Transcript: Super Committee testimony by Dr. Alice Rivlin on reducing the deficit

“To achieve success, the [Super] committee will have to go well beyond the minimum charge of $1.2 trillion in savings over the next 10 years. Because even savings of this magnitude would leave the debt rising faster than the economy can grow. We believe you should craft a “grand bargain” involving structural entitlement and tax reform that would save at least $4 trillion over 10 years,” said Dr. Alice Rivlin, Co-Chair of the Bipartisan Policy Center’s Debt Reduction Task Force. 

Joint Select Committee on Deficit Reduction Hearing: Overview of Previous Debt Proposals on Nov. 1, 2011

Transcript of Testimony by Dr. Alice Rivlin, Co-Chair of the Bipartisan Policy Center’s Debt Reduction Task Force:

Dr. Alice Rivlin, Co-Chair of the Bipartisan Policy Center's Debt Reduction Task Force. IMAGE SOURCE: DeficitReduction.gov

“Thank you, Co-Chairs Murray and Hensarling and members of the committee.

“I share Sen. Domenici’s views and those of Mr. Bowles and Sen. Simpson that this committee can change the course of economic history for the better.

“The United States faces two huge challenges at once: accelerating growth and job creation and reducing future deficits and stabilize the debt. There’s no choice between jobs and fiscal responsibility. Both are essential and they reinforce each other. This committee, with its extraordinary powers, has the opportunity and the obligation to address both challenges.

“To achieve success, the committee will have to go well beyond the minimum charge of $1.2 trillion in savings over the next 10 years. Because even savings of this magnitude would leave the debt rising faster than the economy can grow.

“We believe you should craft a ‘grand bargain’ involving structural entitlement and tax reform that would save at least $4 trillion over 10 years. To do so, the committee should take full advantage of the authority given to you in Section 404 of the act and write instructions to authorizing committees to produce tax and entitlement reforms to be considered on a fast track.

“A ‘grand bargain’ would reduce the chances of a devastating double-dip recession that could lead to a stagnant lost decade. It would also reassure citizens and markets that our political process is functioning in the public interest – not stuck in partisan gridlock or overwhelmed by special interests.

“I was privileged to serve on both the Simpson-Bowles Commission and the Domenici-Rivlin Task Force. Both groups worked hard to find a combination of policy changes that would enhance growth and put the budget on a sustainable path. The arithmetic of the problem far more than political considerations drove them to similar proposals. Both concluded that two major course changes were essential: structural reform in health programs, especially Medicare, and comprehensive reform of the individual and corporate income taxes that would raise more revenue from a more pro-growth tax system. Both also advocated freezes in domestic and defense discretionary spending to encourage weeding out low-priority activities in favor of more important ones.

“The Budget Control Act capped discretionary spending. We believe that further reductions in discretionary spending would risk harming essential government functions for the same reason we urge you to avoid the sequester. Instead, this committee should focus on reducing the growth of health care spending and reforming the tax code. Our report offers solid bipartisan proposals to do this.

“Our proposal for Medicare report, which we call “defined support,” would preserve traditional Medicare for all seniors who prefer a fee-for-service system. It would also offer an array of comprehensive health plans competing with traditional Medicare to deliver the same benefits. Plans could not refuse any Medicare beneficiary and would be compensated on a risk-adjusted basis. The federal contribution would be determined by competitive bidding on a regional exchange. We believe that the competition on a well-regulated exchange would lead providers and plans to deliver care more cost-effectively and reduce spending growth. As a fail-safe, the federal contribution would be capped at GDP growth plus 1%. Excess cost, if any, would result in an increased premium but low and-moderate-income beneficiaries would be protected from these increased payments. This bipartisan proposal would preserve Medicare for our rapidly rising population of seniors.

“On tax reform. While growth and spending must be controlled, we do not believe that the projected tsunami of retirees can be absorbed by federal programs without increasing revenues. Stabilizing the debt by spending cuts alone would cripple essential government functions and responses to human needs. Moreover, as our colleagues have stressed, our current tax code is riddled with exclusions, exemptions, deductions, and other special provisions that distort economic activity and narrow the tax base so much that rates are unnecessarily high. Our proposed tax code would have only two individual rates – 15% and 28% – and one corporate rate – 28%. Most special treatment of income or spending would be eliminated or phased out. Capital gains, dividends, and so-called carried interests would be taxed at ordinary rates. Credits would be allowed for earned income, children, charitable contributions, mortgage interests on primary residences up to a limit, and retirement contributions. The exclusion of employer-paid health care from taxable income would be phased out, which we regard as both a tax and a health care reform. We believe, like our colleagues, that this simpler tax code would be both fairer and more conducive to economic growth. It would raise more revenue than current policy but less than current law and do it in a more progressive fashion.

“We fully appreciate the difficulty of the choices facing this committee and hope you have the courage to restore fiscal responsibility and avoid the truly dire consequences of partisan gridlock. Thank you very much.”

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