Transcript: Super Committee Sen. Pat Toomey’s 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. Pat Toomey’s (R-PA) Question and Answer Session: 

Sen. Pat Toomey (R-PA), member of the Joint Select Committee on Deficit Reduction. IMAGE SOUCE: DeficitReduction.gov

Sen Pat Toomey (R-PA): 

“Thank you very much, Mr. Co-Chair. I also want to add my voice in thanks to the folks who’ve come here today for the work you’ve done, it’s been enormously helpful. Let me touch on a couple of the issues and develop a few a little bit further, if I could.

“One, obviously we all know it’s a given that the federal revenue is ultimately a function of our economy. But I think it’s worth noting – and I think you’ll all agree – that the growth in federal revenue is related to the growth of the economy. But in fact, federal revenue will grow faster – as long as the economy is growing – than the growth of the economy. Since Dr. Rivlin is the professional economist on the panel, I wonder if you’d just confirm that as a general rule if we have strong economic growth, we will have even faster federal revenue.”

 

Dr. Alice Rivlin: 

“That used to be true, Senator, before we indexed the tax system. It’s much less true now. If you have strong growth, federal revenue will go up a little faster than the economy – not much. We gave away that tool actually with the indexing.”

 

Sen. Pat Toomey: 

“All right. So we could have a discussion about how much that magnitude is. But even now, there is some additional growth faster than GDP growth.

“One of the things that came out from our discussion with CBO about this is that one-tenth of 1% of additional GDP growth on average over 10 years, they estimate, results in about $300 billion of additional revenue to the government. Now this is not perfectly linear and I understand that. But very roughly if that were to be roughly true, less than 0.5% of greater economic growth would result in coincidentally about $1.2 trillion, which is the statutory goal here. I’m not suggesting that that’s an alternative to our doing the work that we do. But I think it underscores how important it is that whatever we do, [we should] attempt to create an environment to maximize growth.

“My own view from the beginning has been that the most constructive thing that we can do to maximize economic growth is major reform of both the corporate and the individual income tax codes. I don’t think there’s any dispute about that, but I want to drill down a little bit. For instance, there’s many approaches that one could take but let’s look at the individual side for a moment. For sake of argument, if we were to reduce the value of all the deductions that are currently available to individuals and we have an equivalent reduction in rates for the sake of argument, everybody would agree that that’s very pro-growth. Is that right? Is that the consensus on that?

“My understanding from both Mr. Bowles and Mr. Simpson was that when you folks looked at this exercise of reducing deductions and credits and write-offs and lowering rates, you did it with a roughly 10 to 1 ratio. For every [$10] dollar that was dedicated to lowering rates, there was a dollar dedicated to deficit [reduction]. I think you had suggested it was like 92 to 8. So 10 to 1 or 11 to 1, that was about the ratio. Do you recommend that we take an approach like that on the individual side? Do that kind of simplification, lowering of rates, and have a ratio comparable to that?”

 

Erskine Bowles: 

“I think you’ll run into some of the problems that Sen. [Max] Baucus brought up. That’s why we presented two options. If you go with the zero plan and get rid of all of the tax expenditures, then you do create enough resources that you can use only 8% of the resources and still generate a $1 trillion worth of additional revenue that could go to reduce the deficit. However, if you’re going to go back and not get rid of all these tax expenditures but you’re going to keep some of them. Like some of the Democrats will want to keep the Earned Income Tax Credit; they want to keep the Child Tax Credit; some of you may want to go to a credit for mortgage insurance to help people with their mortgage debts; some people might want to go for a credit for charitable contributions. So anything you keep gives you a smaller pot to work with. So if you’re still going to come up with $1 trillion of deficit reduction, then that 1 to 10 ratio won’t work anymore.”

 

Sen. Pat Toomey:

“Okay. Does everybody on the panel agree that if any package were to include net tax revenue, it ought to come in context of reforms that actually lowers marginal rates?”

 

Dr. Alice Rivlin:

“Yes.”

 

Erskine Bowles:

“Yes.”

 

Former Sen. Pete Domenici (R-NM):

“Yes.”

 

Sen. Pat Toomey: 

“Let me move over to health care for just a second. I’m glad, I think again, there was a consensus – I think it was unanimous – that it is our health care cost that is driving the deficit and debt crisis that we have. It’s been my view – and I wonder if anyone disputes this – in fact our Medicare plan essential drives the entire health care sector. While there is obviously a significant private sector component, to a large degree, it is a reaction to and acts in the context of what Medicare does. So Medicare is the real driver of the entire health care picture. Do you agree with that?”

 

Former Sen. Pete Domenici: 

“Yes.”

 

Dr. Alice Rivlin: 

“Yes, and there are instances in which Medicare has actually done significant reforms and the private sector has followed.”

 

Erskine Bowles: 

“And I’ll agree with part of it… You said that Medicare was the only…I’m not sure you said only. But Medicare is one of the drivers of our deficit problem; it’s not the only driver. I think it’s the number one problem.”

 

Sen. Pat Toomey:

“When I said was that health care was the – what I meant to say – was the primary driver.

“Sen. Kerry talked about structural reform. It seems to me, in my view, meaningful structural reform means getting away from fee-for-service. To me, that’s the heart of Medicare. That’s the heart of the design. Because we use this terminology and assume everyone knows it, I’ll take a crack at describing what I think of as fee-for-service. Tell me if I’ve characterize it right. But essentially what we have is a committee here in Washington that specifies the price it will pay for every conceivable medical procedure; the circumstances under which it will pay it; the people who are permitted to perform it; where they’re allowed to perform it – in which venue; and it is a completely government-controlled mechanism, which also, by the way, doesn’t account for whether the outcome is successful or not or whether the procedure needs to be repeated. Is that a fair characterization of fee-for-service?”

 

Erskine Bowles: 

“I think what I said earlier in answer to Sen. Kerry was that I think we’re going to have to move from paying for quantity to paying for quality. I think you’re saying something vey similar.”

 

Sen. Pat Toomey: 

“Well, I am. I think at the heart of this, this necessarily creates all kinds of inefficiencies, misallocations, perverse incentives. The solution has to be to get away from this.

“I guess my last question for everybody, are all of you confident that…

 

Former Sen. Pete Domenici: 

“Senator, before you proceed, I did want to make an observation. We recognize that Medicare has very significant problems of the type that you’re alluding to. That’s why we’re suggesting that it’d be changed. At the same time, we have explained why we said [that] as we move we don’t move so quickly…but getting rid of one in establishing the other that we lose both or lose all reform.”

 

Sen. Pat Toomey: 

“One of the things that concerns me is that as long as we leave a significant fee-for-service component in place, I worry about whether the reforms are capable of defeating the mechanism and the misallocations and sort of the perverse effects of fee-for-service.

“So I would ask do you think it’s possible to devise a plan that would transition completely away from fee for service, some kind of premium support model, that is defined to ensure that the most vulnerable people have the coverage that they need?”

 

Former Sen. Pete Domenici: 

“Well, I’ll say for the time being and for the foreseeable future, it seems to me you cannot do that. You have to go with some transition or you wouldn’t get the other done. That was the question of whether you can get it done. I’m not an expert. I didn’t sign on for this job to be an expert on Medicare. That’s why I don’t answer some of your questions. But I’m saying, practically, I don’t think it could be done now under this circumstance because…”

 

Sen. Pat Toomey:

“I’m not suggesting that so much, but I appreciate the response. Dr. Rivlin?”

 

Dr. Alice Rivlin:

“Well, I agree with the senator. I think that the idea… We believe, actually, that competition on a well-designed exchange between comprehensive health plans, particularly capitated plans, they would win out in a fair competition. There are parts of the country, especially rural parts of the country, where it probably isn’t feasible right now to do that. That’s why we think there ought to be a transition and that it is much less scary for seniors to say, ‘If you like what you’ve got, you can stay with it. But you’re going to be offered something which is likely better.'”

 

Erskine Bowles:

“Yeah. I would say that if you look at some of the pilot projects in the Affordable Health Care Act, they have some good examples in there of experiments that are going on today to do just what you’re talking about.”

 

Sen. Pat Toomey: 

“Thank you all very much.”

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3 Comments on “Transcript: Super Committee Sen. Pat Toomey’s Q&A on previous debt proposals

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