The Workbook

PRINCIPLES & PRIORITIES
Group Budget Exercise
WORKBOOK
2011 EDITION
THE CONCORD COALITION

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Principles and Priorities Group Budget Exercise

Congratulations. You have just become members of Congress. Youve been assigned to special committees charged with finding ways to reduce the projected 10-year federal deficit. Your committees responsibility is to examine a variety of spending and revenue policy options and decide which policies constitute the fairest and most effective way to reduce our deficit and work toward a balanced federal budget. As with members of Congress, you will have an opportunity to select options that will work against a balanced budget, worsening the deficit outlook. Selecting those options for higher spending or lower taxes means finding options to offset their fiscal impact. Decisions to accept or reject each policy option will be group decisions, where the majority rules. But you will be discussing and voting based on your personal principles and priorities -- do you think the federal government is too big, too small, or the right size? Which areas of federal government deserve more or less funding? Now and for the future? As your special committee makes decisions, consider the following: Economics -- How will your decision affect the economy in the short term & long term? Public Policy -- What segment of the population taxpayers, seniors, students, etc. wins or loses by your choices? Politics -- How will voters respond to your decisions? You must be able to explain to voters why you decided as you did. Can you defend your decisions? Will you be reelected? Will your supporters continue to support you? Background: Sources of Federal Revenue
Background: Federal Spending by Category
Notes on Spending Categories Health includes Medicaid, veterans health programs, safety-health inspections and the Childrens Health Insurance Program (CHIP). International Affairs includes foreign aid, development and humanitarian assistance, international security assistance, and conduct of foreign affairs Income Security includes unemployment compensation, housing assistance, food stamps, nutrition programs, general retirement and disability insurance (excluding Social Security) and other income security programs. Interest is the amount spent by the government to service the publicly held national debt. Just as you might pay interest on a mortgage, student loan or credit card, the government has to pay interest on money it borrows to cover budget deficits. Other includes most domestic homeland security, science, space and technology, National Institutes of Health, energy, agriculture, commerce and housing credits, transportation, disaster relief, job training and social services, veterans benefits and services (except health benefits), justice and general government spending.
The Budget Outlook

This is an unusual time for the federal budget. The financial crisis and severe recession have strained the budget beyond its normal spending and revenue mismatch. The Fiscal Year 2011 deficit is projected to be around $1.4 trillion -- about the same size as the 2009 and 2010 deficits. This is the result of decreased revenues from lower incomes and fewer workers, and from tax cuts and higher spending enacted to address the economic downturn. 3
Furthermore, large deficits are projected to continue into the future. The Non-Partisan Congressional Budget Office has projected that budget deficits will total $6.7 trillion over the next decade. (In budget terms this is called the baseline estimate for budget deficits). This baseline represents their best guess for what the deficit would be if Congress enacted no new legislation. The projection assumes numerous tax cuts will expire at the end of 2011 and 2012, and that annual appropriations (discretionary spending) will increase at the rate of inflation (which is slower growth than recent history). It also assumes doctors who treat Medicare patients will have their payments dramatically cut as currently scheduled (but which Congress consistently prevents from taking place). Beyond the next 10 years, the recession and efforts to combat it are not projected to have lasting effects on deficits. But other fundamental transformations underway in our society will have a much greater impact on our future: the combination of an aging population and the explosive growth in health care costs. These will cause federal spending on entitlement programs like Social Security and Medicare to dramatically increase, and continuing to borrow to pay for that spending will threaten economic growth and increase the burden of interest payments. With this background in mind, discuss the following approaches to reducing the budget deficit. Do you believe you should: Rely ONLY on tax increases or ONLY on spending cuts? Use some combination of tax and spending changes?
Making the Hard Choices

With your fellow committee members, carefully review the policy options on the next four pages. Indicate your committees decision (which requires a majority vote) by placing a Y (yes) or N (no) in the box provided. You may choose as few or as many options as you like. For detailed information on each option, refer to the Options Book provided for you. Background, and some arguments for and against each option are included for your guidance. Given time and space limitations, your range of possibilities in this exercise will be to add $5.4 trillion to the Treasury and decrease the deficit or lose $4.2 trillion from the Treasury and increase the deficit.
Remember, options with a negative sign (-) are a cost to the government, LOSING money from the Treasury and thus leading to an INCREASE in the deficit. A positive sign (+) results in money GAINED by the Treasury leading to a DECREASE in the deficit.
CATEGORY ONE: GENERAL GOVERNMENT SPENDING OPTION #
(-) MONEY LOSS (Billions increase in deficit over 10 years)
(+) MONEY GAIN (Billions decrease in deficit over 10 years)
(VOTE)
Y or N
(RECORDIN
G VOTE TALLEY OPTIONAL
1.
Freeze all domestic discretionary spending
750
2.
Prevent 20% cut in recently increased maximum Pell Grant
-44
3.
Fund development of high-speed rail and other passenger rail Establish a National Infrastructure Bank to support road improvement. Eliminate grants to states for water quality maintenance and improvement projects Replace agricultural subsidies with Risk Management Accounts (RMAs) for farmers
-53
4.
-30
5.
37
6. 7. 8. 9.
55 5
Reduce funding for the arts and the humanities Eliminate the one dollar bill
Eliminate some Department of Education grants for elementary and secondary education Reduce the federal subsidy for AMTRAK and other intercity rail systems Total Budget Effect (Options 1-10). Add up total deficit effect of Yes votes only. Column One + Column Two = Column Three
17
10.
45
SUBTOTAL (1-10)
OPTION #
CATEGORY TWO: NATIONAL DEFENSE/HOMELAND SECURITY
(-)
(+)
VOTE (Y/N/?)
11. 12.
Increase funding for rail and bus security Freeze Department of Defense appropriations at 2011 level for five years Increase per-ticket fees for aviation security
-12
161
13.
21
14.
Cancel the new squadron of Maritime Prepositioning Ships Cancel development of the ground-based National Missile Defense System Cancel the Future Combat System Program
18
15.
13 22 4
16. 17.
Ease restrictions on contracting for depot maintenance Limit TRICARE health insurance benefit for military retirees and their dependents Target pay to meet military requirements in exchange for part of the annual basic pay raise Total Budget Effect (Options 11-19). Add up total deficit effect of Yes votes only. Column One + Column Two = Column Three.
18.
111
19.
15
SUBTOTAL (11-19)
OPTION #
(-) CATEGORY THREE: REVENUES/TAXES

2001 and 2003 Tax Cuts. (Note: The $6.7 trillion deficit projection from beginning of this exercise assumes these tax cuts will expire -raising income taxes for all Americans subject to them). Extend all of the 2001 and 2003 tax cuts. Income, Capital Gains, and Estate taxes stay at 2012 levels. Extend only middle income tax cuts. Households earning more than $250,000 year and individuals earning over $200,000 will pay the higher tax rates that were in effect during the late 1990s. Gradually eliminate the home mortgage interest deduction Gradually eliminate the tax exclusion of employer contributions for health care benefits Allow charity deductions only if one gives more than 2% of Adjusted Gross Income Eliminate tax subsidies for the oil and gas industry. Create a market for capping and trading greenhouse gas emissions Tax the worldwide income of U.S. corporations as it is earned Total Budget Effect (Options 20-27). Add up total deficit effect of Yes votes only. Column One + Column Two = Column Three.
(+)
VOTE (Y/N/?)
20 OR 21
(SEE NOTE)
(SEE NOTE)
20.
-2,502
OR
-1,308
21.
22.
215
23.
633
24.
219
25.
44
26.
1,179
27. SUBTOTAL (20-27)
114
OPTION #
CATEGORY FOUR: ENTITLEMENTS INCLUDING SOCIAL SECURITY, MEDICARE, MEDICAID

Repeal the 2010 health care reform legislation (Affordable Care Act) Limit malpractice lawsuits to $250,000 for pain/suffering damages, $500,000 for punitive damages, and impose a statute of limitations (one year for adults; three years for children) Convert the federal share of Medicaid payments for long-term care services (e.g., nursing homes) into a block grant for each fiscal year Reform Medicare and provide seniors a voucher to purchase private health insurance Tie basic premiums for Medicare Part B (SMI) to 35 percent of the programs costs Raise the full retirement age of Social Security gradually (roughly two months per year) until the full retirement age reaches 70 (around 2035) Increase the maximum taxable earnings cap for the Social Security Payroll Tax
(-)
(+)
DECISION (Y/N/?)
28.
-210
29.
62
30.
287
31.
350
32.
241
33.
120
34.
457
35.
Base cost-of-living adjustments (COLA) to Social Security on an alternative measure of inflation Total Budget Effect (Options 28-35). Add up
112
SUBTOTAL total deficit effect of Yes votes only. (28-35) Column One + Column Two = Column Three.
PRINCIPLES V. PRIORITIES:
SUMMARY OF RESULTS
IN THE BOXES BELOW, PLEASE COPY THE SUBTOTALS FROM EACH SECTION OF THE EXERCISE (THE NET VALUE OF ALL OF THE OPTIONS YOU CHOSE), AND CALCULATE THE TOTAL CHANGE YOU WOULD MAKE TO THE FEDERAL BUDGET OVER 10 YEARS. SUBTOTAL BUDGETARY EFFECT IN BILLIONS OF DOLLARS
BOX #
TITLE
1 2 3 4 5
GENERAL GOVERNMENT SPENDING (Options 1-10) SECURITY/DEFENSE SPENDING (Options 11-19) TAXES AND REVENUES (Options 20-27)
ENTITLEMENT SPENDING (Options 28-35) NET FISCAL IMPACT OF YOUR BUDGET CHOICES (Combine subtotals from four categories)
DISCUSSION QUESTIONS
THANKS FOR PARTICIPATING IN THIS EXERCISE. IN THE TIME REMAINING PLEASE ANSWER THESE QUESTIONS. MORE THAN ONE ANSWER MAY BE APPROPRIATE.
1. Compare the policies you adopted with your personal spending and revenue principles and priorities. a. Decisions closely followed the priorities b. Decisions did not follow the priorities c. Decisions somewhat followed the priorities 2. If you decisions did not follow your principles and priorities, which of the following apply: a. Principles and priorities were reconsidered as group worked through the options b. Given the chance, wed go back and adjust our decisions to more closely agree with our principles and priorities c. Our group could not build consensus on specific options that agreed with our priorities d. Other ___________________________________________________ 3. Now that youve seen the impact of your choices, would you change anything? a. Spend more b. Spend less c. Increase taxes d. Decrease taxes e. No changes 4. Did you find you were more concerned about short-term problems or were you more focused on the long-term problems that will face the country in the years ahead? a. Short term b. Long term c. Considered both equally 5. How do you think most members of Congress would answer the above question? a. Short term b. Long term c. Considered both equally 6. What did you think of the exercise? Do you have any comments or suggestions? Is there anything we should clarify or change in future versions? 7. Are there policy options that you want to have included in the exercise? Are there any that should be removed?
10

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PRINCIPLES & PRIORITIES

Group Budget Exercise

THE CONCORD COALITION

Principles and Priorities Group Budget Exercise

Background: Federal Spending by Category

The Budget Outlook

Making the Hard Choices

CATEGORY ONE: GENERAL GOVERNMENT SPENDING OPTION #

(-) MONEY LOSS (Billions increase in deficit over 10 years)

(+) MONEY GAIN (Billions decrease in deficit over 10 years)

Freeze all domestic discretionary spending

Prevent 20% cut in recently increased maximum Pell Grant

CATEGORY TWO: NATIONAL DEFENSE/HOMELAND SECURITY

(-) CATEGORY THREE: REVENUES/TAXES

27. SUBTOTAL (20-27)

CATEGORY FOUR: ENTITLEMENTS INCLUDING SOCIAL SECURITY, MEDICARE, MEDICAID

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