Domenici-Rivlin 2.0, the Fiscal Cliff and a Framework to Bridge Them

Posted Dec. 3, 2012

In late 2010, the Bipartisan Policy Center’s Debt Reduction Task Force, co-chaired by former Sen. Pete Domenici and former Congressional Budget Office (CBO) Director Dr. Alice Rivlin, released a comprehensive, very detailed fiscal plan that would have promoted economic growth and stabilized America’s federal debt trajectory.

Since then, a weaker than anticipated economy, as well as political events, have prompted an update of the Domenici-Rivlin Plan, which we call Domenici-Rivlin (D-R) 2.0.

In addition, we propose a framework that Congress could enact now, in light of the rapidly-approaching fiscal cliff and the still-hesitant recovery. This framework would include a down-payment, an accelerated process, and a backstop, all of which would facilitate the adoption of a comprehensive fiscal plan – such as D-R 2.0 – during 2013.

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Major Themes of Both D-R 1.0 and D-R 2.0

Freeze discretionary defense accounts for five years and non-defense discretionary accounts for four years.
Fundamentally reform federal entitlement programs – particularly Medicare – to achieve substantial savings over the coming decades.
Fundamentally reform the tax code to raise revenues, improve progressivity, reduce complexity, and curtail tax expenditures targeted to prompt certain behavior by taxpayers at the expense of economic efficiency and fairness.
Enact short-term policies to accelerate national economic growth.

Where Do We Stand?

Since the release of the original Task Force report, Congress passed the Budget Control Act of 2011, which cut and capped defense and non-defense discretionary accounts at approximately the levels recommended by D-R. Conversely, there has been no comprehensive reform of taxes and entitlement spending, the primary drivers of U.S. debt.

Now, the fiscal cliff demands that policymakers pass a law** in the coming weeks to avoid dramatic tax increases and mindless across-the-board spending cuts that would take discretionary spending to levels far below those that we recommended. CBO and other analysts have projected that if these measures take effect, they could choke off the nascent recovery, increase joblessness and send us back into recession. There is too little time remaining in the 112^th Congress, however, to draft and pass legislation to fundamentally reform taxes and entitlements.

Therefore, we propose a “stepping stone” approach – a “Framework for the Grand Bargain” – that will sustain near-term support for the economy, demonstrate a commitment to deficit reduction, and set the stage for the necessary broader agreement along the lines of D-R 2.0 in the 113^th Congress.

“The Framework for a Grand Bargain”: D-R 2.0’s Recommendations for the Fiscal Cliff and Debt Stabilization

Pass a law in the lame duck session of Congress that does the following:

Avoids the fiscal cliff by extending current policies (i.e., continuing the 2001, 2003, 2009, and 2010 tax cuts; shutting off the sequester; “patching” the Alternative Minimum Tax; etc.);
Enacts a procedural framework, which we call “accelerated regular order,” to facilitate passage (e.g., by bypassing the filibuster) of a large deficit reduction package next year, and compel cuts in entitlement spending and tax expenditures if the 113^th Congress fails to act within a time certain;
Contains a down payment on deficit reduction, if necessary, consisting of easily drafted and widely understood changes in current tax and entitlement law; and
Incorporates an income tax rebate for 2013 in order to accelerate the economy above present projected very slow growth.

** Action by the lame duck Congress to avoid the fiscal cliff must consist of a bill subsequently signed into law by the President. All elements of the fiscal cliff are current law. Only a new law can vitiate any or all of these elements.

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