Transcript: Super Committee Sen. Max Baucus’ Q&A on previous debt proposals

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

Transcript of Sen. Max Baucus (D-MT) Question and Answer Session:

Sen. Max Baucus (D-MT), member of the Joint Select Committee on Deficit Reduction. IMAGE SOURCE:

Sen. Max Baucus (D-MT):

“Thank you, Congressman Hensarling and Congresswoman Murray.

“Everyone wants to reform the tax code. I don’t know anyone who doesn’t. But it’s in the eyes of the beholder. What’s reform to one might not be reform to the other.

“You mentioned the $1.1 trillion in tax expenditures. I think it’s important for everyone to know that only $200 billion of those are itemized deductions. The rest are other tax expenditures, which include the employer-provided health insurance, for example, retirement income provisions, R&D tax credit. There’s a whole host of others in addition to itemized deductions. So if the proposal is to repeal them all in return for lower rates and deficit reduction, people have to realize what that means. A lot of people have relied on those provisions. Employees have because that’s in-kind income that’s not taxed generally as well as the R&D tax credit to make America strong, and retirement provisions so that people can save for the future.

“Now, the question that comes to my mind is: how quickly do you recommend we tackle all of that? We have a Nov. 23rd deadline. I think one of you suggested – I think it was Mr. Bowles who suggested – that this be delegated to the tax writing committee so that we do tax reform with some kind of a kicker at the end – a penalty if the committees and Congress don’t act, etc. I’d like you to comment on that. I’m also waiting for the Bowles solution into this presentation. I hope it includes something that addresses what I’m talking about. Address revenue when you give your presentation, Mr. Bowles.

“I might say we’re all big fans of all four of you. You’ve worked so hard. When each of the four of you were speaking, you could hear a pin drop. You’ve spent so much time on this subject, and so conscientiously, so thoughtfully. People know that. But when you – as Mr. Bowles mentioned – one of your four principles, as I recall, was tax reform but you didn’t say much about tax revenue. My understanding is that the commission suggested something in the neighborhood of maybe $1 trillion in new revenue to be offset with the spending cuts. Is that true? It’s my understanding that you make permanent middle-income tax cuts but not the upper-income. You, in effect, propose raising revenue on the current policy basis of about $1 trillion. Does that sound about right?”


Erskine Bowles:

“Well, you were on our commission, and you attended a few of our meetings, so I think you probably know exactly what we did. What we did was in the baseline extend the Bush tax cuts for everyone except the top 2%, and then we reform the tax code by broadening the base and simplifying the code and by eliminating the tax expenditures in our zero option plan. In the zero option plan, all of the tax expenditures did disappear, and 92% of the money went to reduce rates and 8% went to reduce the deficit. None of it went to additional spending.”  


Sen. Max Baucus: “So an answer to Sen. Kyl’s question, it would be about $100 billion for deficit reduction? Is that correct?”


Erskine Bowles:

“It’s about $100 billion a year approximately.”


Sen. Max Baucus:

“How can that be enough revenue when there are such spending cuts recommended in your plan? I think you have a 2 to 1 ratio of revenue raised to spending cuts.”  


Erskine Bowles:

“I think it was even more than that, Senator. I think it was – depending on how you count it – we had about $1 trillion worth of additional revenue coming in and we had about $3 trillion worth of spending cuts. We were working towards that number. We were trying to get it to be no more than one-third revenue and two-thirds spending cuts. We tried to get it to one-quarter to three-quarters.”  


Sen. Max Baucus:

“Going back to my first question. Do you recommend that we here try to enact all those – cut all those tax expenditures and set rates – or delegate it to the tax writing committees?”  


Erskine Bowles:

“Well, we do recommend that you delegate it to the tax writing committee and set up a framework in this commission. I don’t think you could possibly rewrite the tax law between now and Nov. 23rd and get it scored. Nor do I think you can rewrite the entitlement legislation and get it scored by Nov. 23rd. But you can provide instructions to the appropriate committees.”  


Sen. Max Baucus:

“To raise about how much revenue?”  


Erskine Bowles:

“To raise about $1 trillion worth of revenues.”


Sen. Max Baucus:

“Which is included in the reform, with broadening the base and lowering the rates.”  

Erskine Bowles: “Yes.”  


Former Sen. Pete Domenici (R-NM):

“I wonder if you would yield to me for one minute. Sir? Mr. Chairman, could I just offer a suggestion?

“We felt ourselves extremely confronted by the problem of shortness of time for such a big job of reforming the tax code. Some of us were here when Bob Packwood was the Chairman of the Senate and that effort took place. It took much longer than you need. But it took two, three years or more.

“What we did in our testimony and what we’ve sent to you in a packet is we’ve taken Section 404 of the law that created you, which is a section that we think intentionally gave you an extreme amount of authority and more flexibility than we’ve been talking about. That flexibility, we think, permits you to set up a direction with specific things that you ask the writing committees to do and that they have to do it by a date certain, which could be three months from now…four months. It would go to the committees. It’s not reconciliation. It’s an instruction.”


Sen. Max Baucus:

“I appreciate that. We want tax reform in the worst way. All of us do. We’re trying to figure the best process and the way to do it.

“Second, I’d like to ask about defense spendings. My understanding is that the Fiscal Commission recommended roughly $800 billion in defense cuts. I compare that with the sequestration, which is about $800 billion – a little bit more, not much. The Budget Control Act in August cut about $350 billion, according to some accounting. Does that mean that you suggest another $450 billion in defense cuts?”


Erskine Bowles:

“We recommended about $1.7 trillion worth of discretionary cuts. In outlays, it was about $2 trillion in budget authority from the president’s proposed discretionary budget. I think he proposed, Sen. Baucus, $11.7 trillion in discretionary spending. We proposed to cut it to $9.7 trillion. Because the way the budget authority plays out slower in the form of outlays, it worked out about $1.7 trillion. We said that should be split proportionally between security and non-security spending. We also recommended that there be a firewall between security and non-security spending over a period of time so that the future Congresses wouldn’t come back and load it up all on the non-defense side and not on the defense side.”  


Sen. Max Baucus:

“Right. In the same veins, I think the commission recommended a cap on something called the overseas contingent operations?”


Erskine Bowles:

“Yes, we did.”  


Sen. Max Baucus:

“And there’s currently not a cap, is that right? Isn’t it true that the Appropriations Committee transferred $9 billion to overseas contingent operations to escape the limitation?”


Erskine Bowles:

“I don’t know about that.”  


Sen. Max Baucus:

“Well, that’s what’s going on. And so, you therefore would suggest a cap to help minimize that. I think your cap was $50 billion.”  


Erskine Bowles:

“We were trying to keep the OCO [overseas contingent operations] from being a slush fund.”  


Sen. Max Baucus:

“Thank you. That’s what I’m getting at.”  


Former Sen. Alan Simpson (R-WY):

“May I say that whatever you do – and that will be so appropriate – just do a plan. You don’t have to worry about, you know, who’s doing this or the timetable and so on. Because let me tell you why the rating agencies don’t mess with Germany or France or Great Britain. Because each of those countries have a plan. All these people are waiting for is a plan. You can decide how many teeth you want to put in the jar but just do a plan, and you will see dramatic effects around the world with the rating agencies.”


Sen. Max Baucus:

“I agree with you very much.

“One question on the premium support. We don’t have much time here. A concern some have is this: that with the election, to put it in rough terms, it’d be a death spiral. That is people currently on… Insurance companies will package their sales policies to the most healthy. So the most healthy people will buy these new policies, leaving the less healthy in Medicare. The more that happens, the more sicker people are in Medicare. The more that happens, the more Medicare costs just go up, up, up because the sickest are there. I’m sure this is something you gave a lot of thought to. But some have raised this question, and I’m curious…”  


Dr. Alice Rivlin:

“Some have raised it, but we don’t think it’s true of our plan. I think we have avoided that possibility by the rules that we put in. Any plan on the exchange would have to accept anybody, and they would be compensated on a risk-adjusted basis. I mean, they got more for people who are older and sicker. Therefore, they have no incentives to not serve those people.”  


Sen. Max Baucus:

“Again, I just want to thank you all very much. You’ve all worked very hard and made tremendous contributions to this country. All of you. Thank you.”



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2 Comments on “Transcript: Super Committee Sen. Max Baucus’ Q&A on previous debt proposals

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