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Baselines and Balance

Gene Sperling, Director of the National Economic Council, explains how the budget deal sets the stage for balanced deficit reduction.

The budget deal sets the stage for balanced deficit reduction.  It immediately makes a down payment on deficit reduction of more than $900 billion by limiting discretionary spending and sets up a new Joint Congressional Committee charged with recommending $1.5 trillion in additional deficit reduction by the end of the year.  As the President has said, that deficit reduction should be balanced and cut tax loopholes and expenditures just like it cuts traditional spending.

There are now reports that this Joint Committee won’t be able to raise revenue at all because of the way the budget deal is drafted.  That is simply wrong. 

The Joint Committee is tasked with deficit reduction, and the Committee can reduce the deficit by cutting spending and getting rid of tax loopholes and expenditures.  Everything is on the table, as it should be.

First, the Committee can consider getting rid of tax expenditures like subsidies for oil and gas companies or corporate jet owners. These types of tax changes have been a major part of the recent deficit reduction conversation and would be a smart part of an overall balanced plan. No one on any side can dispute that the Joint Committee could consider them.

Second, the Committee can consider the kind of revenue raising tax reform that has broad and growing bipartisan support.

The argument against this second claim is based on a misrepresentation of what is called “the baseline.”  The “baseline” is what deficit reduction is measured against.  Reports have suggested that the Committee would have to use a “current law” baseline—a baseline that assumes that all of the 2001 and 2003 tax cuts expire along with relief from the Alternative Minimum tax.  That would mean that any tax reform effort that raised less revenue than allowing all those tax cuts to expire would be scored as increasing the deficit. Even conservative Republican proposals for “revenue neutral” tax reform would be scored under this approach as increasing the deficit by more than $3 trillion.  

However the claim that the Committee is required to follow this approach is simply false.

The Budget legislation specifically calls for deficit reduction – not simply spending cuts – and does not anywhere require the Committee to work off a current law baseline.  Nor does it preclude the Committee from requesting CBO estimates based on alternative baselines and using those estimates for purposes of the certifying the deficit reduction achieved in the Committee. 

In fact, Congressional requests to CBO to score proposals off different baselines happen as a matter of course. For example, at the request of members of Congress, CBO scored the deal being considered today using two different baselines. Or, to take another example—Paul Ryan, Chairman of the House Budget Committee, requested that CBO score his budget “Roadmap” against an “alternative fiscal scenario,” which assumed extension of the tax cuts described above.  As CBO said in response to Chairman Ryan: “As you requested, the analysis in this letter compares the Roadmap with the alternative fiscal scenario.” Relative to that baseline, tax reform—like that proposed by the bipartisan Fiscal Commission and Gang of Six—would reduce the deficit by hundreds of billions of dollars.

The bottom line is that the Joint Committee can reduce the deficit through tax reform and eliminating tax expenditures just like it can cut spending. What it ultimately does is up to the members of that Committee. We hope that they seize this an opportunity to come together and build on the down-payment in this deal to put the Nation on a sustainable fiscal course in a balanced way that cuts spending in the tax code as well in the rest of the budget.  The President believes that is possible and looks forward to working with both parties to accomplish this.

Gene Sperling is Director of the National Economic Council and Assistant to the President for Economic Policy