRFs at a rate thatreflects specialized rehabilitation care topatients with the most intensive needs.IRFs must demonstrate this by meetinga compliance threshold which specifiesa minimum percentage of patients withdesignated medical conditions thatrequire intensive rehabilitation services.Starting in 1984, this compliancethreshold was set at 75 percent, but itwas reduced to 60 percent in 2007. Thisproposal would return the compliancethreshold to its previous 75 percent levelbeginning in 2013 to better ensure thatthe higher IRF payments apply to cases

requiring this level of care. This proposalwill save approximately $3 billion over10 years.

!" Adjust SNF payments to reducehospital readmissions. The AffordableCare Act created payment adjustmentsfor inpatient hospitals with high ratesof readmissions, many of which could beavoided through better care. However, acomparable adjustment does not existfor SNFs. MedPAC analysis shows thatnearly 14 percent of Medicare patients

that are discharged from a hospital to aSNF are readmitted to the hospital forconditions that could have been avoided.To promote high quality care in SNFs,this proposal reduces SNF payments byup to three percent beginning in 2015 forfacilities with high rates of care-sensitive,preventable hospital readmissions. Thisproposal will save approximately $2billion over 10 years.

Align Medicare drug payment policieswith Medicaid policies for low-income

beneficiaries. Under current law, drugmanufacturers are required to pay specifiedrebates for drugs dispensed to Medicaidbeneficiaries. In contrast, Medicare Part Dplan sponsors negotiate with manufacturersto obtain plan-specific rebates at unspecifiedlevels. The Department of Health andHuman Services (HHS) Office of Inspector

General has found substantial differencesin rebate amounts and net prices paid forbrand name drugs under the two programs,with Medicare receiving significantly lowerrebates and paying higher prices thanMedicaid. Moreover, Medicare per capitaspending in Part D is growing significantlyfaster than that in Parts A or B undercurrent law. This proposal would allowMedicare to benefit from the same rebatesthat Medicaid receives for brand name andgeneric drugs provided to beneficiaries whoreceive the Medicare Low-Income Subsidybeginning 2013. Manufacturers previouslypaid Medicaid rebates for drugs providedto the dual eligible population prior to theestablishment of Medicare Part D. The

Fiscal Commission recommended a similarproposal to apply Medicaid rebates to dualeligibles for outpatient drugs covered underPart D. This option is estimated to save $135billion over 10 years.

Cut waste, fraud, and abuse inMedicare. In this fiscal environment, wecannot tolerate waste, fraud, and abuse inMedicare—or any Government program.That is why the Administration has madethis a priority through its Campaign to CutWaste, together with long-standing efforts to

boost program integrity and reduce improperpayments (that is, payments made to thewrong person, in the wrong amount, or at thewrong time). The Administration is proposinga series of policies to build on these efforts thatwill save approximately $5 billion over thenext 10 years. Specifically, the Administrationproposes to:

!" Recover erroneous payments madeto insurers participating in Medicare Advantage. Medicare Advantage plansreceive payments that are adjusted based

on whether or not beneficiaries havecertain health conditions that result inhigher costs. The Centers for Medicareand Medicaid Services (CMS) auditsa sample of plans’ records to validatethe accuracy of adjusted payments,based on beneficiaries’ documentedhealth conditions (validation audits).




This proposal would require CMS toextrapolate the error rate found in riskadjustment validation audits to the entireMedicare Advantage contract paymentfor a given year, leading to recoupment of overpayments made to these plans. Thisproposal will save approximately $2.3billion over 10 years.

!" Reduce improper payments inMedicare. In June 2010, the Presidentannounced a goal of reducing theMedicare fee-for-service improperpayment rate by half by 2012. Severalrobust proposals would contribute toreaching the President’s goal, as well asstrengthen Medicare program integrity

more broadly. These include: increasingscrutiny of providers using high-riskbanking arrangements, allowing civilmonetary penalties for providers whodo not update enrollment information,creating a Medicare claims orderingsystem to validate physician orders forcertain high-risk services, requiringprepayment or earlier review for allpower wheelchairs, using a portion of Recovery Audit Contractor recoveries toimplement actions that prevent improperpayments and fraud, permitting exclusion

of individuals affiliated with entitiessanctioned for fraudulent or otherprohibited actions from Federal healthcare programs, limiting the discharge of debt in bankruptcy proceedings in casesof fraudulent activity, and strengtheningpenalties for illegal distribution by othersof Medicare, Medicaid, or Children’sHealth Insurance Program (CHIP)beneficiary identification or billingprivileges. These proposals will savenearly $1 billion over 10 years.

!" Dedicate penalties for failure to useelectronic health records towarddeficit reduction. Current law offersincentive payments to hospitals andphysicians who become meaningful usersof electronic health records. Beginningin 2015, Medicare providers that fail tobecome meaningful users are subject to

a penalty, and the penalty is creditedto a special account beginning in 2020.This proposal would instead use thesepenalties for deficit reduction beginningin 2021; this will save approximately$500 million over 10 years.

!" Update Medicare payments to moreappropriately account for utilizationof advanced imaging. Medicarespending for imaging services paid forunder the physician fee schedule hasgrown dramatically in recent years due toan increase in the number and intensityof these services. MedPAC has stated thatthis volume growth may signal that theseservices are mispriced and has supported

Medicare payment changes for expensiveimaging equipment. Beginning in 2013,this proposal implements a paymentadjustment for advanced imagingequipment to account for higher levels of utilization of certain types of equipment.This proposal will save approximately$400 million over 10 years.

!" Require prior authorization foradvanced imaging. The rapid growthin the number and intensity of imagingservices in recent years raises concerns

about whether these services are beingused appropriately. This proposal wouldadopt prior authorization for the mostexpensive imaging services, beginningin 2013, to ensure that these servicesare used as intended and protect theMedicare program and its beneficiariesfrom unwarranted use. This is consistentwith practices by private healthinsurance to manage spending growthand a GAO recommendation to considerprior authorization and other approachesto address rapid spending growth on

these services. This proposal will saveapproximately $900 million over 10years.

Increase income-related premiumsunder Medicare Parts B and D. UnderMedicare Parts B and D, certain beneficiariespay higher premiums as a result of their



39HEALTH SAVINGS

higher levels of income. Beginning in 2017,the Administration proposes to increaseincome-related premiums under MedicareParts B and D by 15 percent and maintainthe income thresholds associated withincome-related premiums until 25 percent of beneficiaries under Parts B and D are subjectto these premiums. This will help improvethe financial stability of the Medicareprogram by reducing the Federal subsidy of Medicare costs for those beneficiaries whocan most afford them. This proposal will saveapproximately $20 billion over 10 years.

Modify Part B deductible for newbeneficiaries. Beneficiaries who areenrolled in Medicare Part B are required to

pay an annual deductible. This deductiblehelps to share responsibility for paymentof Medicare services between Medicareand beneficiaries. To strengthen programfinancing and encourage beneficiaries toseek high-value health care services, the

Administration proposes to apply a $25increase in the Part B deductible in 2017,2019, and 2021 for new beneficiaries.Current beneficiaries or near retirees wouldnot be subject to the revised deductible.This proposal will save approximately $1billion over 10 years.

Introduce home health co-payments fornew beneficiaries. Medicare beneficiariescurrently do not make co-payments forMedicare home health services. This proposalwould create a home health copayment of $100 per home health episode, applicablefor episodes with five or more visits notpreceded by a hospital or other inpatientpost-acute care stay. This would apply tonew beneficiaries beginning in 2017. Thisproposal is consistent with a MedPACrecommendation to establish a per episode

copayment. MedPAC noted that “beneficiarieswithout a prior hospitalization account for arising share of episodes” and that “addingbeneficiary cost sharing for home health carecould be an additional measure to encourageappropriate use of home health services.”This proposal will save approximately $400million over 10 years.

Introduce a Part B premium surchargefor new beneficiaries that purchase nearfirst-dollar Medigap coverage. Medigappolicies sold by private insurance companiesprovide beneficiaries additional support forcovering healthcare costs by covering most orall of the cost sharing Medicare requires.Thisprotection, however, gives individuals lessincentive to consider the costs of health careservices and thus raises Medicare costs andPart B premiums. Of particular concern areMedigap plans that cover substantially allMedicare copayments, including even themodest co-payments for routine care thatmost beneficiaries can afford to pay out of pocket. To encourage more efficient healthcare choices, the Administration proposes a

Part B premium surcharge equivalent to about15 percent of the average Medigap premium(or about 30 percent of the Part B premium)for new beneficiaries that purchase Medigappolicies with particularly low cost-sharingrequirements, starting in 2017. Currentbeneficiaries and near-retirees would notbe subject to the surcharge. Other Medigapplans would be exempt from this requirementwhile still providing beneficiaries options forprotection against high out-of-pocket costs.This proposal will save approximately $2.5billion over 10 years.

Strengthen the Independent Payment Advisory Board (IPAB) to reduce long-term drivers of Medicare cost growth.Created by the ACA, IPAB has been high-lighted by economists and health policyexperts as a key contributor to Medicare’slong term solvency.Under current law, if theprojected Medicare per capita growth rateexceeds a predetermined target growth rate,IPAB recommends to the Congress policies toreduce the rate of Medicare growth to meet thetarget. IPAB recommendations are prohibited

from increasing beneficiary premiums or cost-sharing, or restricting benefits. To furthermoderate the rate of Medicare growth, thisproposal would lower the target rate from theGDP per capita growth rate plus 1 percent toplus 0.5 percent. Additionally, the proposalwould give IPAB additional tools like theability to consider value-based benefit design




and enforcement mechanisms such as anautomatic sequester as a backstop for IPAB,the Congress, and the Secretary of HHS. Thisproposal would act as a backstop to the otherproposed reforms.

MEDICAID

Medicaid is a critical source of healthinsurance coverage for approximately 56million low-income beneficiaries includingmillions of children with disabilities andseniors in nursing homes.The ACA includedprovisions to increase anti-fraud efforts inMedicaid and placed a renewed focus on qualityof care provided to Medicaid beneficiaries.Tomake Medicaid more flexible, efficient, and

accountable, the following proposals wouldlimit State financing practices that increaseFederal spending, replace complicatedmatching formulas with a single matchingrate specific to each State, and strengthenMedicaid program integrity. These proposalsare projected to save approximately $66 billionover 10 years.

Reduce the Medicaid provider taxthreshold beginning in 2015. Many Statesimpose taxes on health care providers to helpfinance the State share of Medicaid program

costs. However, some States use those taxrevenues to increase payments to those sameproviders, and use that additional spendingto increase their Federal Medicaid matchingpayments. The Administration proposes tolimit these types of State financing practicesthat increase Federal Medicaid spending,by phasing down the Medicaid providertax threshold, from the current law levelof 6 percent in 2014, to 4.5 percent in 2015,4 percent in 2016, and 3.5 percent in 2017and beyond. By delaying the effective dateuntil 2015, the proposal protects States from

reductions in the short term. This proposal isprojected to save $26.3 billion over 10 years.

Apply a single blended matching rate toMedicaid and CHIP starting in 2017. Undercurrent law, States face a patchwork of differentFederal payment contributions for individualseligible for Medicaid and CHIP. Specifically,

State Medicaid expenditures are generallymatched by the Federal Government usingthe Federal medical assistance percentage(FMAP); CHIP expenditures are matched withenhanced FMAP (eFMAP); and the AffordableCare Act provides increased match for newly-eligible individuals and certain childlessadults beginning in 2014.Beginning in 2017this proposal would replace these complicatedformulas with a single matching rate specificto each State that automatically increases if arecession forces enrollment and State costs torise.This proposal is projected to save $14.9billion over 10 years.

Limit Medicaid reimbursement of durable medical equipment (DME) based

on Medicare rates. Under current law,States have experienced the same challengesin preventing overpayments for DME thatpreviously confronted Medicare. The Medicareprogram is in the process of implementinginnovative ways to increase efficiency forpayment of DME through the DME CompetitiveBidding Program, which is expected to save theMedicare program more than $17 billion andMedicare beneficiaries approximately $11 billionover 10 years. This proposal extends some of these efficiencies to Medicaid, starting in 2013,by limiting Federal reimbursement for a State’s

Medicaid spending on certain DME services towhat Medicare would have paid in the sameState for the same services. This proposal isprojected to save $4.2 billion over 10 years.

Strengthen third-party liability forMedicaid beneficiary claims. This proposalwould affirm Medicaid’s position as a payerof last resort by removing exceptions to therequirement that State Medicaid agenciesreject medical claims when another entityis legally liable to pay the claim, starting in2013. Specifically, the Administration wants

to allow States to avoid costs for prenatal andpreventive pediatric claims when third partiesare responsible, allow providers to collectmedical child support for children with healthinsurance through a non-custodial parent,and allow Medicaid to recover costs frombeneficiary liability settlements. This proposalis projected to save $1.3 billion over 10 years.



41HEALTH SAVINGS

Re-base Medicaid disproportionateshare hospital (DSH) allotments in 2021.This proposal continues the Affordable Care

Act policy to better align Medicaid DSHpayments with reductions in the number of uninsured in 2021 and beyond. SupplementalDSH payments are intended to help supporthospitals that provide care to disproportionatenumbers of low-income and uninsuredindividuals. The Affordable Care Act reducedState DSH allotments by $18.1 billion through2020 to reflect the reduced need as a result of the increased coverage provided in the Act.The Administration proposes to compute 2021State DSH allotments based on States’ actual2020 DSH allotments, better aligning futureMedicaid supplemental payments to hospitals

with reduced levels of uncompensated care.This proposal is projected to save $4.1 billionover 10 years.

Amend modified adjusted gross income(MAGI) for health insurance assistanceprograms to include Social Securitybenefits. Starting in 2014, eligibility forExchange tax credits and cost sharingreductions, Medicaid, and CHIP will bedetermined based on an individual’s orfamilies’ MAGI, as defined under the

Affordable Care Act. Similar to legislation

currently under consideration by the Congress,the Administration proposes to amend thatdefinition to include the total amount of SocialSecurity benefits in the calculation of MAGI,rather than just the taxable portion, whendetermining eligibility for these programs tobetter target those in need. This proposal isprojected to save $14.6 billion over 10 years.

Reduce waste, fraud, and abuse inMedicaid. Medicaid funds should not bewasted on fraudulent claims, abuses of therules, or general waste in implementing the

program. The following policies will save $110million over the next 10 years while reducingwaste, fraud, and abuse:

!" Require manufacturers that im-properly report items for Medicaiddrug coverage to fully repay States.Federal law requires manufacturers to

report a list of their “covered outpatientdrugs” to CMS for Medicaid drug coverage,but some manufacturers improperlyreport items that do not belong (e.g.,syringes). This proposal would recoup costsof covering improperly-reported itemsdiscovered after Medicaid reimbursementhas occurred; the proposal leverages theMedicaid drug rebate program by directingmanufacturers to pay a “rebate” equal tothe amount the State paid for these items.

!" Track high prescribers and utilizersof prescription drugs in Medicaid. States already have the capability toimplement monitoring systems forprescription drugs, but are not currently

taking full advantage of these systems’potential benefits. This proposal requiresStates to track drug claims for indicationsof waste, fraud, or abuse by providers orbeneficiaries and to take steps to reducewasteful or abusive prescribing practices.

!" Enforce Medicaid drug rebateagreements. Under this proposal,HHS would, when cost-effective, conductregular audits and surveys of Medicaiddrug rebate agreements to ensure theMedicaid program is receiving proper

prices and rebate amounts.

!" Increase penalties on drugmanufacturers for fraudulent non-compliance with Medicaid drugrebate agreements. This proposalwould increase the statutory civilmonetary penalties on manufacturersthat knowingly report false informationunder their drug rebate agreements forcalculation of Medicaid rebates.

!" Require drugs to be properly listed

with the FDA to receive Medicaidcoverage. Though FDA law requiresmanufacturers to list their drugs withFDA, compliance is inconsistent. Recently,Medicare required that drugs must beproperly listed with the FDA to receivePart D coverage; this proposal would addthe same requirement in Medicaid.




!" Prohibit States from using Federalfunds as the State share of Medicaidor CHIP, unless specificallyauthorized by law. This proposal wouldprohibit States from using Federal fundsas the State share of Medicaid or CHIPunless funds are specifically provided forthat purpose under law.

Streamline and coordinate FederalGovernment oversight of State Medicaidprograms and expand State flexibility.Thisproposal would alleviate State program integrityreporting requirements by consolidatingredundant error rate measurement programsto create a streamlined audit program withmeaningful outcomes, while maintaining

the Federal and State’s government abilityto identify and address improper payments.

Additionally, this proposal would give Statesflexibility to require “benchmark” benefit plancoverage for non-elderly, non-disabled adultswith incomes over 133 percent of the Federalpoverty level. Currently, States have the optionto provide certain populations “benchmark” or“benchmark equivalent” plans, or alternativebenefit packages that may be offered in lieuof the benefits covered under a traditionalMedicaid State plan.

OTHERHEALTH S AVINGS

Beyond Medicare and Medicaid, thereare a series of proposals in other healthprograms that will help reduce the deficitand provide consumers with more affordablepharmaceuticals; prioritize investments inpublic health outcomes proven to reducedrivers of health care cost growth; andprovide States the flexibility to developtheir own innovative strategies to ensuretheir residents have access to highquality, affordable health insurance. The

Administration proposes to:

Prohibit “pay for delay” agreements toincrease the availability of generic drugsand biologics. The high cost of prescriptiondrugs places a significant burden on Americanstoday, causing many to skip doses, split pillsor forgo needed medications altogether. The

Administration proposes to increase theavailability of generic drugs and biologics byauthorizing the Federal Trade Commission(FTC) to stop companies from entering into anti-competitive deals, known also as “pay for delay”agreements, intended to block consumer accessto safe and effective generics. A 2010 FederalTrade Commission study that evaluated theuniverse of brand-generic settlements and 2008drug expenditure data found that on average,these agreements delayed entry of a genericby 17 months and cost American consumers asmuch as $3.5 billion per year. More recently, theFTC reported that the number of pay-for-delayagreements skyrocketed from 19 in 2009 to 31in 2010.

Such deals block access to generics and cancost consumers billions of dollars because genericdrugs are typically priced significantly less thantheir branded counterparts. These agreementsreduce competition and raise the cost of care forpatients both directly, through higher drug andbiologic prices, and indirectly through higherhealth care premiums. The Administration’sproposal facilitates greater access to lower-costgenerics and will generate $2.7 billion over 10years in savings to Federal health programsincluding Medicare and Medicaid.

Reduce the exclusivity period forgeneric biologics. Access to affordablelifesaving medicines is essential to improvingthe quality and efficiency of health care. The

Administration’s proposal accelerates access toaffordable generic biologics by modifying thelength of exclusivity on brand name biologicsto encourage faster development of genericbiologics while retaining appropriate incentivesfor research and development for the innovationof breakthrough products. Beginning in 2012,this proposal would award brand biologicmanufacturers seven years of exclusivity

rather than 12 years under current law andprohibit additional periods of exclusivity forbrand biologics due minor changes in productformulations, a practice often referred to as“evergreening.” Reducing the exclusivity periodincreases the availability of generic biologicsto encourage faster development of genericbiologics while retaining appropriate incentives



43HEALTH SAVINGS

for research and development for the innovationof breakthrough products. The Administration’sproposal strikes a balance between promotingaffordable access to medications and encouraginginnovation to develop needed therapies. Theproposal will result in $3.5 billion in savings over10 years to Federal health programs includingMedicare and Medicaid.

Streamline Federal Employee HealthBenefit (FEHB) pharmacy benefit con-tracting. The Administration is committedto the efficient administration of the FEHBprogram in order to get the best deal forFederal employees and their families, as wellas for taxpayers. The FEHB program pays$40 billion per year for health coverage, and

drugs represent about 30 percent of claimsexpenditures. Under current law, health plansparticipating in the FEHB program contractwith pharmacy benefits managers whonegotiate prices with drug manufacturers andpharmacies on behalf of their enrollees. Thisfragmented purchasing strategy does not takefull advantage of the combined purchasingpower of the nearly eight million enrollees inthe FEHB program. Under the Administrationproposal, the Office of Personnel Managementwould contract directly for pharmacy benefitmanagement services on behalf of all FEHB

enrollees and their dependents. This willallow the FEHB program to more efficientlyleverage its purchasing power to obtain abetter deal for enrollees and taxpayers. Thisproposal is projected to save $1.6 billion over10 years.

Prioritize prevention and public healthfund investments. The Prevention andPublic Health Fund has supported effective,evidence-based public health activitiesthat restrain health care costs and improvehealth outcomes, such as immunizations and

reductions of health care associated infections.The Administration proposes to scale-back theFund by reducing resources by $3.5 billion over10 years starting in 2014, while maintaininghigh priority activities that improve healthoutcomes and restrain the rate of growth inprivate and public sector health care costs.Prioritizing Prevention Fund activities wouldallow for significant investments in preventionand public health activities of more than $6billion over five years and $13.8 billion over 10years, while providing $3.5 billion in savings.

Accelerate the issuance of StateInnovation Waivers. This proposalempowers States to develop their owninnovative strategies to ensure their residents

have access to high quality, affordable healthinsurance achieving the same outcomes asthe ACA. Similar to legislation previouslyintroduced by Senators Ron Wyden, ScottBrown, and Mary Landrieu and endorsedby the President, it would make “StateInnovation Waivers” available starting in2014, three years earlier than under currentlaw. These State strategies would need toprovide affordable insurance coverage to atleast as many residents as without the waiverand must not increase the Federal deficit. The

Administration is committed to the budget

neutrality of these waivers; an allowance forthese waivers is included to account for thepossibility that CBO will estimate costs forthis proposal.

Provide resources to implement thesereforms. To achieve the reforms proposed,HHS will need to implement significantchanges to its systems and processes to ensurethe savings proposed are achieved in a timelymanner. To accomplish this, the proposalincludes $400 million in funding for theSecretary of HHS.



TAX REFORM

45

The President is committed to reducing thedeficit through a balanced approach—onethat restrains spending across the budget,including in the tax code; asks the wealthiestamong us to contribute to deficit reduction; andlays the foundation for future growth. That iswhy the President is calling on the Congressto undertake comprehensive tax reform to cutrates, cut inefficient tax breaks, cut the deficit,and increase jobs and growth in the UnitedStates—while observing the “Buffett Rule”that people making over $1 million should notpay lower taxes than the middle class.

Tax reform is critical to rebuilding oureconomy to be stronger and more stable thanin the past. Two of our biggest economicchallenges—creating jobs and reducing long-term deficits—both depend on a simpler, fairer,more progressive tax system than we havetoday.

The Administration believes, like manyothers, that tax cuts play an important role in

job creation. But the Administration believesthat broad tax cuts for the middle class—

rather than for only the wealthiest one or twopercent of Americans—are far more effectiveat creating jobs and growing the economy. When millions of middle class families acrossthe country have more money in their bankaccounts to spend in their communities,businesses large and small can grow, innovate,invest, and hire. The success of the Americaneconomy has long been built on the vibrancyof our middle class, and our efforts to createa tax system that is fairer, simpler, and moreprogressive reflect that reality.

Tax reform is also an important part of reducing our long-term deficits and placingour country on a fiscally sustainable path. We cannot address a deficit a decade in themaking through spending cuts alone—thatis, unless we, as a country, agree to cut everyprogram in the entire budget by more than aquarter, including all defense spending, SocialSecurity and Medicare benefits, and veterans’

benefits, along with everything else. The Administration believes in a balanced approachthat cuts spending responsibly, but also asksthe most well-off in society—many of whom,through loopholes and other exemptions, payless in taxes than most middle class families—to contribute their fair share towards reducingthe deficit and healing our economy.

COMPREHENSIVET AX REFORM

The tax code has become increasinglycomplicated and unfair. Changes enacted

during the previous Administration wereskewed in favor of the wealthiest taxpayersand reduced the tax code’s overall progressivity.Under today’s tax laws, those who can affordexpert advice can avoid paying their fairshare and interests with the most connectedlobbyists can get exemptions and specialtreatment written into our tax code. Whilemany of the tax incentives serve importantpurposes, taken together the tax expendituresin the law are inefficient, unfair, duplicative,or even unnecessary. The corporate tax systemprovides special incentives for some industries,

like oil and gas producers, yet fails to providesufficient incentives for companies to invest in

America. Because our corporate tax system isso riddled with special interest loopholes, oursystem has one of the highest statutory taxrates among developed countries to generateabout the same amount of corporate taxrevenue as our developed country partnersas a share of our economy; this, in turn, hurtsour competitiveness in the world economy. Inaddition, a large fraction of the tax code is nowtemporary and expires periodically, addinguncertainty for households and businesses,

and complicating the fiscal outlook.

The result is a tax code that neitherserves the American people nor our economy.Recent data show that the tax code places arelatively light tax burden on the wealthiest

Americans. As Warren Buffett has pointedout, his effective tax rate is lower than hissecretary’s, although this is not true for




many small business owners and others whoprimarily receive labor income. The tax codealso places a substantial compliance burdenon taxpayers. For instance, taxpayers filingForm 1040 spent an average of 21 hourspreparing their returns and most taxpayers—about 60 percent—find themselves paying tax

preparers to fill out their returns. We havenot had a comprehensive reform of our taxcode in a generation. The last time we hadone, the Internet was a small tool used byresearchers, the Euro did not exist, and globalsupply chains and commerce were far lessdeveloped. The time has come for tax reformto modernize our tax code, make it fairer, andto reduce its complexity.

That is why the President is calling on theCongress to enact comprehensive tax reformthat meets five principles (see box above).

This will make our tax code simpler, fairer,and more efficient—and end a system thatallows households making millions of dollarsannually to pay lower tax rates than middle-class families.

This tax reform would make an importantcontribution as part of a balanced plan to

reduce the deficit. For individuals, the high-income tax cuts enacted in 2001 and 2003would be allowed to expire and additionalinefficient tax breaks would be cut to raisean additional $700 billion while observingthe Buffett Rule and making the tax code fairfor all Americans. For corporations, deficit

neutral tax reform would make businessespay for the cost of any of the roughly $300billion in temporary tax breaks over thenext decade that would be continued aspart of the reform but have generally beendeficit financed in the past, like the Researchand Experimentation credit. Together,individuals and corporations would becontributing roughly proportionately todeficit reduction.

SPECIFICMEASURES TO CUT INEFFICIENT

T AX BREAKS AND IMPROVE COMPLIANCE

The President recognizes that comprehensivetax reform will take time and will not be easy.However, the President also believes that theJoint Committee must take action now thatlocks in improvements in our tax code thatincrease fairness and efficiency while helpingput the Nation on a sustainable fiscal course.

PRINCIPLES FOR TAX REFORM

1. Lower tax rates. The tax system should be simplified and work for all Americanswith lower individual and corporate tax rates and fewer brackets.

2. Cut Inefficient and Unfair Tax Breaks. Cut tax breaks that are inefficient, unfair,or both so that the American people and businesses spend less time and less moneyeach year filing taxes and cannot avoid their responsibility by gaming the system.

3. Cut the deficit. Cut the deficit by $1.5 trillion over the next decade through taxreform, including the expiration of tax cuts for single taxpayers making over $200,000and married couples making over $250,000.

4. Increase job creation and growth in the United States. Make America strongerat home and more competitive globally by increasing the incentive to work and investin the United States.

5. Observe the Buffett Rule. No household making over $1 million annually should

pay a smaller share of its income in taxes than middle-class families pay. As WarrenBuffett has pointed out, his effective tax rate is lower than his secretary’s. No house-hold making over $1 million annually should pay a smaller share of its income intaxes than middle-class families pay. This rule will be achieved as part of an overallreform that increases the progressivity of the tax code.



47TAX REFORM

To begin the national conversation abouttax reform, the President is offering adetailed set of specific tax loophole closersand measures to broaden the tax basethat, together with the expiration of thehigh-income tax cuts, would be more thansufficient to hit the $1.5 trillion target fortax reform and cut inefficient expendituresas well as move the tax system closer toobserving the Buffett Rule. These measuresinclude: cutting tax preferences for high-income households; eliminating special taxbreaks for oil and gas companies; closing thecarried interest loophole for investment fundmanagers; and eliminating benefits for thosewho buy corporate jets. It is incumbent oneveryone who supports comprehensive tax

reform to not only call for lower rates butto identify specific tax loopholes and taxexpenditures that they would be willingto reform or eliminate as part of a reformeffort. The President is making good on thiscommitment by putting forward a specific,scorable set of tax expenditure reforms.

Tax reform should draw on items listed here,together with the elimination of additionalinefficient tax breaks, to finance the reductionof marginal rates and comport with theBuffett Rule. If the Joint Committee is unable

to undertake comprehensive tax reform, thePresident believes these measures shouldbe enacted on a standalone basis. Althoughthis would fall short of the President’s fiveprinciples for reform, it would move the taxsystem closer to several of them.

This fallback of allowing the high-incometax cuts to expire, and enacting specificloophole closers and base broadeners, wouldlock in deficit reduction from tax changesthat is as specific and certain as the deficitreduction coming from the President’s

proposed spending reductions, and would be acritical part of a balanced plan to put Americaon a course towards fiscal sustainability. Thiswould significantly improve the country’sfiscal standing, represent an important steptoward more fundamentally transforming ourtax code, and serve as a strong foundation foreconomic growth and job creation.

The measures that could contributeto comprehensive tax reform or, absentsuch reform, act as a backstop, includebringing fairness to the individual tax code,incorporating measures in the American Jobs

Act, closing business loopholes and broadeningthe business tax base, eliminating fossil fuelpreferences, reforming the treatment of insurance companies and products, reformingthe U.S. international tax system, and otherchanges. These proposals would generallybecome effective on January 1, 2013.

Bring Fairness to theIndividual Tax Code

Allow the 2001 and 2003 high-income tax

cuts to expire and return the estate taxto 2009 parameters. The tax cuts for thosewith household income above $250,000 peryear passed in the Bush Administration wereunfair and unaffordable at the time they wereenacted and remain so today. In December2010, congressional Republicans insisted onextending them through 2012 and threatenedto allow taxes to increase on middle-classfamilies if the Administration did not agree.Not extending the middle-class tax cuts wouldhave hurt our nascent economic recovery, andwould have imposed an enormous burden on

working families. The Administration remainsopposed to the extension of these high-incometax cuts past 2012 and supports the return of the estate tax exemption and rates to 2009levels. This would reduce the deficit by $866billion over 10 years.

Measures Incorporated inthe American Jobs Act

Reduce the value of itemized deductionsand other tax preferences to 28 percentfor families with incomes over $250,000.

Currently, a millionaire who contributesto charity or deducts a dollar of mortgageinterest, enjoys a deduction that is more thantwice as generous as that for a middle-classfamily. The proposal would limit the tax rateat which high-income taxpayers can reducetheir tax liability to a maximum of 28 percent,affecting only married taxpayers filing a joint




return with income over $250,000 (at 2009levels) and single taxpayers with incomeover $200,000. This limit would apply to: allitemized deductions; foreign excluded income;tax-exempt interest; employer sponsoredhealth insurance; and selected above-the-linedeductions. The proposed limitation wouldreturn the deduction rate to the level it wasat the end of the Reagan Administration. Itwould reduce the deficit by $410 billion over10 years.

Tax carried (profits) interests asordinary income. A partnership does notpay income tax; instead, the income or lossand associated character flows through tothe partners who must include such items on

their individual income tax returns. Certainpartners receive a partnership interest,typically an interest in future profits, inexchange for services (commonly referred toas a “carried interest”). Current law taxes therecipient of a carried interest on the valueat the time granted, which may be based onthe value the partner would receive if thepartnership were liquidated immediately(for example, the value of an interest onlyin future profits would be zero). Because thepartners, including partners who provideservices, reflect their share of partnership

items on their tax return in accordance withthe character of the income at the partnershiplevel, long-term capital gains and qualifyingdividends attributable to carried interests maybe taxed at a maximum 15-percent rate (themaximum tax rate on capital gains) ratherthan at ordinary income tax rates.

The President is proposing to designate acarried interest in an investment partnershipas an “investment services partnershipinterest” (ISPI) and to tax a partner’s share of income from an ISPI that is not attributable

to invested capital as ordinary income,regardless of the character of the income atthe partnership level. In addition, the partnerwould be required to pay self-employmenttaxes on such income, and the gain recognizedon the sale of an ISPI that is not attributableto invested capital would generally be taxed asordinary income, not as capital gain. However,

any allocation of income or gain attributableto invested capital on the part of the partnerwould be taxed as ordinary income or capitalgain based on its character to the partnershipand any gain realized on a sale of the interestattributable to such partner’s invested capitalwould be treated as capital gain or ordinaryincome as provided under current law. Thiswould reduce the deficit by $13 billion over 10years.

Eliminate special depreciation rulesfor corporate purchases of aircraft. Undercurrent law airplanes used in commercial andcontract carrying of passengers and freightcan be depreciated over seven years. Airplanesnot used in commercial or contract carrying of

passengers or freight, for example corporate jets, are depreciated over five years. Theproposal would change depreciation schedulesfor corporate planes that carry passengersto seven years, effective for tax years afterDecember 31, 2012. This would reduce thedeficit by $5 billion over 10 years.

Eliminate oil and gas tax preferences.Current law provides a number of credits anddeductions that are targeted towards certainoil and gas activities. In accordance with thePresident’s agreement at the G-20 Summit

in Pittsburgh in December 2009 to phaseout subsidies for fossil fuels so that we cantransition to a 21st Century energy economy,the President is proposing to repeal a numberof tax preferences available for fossil fuels.The Administration proposes repealing thefollowing tax preferences available for oil andgas activities beginning in 2013: 1) the use of percentage depletion with respect to oil andgas wells; 2) the ability to claim the domesticmanufacturing deduction against incomederived from the production of oil and gas; 3)the expensing of intangible drilling costs; 4)

the deduction for costs paid or incurred forany tertiary injectant used as part of a tertiaryrecovery method; 5) the exception to passiveloss limitations provided to working interestsin oil and natural gas properties; and 6) two-year amortization of independent producers’geological and geophysical expenditures,instead of allowing amortization over the same



49TAX REFORM

seven-year period as for integrated oil and gasproducers. This would reduce the deficit by $41billion over 10 years.

Modify tax rules for dual capacitytaxpayers. The Administration proposestightening the foreign tax credit rules thatapply to taxpayers that are subject to aforeign levy and that also receive (directly orindirectly) a specific economic benefit fromthe levying country (so-called “dual capacity”taxpayers). This would reduce the deficit by$10 billion over 10 years.

Close Business Loopholes andBroaden the Business Tax Base

Repeal last-in, first-out (LIFO) method of accounting for inventories. Under the LIFOmethod of accounting for inventories, the costof the items of inventory that are sold is equalto the cost of the items of inventory that weremost recently purchased or produced. For manybusinesses where the price of goods in inventoryrise over time, like oil and gas companies, theLIFO approach allows firms to artificially lowertheir tax liability. The President’s proposal wouldrepeal the use of the LIFO accounting method forFederal tax purposes, effective for taxable yearsbeginning after December 31, 2012. Assuming

inventory costs rise over time, taxpayersrequired to change from the LIFO method under the proposal generally would experiencea permanent reduction in their deductions forcost of goods sold and a corresponding increasein their annual taxable income as older, cheaperinventory is taken into account in computingtaxable income. Taxpayers required to change from the LIFO method also would be requiredto report their beginning-of-year inventory atits first-in, first-out (FIFO) value in the year of change, causing a one-time increase in taxableincome that would be recognized ratably over

10 years. This would reduce the deficit by $52billion over 10 years.

Repeal lower-of-cost-or-market inventoryaccounting method. The President’s planwould prohibit the use of the lower-of-cost-or-market and subnormal goods methods of inventory accounting, which currently allow

certain taxpayers to take cost-of-goods-solddeductions on certain merchandise before themerchandise is sold. The proposed prohibitionwould be effective for the first taxable yearbeginning after December 31, 2012, and anyresulting income inclusion would be recognizedover a four-year period. This would reduce thedeficit by $8 billion over 10 years.

Eliminate preferences for the coalindustry. The Administration proposesrepealing the following tax preferencesavailable for coal activities beginning in 2013:1) expensing of exploration and developmentcosts; 2) percentage depletion for hard mineralfossil fuels; 3) capital gains treatment forroyalties; and 4) the ability to claim the

domestic manufacturing deduction againstincome derived from the production of coaland other hard mineral fossil fuels. This wouldreduce the deficit by $2 billion over 10 years.

Reform Treatment of InsuranceCompanies and Products

Modify rules that apply to sales of lifeinsurance contracts. The seller of a lifeinsurance contract generally must reportthe difference between the amounts receivedfrom the buyer and the adjusted basis for

the contract as taxable income. When deathbenefits are received under the contract, thebuyer is taxed on the excess of those benefitsover the amounts paid for the contract,unless an exception to a “transfer-for-valuerule” applies. Information reporting may notalways be required in circumstances involvingthe purchase of a life insurance contract.In response to the growth in the numberand size of life settlement transactions, theproposal would expand information reportingon the sale of life insurance contracts and thepayment of death benefits on contracts that

were sold, and would modify the “transfer-for-value” exceptions to prevent purchasers of policies from avoiding tax on death benefitsthat are received. The proposal would applyto sales or assignment of interests in lifeinsurance policies and payments of deathbenefits for taxable years beginning after




December 31, 2012. This would reduce thedeficit by $1 billion over 10 years.

Modify dividends-received deduction(DRD) for life insurance companies’separate accounts. Under current law,a life insurance company is required to“prorate” its net investment income betweena company’s share and a policyholder’sshare. The result of this proration is used tolimit the funding of tax-deductible reserveincreases with tax-preferred income, such ascertain corporate dividends and tax-exemptinterest. The complexity of this regime hasgenerated significant controversy betweenlife insurance companies and the InternalRevenue Service (IRS), particularly with

regard to the dividends-received deductionfor such companies’ separate accounts. Insome cases, the existing regime produces acompany’s share that exceeds the company’sactual economic interest in the underlyingincome. The proposal would replace thisregime with one that is much simpler. Underthe proposal, the DRD with regard to generalaccount dividends would be subject to thesame flat proration percentage that applies tonon-life insurance companies under currentlaw (15 percent); the DRD with regard toseparate account dividends would be based on

the proportion of reserves to total assets of theaccount. This would reduce the deficit by $5billion over 10 years.

Expand pro rata interest expensedisallowance for corporate-owned lifeinsurance (COLI). The interest deductions of a business other than an insurance company arereduced to the extent the interest is allocableto un-borrowed policy cash values on life insurance and annuity contracts. The purposeof this pro rata disallowance is to prevent thededuction of interest expense that is allocable

to inside buildup that is either tax-deferredor not taxed at all. A similar disallowance applies with regard to reserve deductions of aninsurance company. A current-law exception tothis rule applies to contracts covering the livesof officers, directors and employees. Under theproposal, the exception for officers, directorsand employees would be repealed unless those

individuals are also 20-percent owners of thebusiness that is the owner or beneficiary of thecontracts. Thus, purchases of life insurance by small businesses and other taxpayers thatdepend heavily on the services of a 20-percentowner would be unaffected, but the fundingof deductible interest expenses with tax-exempt or tax-deferred inside buildup wouldbe curtailed. The proposal would apply tocontracts issued after December 31, 2012,in taxable years ending after that date. Thiswould reduce the deficit by $6 billion over 10years.

Reform the U.S International Tax System

Defer deduction of interest expense re-

lated to deferred income. Under currentlaw, a taxpayer that incurs interest expenseproperly allocable and apportioned to foreign-source income may be able to deduct thatexpense even if some or all of the foreignsource income is not subject to current U.S.taxation. To provide greater matching of thetiming of interest expense deductions andrecognition of associated income, the proposalwould defer the deduction of interest expenseproperly allocable and apportioned to foreign-source income to the extent the U.S. taxationof such income is deferred. This would reduce

the deficit by $36 billion over 10 years.

Determine the foreign tax credit on apooling basis. Under the proposal, a taxpayerwould be required to determine foreign taxcredits from the receipt of a dividend from aforeign subsidiary on a consolidated basis forall its foreign subsidiaries. Foreign tax creditsfrom the receipt of a dividend from a foreignsubsidiary would be based on the consolidatedearnings and profits and foreign taxes of allthe taxpayer’s foreign subsidiaries. This wouldreduce the deficit by $53 billion over 10 years.

Tax excess returns associated withtransfers of intangibles offshore cur-rently. The IRS has broad authority toallocate income among commonly controlledbusinesses under section 482 of the Internal Revenue Code. Notwithstanding the transferpricing rules, there is evidence of income



51TAX REFORM

shifting offshore, including through transfersof intangible rights to subsidiaries that bearlittle or no foreign income tax. Under theproposal, if a U.S parent transfers an intangible to a controlled foreign corporation (CFC) in circumstances that demonstrate excessiveincome shifting from the United States, thenan amount equal to the excessive return wouldbe treated as subpart F income. This wouldreduce the deficit by $19 billion over 10 years.

Limit shifting of income throughintangible property transfers. Thedefinition of intangible property for purposesof the special rules relating to transfers of intangibles by a U.S. person to a foreigncorporation (section 367(d) of the Internal

Revenue Code) and the allocation of incomeand deductions among taxpayers (section 482)would be clarified to prevent inappropriateshifting of income outside the United States.This would reduce the deficit by $1 billion over10 years.

Limit earnings stripping by expatriatedentities. Under the proposal, the rules thatlimit the deductibility of interest paid torelated persons subject to low or no U.S. taxon that interest would be amended to preventinverted companies from using foreign-related

party and certain guaranteed debt to reduceinappropriately the U.S. tax on income earnedfrom their U.S. operations. This would reducethe deficit by $4 billion over 10 years.

Other Changes

Reinstate Superfund taxes. ThePresident is proposing to reinstate thetaxes that were deposited in the HazardousSubstance Superfund prior to their expiration on December 31, 1995. These taxes, whichcontributed to financing the cleanup of the

Nation’s highest risk hazardous waste sites,are proposed to be reinstated for periods (excisetaxes) or tax years (income tax) beginningafter 2012, with expiration for periods and taxyears after 2021. The proposed taxes includethe following: 1) an excise tax of 9.7-cents-per-barrel on crude oil and imported petroleum products; 2) an excise tax on hazardous

chemicals listed in section 4661 of the InternalRevenue Code (26 U.S.C. § 4661) at rates that

vary from 22 cents to $4.87 per ton; 3) an excisetax on imported substances that use listedhazardous chemicals as a feedstock (in an amount equivalent to the tax that would havebeen imposed on domestic production of thechemicals); and 4) a corporate environmentalincome tax imposed at a rate of 0.12 percenton the amount by which the modified AMT income of a corporation exceeds $2 million.This would reduce the deficit by $19 billionover 10 years.

Make unemployment insurance (UI)surtax permanent. The net Federal UI taxon employers dropped from 0.8 percent to 0.6

percent with respect to wages paid after June30, 2011. The President’s plan would extendthe 0.8 percent rate permanently, effective asof June 30, 2011. This would reduce the deficitby $15 billion over 10 years.

Increase certainty with respect toworker classification. Under currentlaw, worker classification as an employeeor as a self-employed person (independentcontractor) is generally based on a common-law test for determining whether anemployment relationship exists. Under a

special provision (section 530 of the Revenue Act of 1978), a service recipient may treat aworker who may actually be a common lawemployee as an independent contractor forFederal employment tax purposes if, amongother things, the service recipient has areasonable basis for treating the worker as anindependent contractor. If a service recipientmeets the requirements of this specialprovision with respect to a class of workers,the IRS is prohibited from reclassifying theworkers as employees, even prospectively. Thespecial provision also prohibits the IRS from

issuing generally applicable guidance aboutthe proper classification of workers.

The President’s plan would permit the IRS toissue generally applicable guidance about theproper classification of workers and to permitthe IRS to require prospective reclassificationof workers who are currently misclassified




and whose reclassification is prohibitedunder the special provision. Penalties wouldbe waived for service recipients with onlya small number of employees and a smallnumber of misclassified workers, if the servicerecipient had consistently filed all requiredinformation returns reporting all paymentsto all misclassified workers and the servicerecipient agreed to prospective reclassificationof misclassified workers. It is anticipated that

after enactment, new enforcement activitywould focus mainly on obtaining the properworker classification prospectively, since inmany cases the proper classification of workersmay not be clear. The proposal would beeffective upon enactment, but the prospectivereclassification for those covered by the specialprovision would not be effective at least oneyear after the date of enactment. This wouldreduce the deficit by $8 billion over 10 years.



53

Summary Tables




T a b l e S – 2 . B R I D G E B E T W E E N O M B M I D - S E S S I O N R E

V I E W B

E A B A S E L I N E

D

E F I C I T A N D A D J U S T E D M I D - S E S S I O N R E V I E W B

A S E L I N E D E F I C I T

( I n b i l l i o n s o f d o l l a r s )

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

2 0 2 0

2 0 2 1

T o t a l s

2 0 1 2 -

2 0 1 6

2 0 1 2 -

2 0 2 1

M i d - S e s s i o n R e v i e w B E A b a s e l i n e d e fi c i t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 , 3 1 4

1 , 0 1 1

6 5 4

4 7 5

5 2 6

5 8 5

4 9 3

4 4 9

4 6 8

4 9 5

5 1

0

3 , 2 5 1

5 , 6 6 6

E x t e n d t h e 2 0 0 1 a n d 2 0 0 3 t a x c u t s a n d i n d e x t h e A M T f o r i n fl a t i o n . . .

1

3 3

2 2 8

3 3 0

3 6 4

4 0 1

4 3 6

4 6 7

5 0 0

5 3 5

5 7

2

1 , 3

5 6

3 , 8

6 7

P r e v e n t r e d u c t i o n i n M e d i c a r e p h y s i c i a n p a y m e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

1 3

2 2

2 3

2 5

2 8

3 0

3 3

3 6

4 0

4

3

1 1 1

2 9 3

R e fl e c t i n c r e m e n t a l c o s t o f f u n d i n g e x i s t i n g P e l l m a x i m u m g r a n t

a w a r d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

– *

– *

3

8

8

7

6

6

6

6

1 8

5 0

B a s e l i n e a s s u m p t i o n o f p o s s i b l e e m e r g e n c i e s 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1

3

7

8

9

9

1 0

1 0

1 0

1 0

1

0

3 6

8 6

D e b t s e r v i c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

*

3

1 5

3 6

5 7

8 3

1 0 9

1 3 7

1 6 9

2 0

4

1 1 1

8 1 3

M i d - S e s s i o n R e v i e w a d j u s t e d b a s e l i n e d e fi c i t b e f o r e B u d g e t

C o n t r o l A c t ( B C A ) c a p s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 , 3 1 6

1 , 0 6 0

9 1 2

8 5 4

9 6 8 1 , 0 8 8

1 , 0 5 8

1 , 0 7 5

1 , 1 5 8

1 , 2 5 5

1 , 3 4

5

4 , 8 8 3

1 0 , 7 7 4

B C A d i s c r e t i o n a r y c a p s :

C a p r e d u c t i o n s , p r o g r a m i n

t e g r i t y , a n d c a p a d j u s t m e n t f o r

p r o p o s e d d i s a s t e r r e l i e f . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

– 2 5

– 5 5

– 7 7

– 9 1 –

1 0 2

– 1 1 0

– 1 1 9

– 1 2 8

– 1 3 7

– 1 4

7

– 3 5 1

– 9 9 2

D e b t s e r v i c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

– *

– 1

– 4

– 8

– 1 3

– 1 9

– 2 5

– 3 2

– 3 9

– 4

7

– 2 6

– 1 8 8

T o t a l . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

– 2 5

– 5 6

– 8 1

– 9 9 –

1 1 5

– 1 3 0

– 1 4 4

– 1 5 9

– 1 7 6

– 1 9

4

– 3 7 7

– 1 , 1

8 0

M i d - S e s s i o n R e v i e w a d j u s t e d b a s e l i n e d e fi c i t w i t h B C A c a p s . .

1 , 3 1 6

1 , 0 3 5

8 5 6

7 7 3

8 6 9

9 7 2

9 2 9

9 3 1

9 9 8

1 , 0 7 9

1 , 1 5

1

4 , 5 0 6

9 , 5 9 3

* $ 5 0 0 m i l l i o n o r l e s s .

1 T

h e s e a m o u n t s r e p r e s e n t a p l a c e h o l d e r f o r m a j o r d i s a s t e r s r e q u i r i n g F e

d e r a l a s s i s t a n c e f o r r e l i e f a n d r e c o n s t r u c t i o

n .

S u c h a s s i s t a n c e m i g h t b e p r o v i d e d i n t h e f o r m o f d i s c r e t i o n -

a r y o r m a n d a t o r y o u t l a y s o r t a x

r e l i e f . T h i s p l a c e h o l d e r i s s e p a r a t e f r o m t h

e B u d g e t C o n t r o l A c t c a p a d j u s t m e n t f o r d i s a s t e r r e l i e f .




T a b l e S – 4 . B R I D G E B E T

W E E N C B O A U G U S T B A S

E L I N E D E F I C I T

A N D A D J U S T E D C B O A U G U S T B A S E L I N E

D E F I C I T

( I n b i l l i o n s o f d o l l a r s )

2 0 1 1

2 0 1 2

2 0 1 3

2 0 1 4

2 0 1 5 2

0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

2 0 2 0

2 0 2 1

T o t a l s

2 0 1 2 -

2 0 1 6

2 0 1 2 -

2 0 2 1

C B O A u g u s t b a s e l i n e d e fi c i t

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 , 2 8 4

9 7 3

6 2 3

3 8 0

3 2 2

4 0 2

3 6 2

3 4 9

4 0 5

4 3 0

4 4 0

2 , 7 0 1

4 , 6 8 7

R e m o v e B u d g e t C o n t r o l A c t d

i s c r e t i o n a r y c a p s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

2 7

4 9

6 2

7 0

7 7

8 4

9 1

9 8

1 0 6

1 1 5

2 8 5

7 7 8

E x t e n d t h e 2 0 0 1 a n d 2 0 0 3 t a x c u t s a n d i n d e x t h e A M T f o r i n fl a t i o n . . . . . . . . . . .

. . . . . . . . .

1 1

2 3 8

3 4 0

3 8 5

4 1 4

4 4 4

4 7 6

5 0 9

5 4 6

5 8 6

1 , 3

8 9

3 , 9

4 9

P r e v e n t r e d u c t i o n i n M e d i c a r e

p h y s i c i a n p a y m e n t s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

1 2

1 9

2 3

2 6

2 9

3 1

3 4

3 7

4 1

4 5

1 0 9

2 9 8

D e b t s e r v i c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

1

4

1 1

2 3

5 0

8 4

1 1 9

1 5 7

1 9 9

2 4 4

8 8

8 9 1

A d j u s t e d C B O A u g u s t b a s e l i n e d e fi c i t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

1 , 2 8 4

1 , 0 2 4

9 3 3

8 1 5

8 2 6

9 7 2

1 , 0 0 4

1 , 0 6 9

1 , 2 0 7

1 , 3 2 3

1 , 4 3 0

4 , 5 7 1

1 0 , 6 0 3




T a b l e S – 5 . J O I N T C O M M

I T T E E R E C O M M E N D A T I O N S — C o n t i n u e d

( D e fi c i t i n c r e a

s e s ( + ) o r d e c r e a s e s ( - ) i n m i l l i o n s o f d o l l a r s )

2 0 1 1

2

0 1 2

2 0 1 3

2 0 1 4

2 0 1 5

2 0 1 6

2 0 1 7

2 0 1 8

2 0 1 9

2 0 2 0

2 0 2 1

T o t a l s

2 0 1 2 -

2 0 1 6

2 0 1 2 -

2 0 2 1

R e f o r m t h e U . S . I n

t e r n a t i o n a l T a x S y s t e m :

D e f e r d e d u c t i o n o f i n t e r e

s t e x p e n s e r e l a t e d t o d e f e r r e d

i n c o m e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . . –

3 , 5

2 1

– 5 , 9

5 0

– 6 , 1

2 8

– 6 , 3

4 8

– 6 , 5

8 0

– 3 , 3

6 9

– 1 , 1

9 0

– 1 , 2

3 6

– 1 , 2

8 9

– 2 1 , 9

4 7

– 3 5 , 6

1 1

D e t e r m i n e t h e f o r e i g n t a

x c r e d i t o n a p o o l i n g b a s i s . . . . . .

. . . . . . . . .

. . . . . . . . . –

3 , 2

4 2

– 5 , 4

7 8

– 5 , 6

4 3

– 5 , 8

4 5

– 6 , 0

5 9

– 6 , 2

7 1

– 6 , 4

9 2

– 6 , 7

4 3

– 7 , 0

3 6

– 2 0 , 2

0 8

– 5 2 , 8

0 9

T a x c u r r e n t l y e x c e s s r e t u r n s a s s o c i a t e d w i t h t r a n s f e r s

o f i n t a n g i b l e s o f f s h o r e

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . . –

1 , 3

2 2

– 2 , 2

2 8

– 2 , 2

8 8

– 2 , 3

0 5

– 2 , 2

9 7

– 2 , 2

5 1

– 2 , 1

7 7

– 2 , 1

3 2

– 2 , 1

3 7

– 8 , 1

4 3

– 1 9 , 1

3 7

L i m i t s h i f t i n g o f i n c o m e

t h r o u g h i n t a n g i b l e p r o p e r t y

t r a n s f e r s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . .

– 2 7

– 6 0

– 8 5

– 1 1 1

– 1 3 8

– 1 6 5

– 1 9 4

– 2 2 4

– 2 5 8

– 2 8 3

– 1 , 2

6 2

L i m i t e a r n i n g s s t r i p p i n g

b y e x p a t r i a t e d e n t i t i e s . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . .

– 2 2 3

– 3 8 2

– 4 0 1

– 4 2 1

– 4 4 2

– 4 6 4

– 4 8 8

– 5 1 2

– 5 3 8

– 1 , 4

2 7

– 3 , 8

7 1

O t h e r C h a n g e s :

R e i n s t a t e S u p e r f u n d T a x

e s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . .

. . . . . . . . . –

1 , 4

9 1

– 2 , 0

2 3

– 2 , 0

7 3

– 2 , 1

0 5

– 2 , 1

3 3

– 2 , 1

7 9

– 2 , 2

1 0

– 2 , 2

3 0

– 2 , 2

6 6

– 7 , 6

9 2

– 1 8 , 7

1 0

M a k e t h e 0 . 2 p e r c e n t u n e m p l o y m e n t i n s u r a n c e s u r t a x

p e r m a n e n t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . –

1 , 3

4 5

– 1 , 3

7 2

– 1 , 4

0 4

– 1 , 4

3 4

– 1 , 4

5 8

– 1 , 4

8 1

– 1 , 5

0 0

– 1 , 5

1 6

– 1 , 5

3 2

– 1 , 5

4 8

– 7 , 0

1 3

– 1 4 , 5

9 0

I n c r e a s e c e r t a i n t y w i t h r e s p e c t t o w o r k e r c l a s s i fi c a t i o n . . . . . . .

. . . . . . . . .

. . . . . . . . .

– 2 3 8

– 5 7 2

– 7 2 2

– 8 0 4

– 8 9 2

– 9 8 2

– 1 , 0

7 5

– 1 , 1

7 3

– 1 , 2

7 3

– 2 , 3

3 6

– 7 , 7

3 1

T o t a l , t a x r e f o r m . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 4 9 – 1 4 , 1

9 2 –

8 8 , 9

1 3 –

1 3 4 , 4

9 8 –

1 5 3 , 7

8 6 –

1 7 0 , 5

5 1 – 1 8 4 , 8

3 9 –

1 9 1 , 3

3 0 –

1 9 9 , 7

5 3 –

2 1 1 , 1

1 2 – 2

2 3 , 6

1 3

– 5 6 1 , 9

4 0 – 1 , 5

7 2 , 5

8 7

1 B a s e d o n O M B e s t i m a t e s o f

C B O s c o r i n g .

2 P o r t i o n o f b u d g e t a r y e f f e c t s

n o t i n c l u d e d u n d e r A m e r i c a n J o b s A c t .

3 O M B e s t i m a t e o f s a l e s p r o c e

e d s . C B O h a s n o t s c o r e d s a v i n g s f o r s i m i l a r p r o p o s a l s .



SUMMARY TABLES 65

T a b l e S

– 6 . D E F I C I T R E D U C T I O

N

S

I N C E J A N U A R Y 2 0 1 1

( D e fi c i t r e d

u c t i o n ( – ) o r i n c r e a s e ( + ) i n b i l l i o n s o f d o l l a

r s )

2 0 1 2 - 2

0 2 1

E n a c t m e n t o f 2 0 1 1 f u l l - y e a r a p p r o p r i a t i o n s . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 3 5 7

B u d g e t C o n t r o l A c t d i s c r e t i o n a r y c a p s

1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 9 9 2

R e c o m m e n d a t i o n s t o t h e

J o i n t S e l e c t C o m m i t t e e :

A m e r i c a n J o b s A c t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

4 4 7

M a n d a t o r y s a v i n g s

2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 2 5 7

H e a l t h s a v i n g s

2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 3 2 0

C a p O v e r s e a s C o n t i n g e n c y O p e r a t i o n s ( O C O ) f u n d i n g . . . . . . . . . . . . . . . . . . . . . . . .

– 1 , 0

8 4

T a x r e f o r m

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 1 , 5

7 3

D e b t s e r v i c e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 7 1 5

T o t a l d e fi c i t r e d u c t i o n . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

– 4 , 8

5 0

1 I n c l u d e s p r o g r a m i n t e g r i t y a n d t h e c a p a d j u s t m e n t f o r p r o p o s e d

d i s a s t e r r e l i e f .

2 B a s e d o n O M B e s t i m a t e s o f C B O s c o r i n g .




2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Percent of GDP

Chart 1. Annual Deficits as a Percent of GDP

Recommendations to the

Joint Select Committee

OMB Adjusted Baseline

with BCA Caps



SUMMARY TABLES 67

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

60.0

65.0

70.0

75.0

80.0

85.0

90.0

Recommendations to the

Joint Select Committee

OMB Adjusted Baselinewith BCA Caps

Percent of GDP

Chart 2. Debt Held by the Public

as a Percent of GDP

President Barack Obama Deficit Reduction Plan

Documents

Transcript of President Barack Obama Deficit Reduction Plan