Ezra Klein: The president's budget proposal

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The president’s budget proposal
By Ezra Klein

Here’s the basic outline of the White House’s long-term budget proposal:

Top line: $4 trillion in deficit reduction over 12 years, backed by a “trigger” that begins making across-the-board cuts in discretionary spending and tax expenditures if debt if we’re not on track by 2014. That’s achieved through:

Discretionary spending cuts: Increases the non-security spending freeze to the freeze-plus-cuts proposal favored by the deficit commission. That nets roughly $800 billion. Lops a further $400 billion off of the security-related discretionary spending.

Health care: Directs the Independent Payment Advisory Board to hold cost growth in Medicare to GDP plus 0.5 percent rather than GDP plus 1 percent. To make that achievable, IPAB gets new powers, including the ability to restructure Medicare’s insurance so it pays differently for treatments of different value. Also shortens the patent on biologic drugs from 12 years to seven years, implements the recommendations from the National Governors Association working group on Medicaid, and does a few more things. Total savings: $480 billion.

Non-Medicare, Medicaid or Social Security mandatory spending: Makes $360 billion in cuts.

Tax reform: Raises $1 trillion by clearing certain expenditures from the tax code. Also assumes the expiration of the Bush tax cuts for income over $250,000. The breakdown of spending cuts to tax increases in the proposal is 3:1.

Social Security: Supports negotiations to close the Social Security shortfall consistent with the principles laid out in the budget.

My initial impression is that this looks a lot like the Simpson-Bowles report, but in a good way. It doesn’t go quite as far on defense cuts, but it also doesn’t implement a cap on tax or spending. It goes a lot further than Ryan’s budget does in terms of actually figuring out ways to save money rather than just using caps to shift costs onto states/beneficiaries. More as I’ve had more time with it.

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1. Talkingpointsmemo: Highlights of the President's budget proposal

Here are the highlights. Taken together, the White House claims the program will reduce the deficit by $4 trillion over 12 years.

A debt failsafe that will be triggered if the debt-to-GDP ratio hasn't stabilized, and begun to decline by mid-decade. This will include automatic spending cuts, and reductions in tax subsidies, but no tax increases. Social Security, Medicare, and low-income programs will be exempted. It will not tie the government's hands in the event that an economic downturn requires fiscal stimulus.

Cuts to discretionary spending, compatible with those in the Bowles-Simpson recommendations.

Defense spending cuts, contingent on a thorough review conducted by Secretary Robert Gates, the Joint Chiefs of Staff, and Obama himself, and savings generated by winding down operations in Iraq and Afghanistan.

Strengthening the Independent Payment Advisory Board, created by the health care law to recommend and implement cost savings reforms to hold down the cost-per-Medicare-patient.

Simplifying the formula for providing federal matching funds to states for Medicaid, which would automatically increase in the event of a recession

This is a big one -- Obama will propose using Medicare's purchasing power to reduce prescription drug costs for seniors

Reductions in agricultural subsidies

Comprehensive tax reform, which reduces loopholes, simplifies the system, allows the Bush tax cuts for high-income earners to expire, and reduces the corporate tax rate.