PETERSON-PEW COMMISSION ON BUDGET REFORM

CO-CHAIRS As Policymakers Search for the Right Fiscal Tool,

BILL FRENZEL
Peterson-Pew Commission’s New Fiscal Toolbox Can Help
TIM PENNY
CHARLIE STENHOLM June 8, 2011

COMMISSIONERS In recent weeks, there has been significant talk about using targets, triggers,
BARRY ANDERSON
ROY ASH
caps, and failsafes in order to get our fiscal situation under control – in
CHARLES BOWSHER particular as policymakers like those involved in the Biden fiscal talks
STEVE COLL search for ways to couple a debt limit increase with deficit reduction. There
DAN CRIPPEN
VIC FAZIO
are plenty of tools available to help fix our broken budget, but which
WILLIAM GRADISON should we use? The new Fiscal Toolbox from the Peterson-Pew
WILLIAM GRAY, III Commission on Budget Reform (PPC) offers guidance in choosing the right
WILLIAM HOAGLAND
DOUGLAS HOLTZ-EAKIN instrument.
JIM JONES
LOU KERR
“We have lots of tools to choose from here – everything from spending
JIM KOLBE
JAMES MCINTYRE, JR. limits to balanced budget rules to debt targets,” said CRFB President and
DAVID MINGE PPC Commissioner Maya MacGuineas. “As we look at these various tools
JIM NUSSLE
to control our debt, it's important we use the right ones.”
MARNE OBERNAUER, JR.
JUNE O’NEILL
RUDOLPH PENNER The Peterson-Pew Commission, (www.budgetreform.org), comprised of a
PETER G. PETERSON
ROBERT REISCHAUER
bipartisan group of leading budget experts, has studied process tools like
ALICE RIVLIN targets and triggers for over two years and recommended a suite of
CHARLES ROBB reforms, including debt and savings targets to spur action, and spending
MARTIN SABO
GENE STEUERLE
caps to enforce a budget deal once it is in place. The Fiscal Toolbox is the
DAVID STOCKMAN latest resource from the Peterson-Pew Commission, which compares the
PAUL VOLCKER various mechanisms out there on a variety of measures.
CAROL COX WAIT
DAVID M. WALKER
JOSEPH WRIGHT, JR. “No one knows the perfect process changes to control the debt, and every
option has advantages and disadvantages,” said MacGuineas. “What we
PRESIDENT
MAYA MACGUINEAS
need to do is take the best parts of each plan to design the tool that will best
help policymakers to bring the debt under control.”

1899 L Street NW • Suite 400 • Washington, DC 20036 • Phone: 202-986-2700 • Fax: 202-986-3696 • www.crfb.org
 The Committee for a Responsible Federal Budget

Targets, Triggers and Caps Comparison Grid

Peterson-Pew
Fiscal Commission President Obama Corker- Balanced Budget
Sustainable Debt Peterson-Pew Caps Bipartisan Policy Center
Debt Stabilization Debt Failsafe McCaskill CAP Amendments
Act (Longer-Term) SAVEGO
Process Trigger Act (S.J.Res. 10)*
(Medium-Term)
Stabilize the debt to
Stabilize the debt-to- Stabilize the debt to Limit federal Eliminate the deficit and
Goals GDP ratio to 60% or Limit drivers of the debt Save agreed upon amount
GDP ratio GDP ratio spending limit federal spending
below
Sets annual savings targets Limits spending Balances the budget and
Sets annual savings After a budget plan has Uses rules to force
Ensures stable or for discretionary spending, to 20.6% of GDP limits outlays to 18% of
targets by statute been put in place, limits action if budget is
declining debt to health care, and other by the end of the GDP, beginning five
based on glide path Social Security, health projected to fall short of
GDP ratio in second mandatory/revenue decade (GDP fiscal years after
Description intended to bring spending, and tax primary balance in
half of decade (or initially crafted to achieve calculated based ratification
debt to 60% of GDP expenditures to the 2015, or is projected to
average deficit to a fiscal target (60% on average of the
by the end of the amount that has been (or found to) rise as a
GDP ratio of 2.8%) debt/GDP for BPC’s first 3 of the 4 (in addition, no legislation
decade budgeted for share of GDP after 2015
illustrative plan) previous years) can increase taxes)

Prohibition on
Across the board
consideration of any Sequestration for
Across the board spending 3/5 majority requirement
legislation that discretionary spending,
Enforcement spending cuts and Automatic adjustments Across the board sequestration to increase the debt ceiling
increases gross automatic spending cuts
Mechanism if revenue increases to Social Security, tax cuts on selected
spending or reduces and revenue increases for
Targets Not (possibly including expenditures, and health spending and tax 2/3 vote point of (Congress may enact
gross taxes health care and for other
Reached tax expenditure care spending expenditures order preventing additional enforcement to
mandatory spending &
reductions) spending above ensure implementation)
(Additional fail-safes revenue
the cap
can be considered)
Limits increases in
Medicare premiums and
drug rebates to 2%;
None
Specified Exempts Social restricts FMAP cuts so
Courts cannot require
Exemptions from Security, Medicare matching rates stay above
Adjustments cannot None None None increase in revenue to
Enforcement benefits, and means- 50%; limits individual tax
exceed 1% of GDP in enforce balanced budget
Mechanism tested programs expenditure cuts to no
a given year requirement
more than 50%; exempts
Social Security if scored
as solvent

Majority vote allows

Unspecified 2/3 supermajority
additional spending or
Triggers waived after Process suspended if mechanism to vote allows
deficits during war and by
two consecutive nominal GDP grows ensure trigger does spending cap to
3/5 vote for “serious
Specified Escape quarters of negative less than 1% or a joint not exacerbate be exceeded
None None military threat to national
Valves real GDP growth or a resolution declares it economic downturn
security”
similar measure of would exacerbate an or interfere with Emergency
economic weakness economic downturn national security spending is
2/3 supermajority vote
emergency exempt from cap
allows any provision to be
waived

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 The Committee for a Responsible Federal Budget

Peterson-Pew
Fiscal Commission President Obama Corker- Balanced Budget
Sustainable Debt Peterson-Pew Caps Bipartisan Policy Center
Debt Stabilization Debt Failsafe McCaskill CAP Amendments
Act (Longer-Term) SAVEGO
Process Trigger Act (S.J.Res. 10)*
(Medium-Term)
Debt/GDP and Entitlement Spending Deficit/GDP and Debt/GDP and Deficits and
What is Targeted? Debt/GDP and Savings Spending/GDP
Savings and Tax Expenditure Debt/GDP Deficit/GDP Spending/GDP
Is the Purpose to
Force Action or Force and Enforce Enforce Enforce Force Force Force Force
Enforce Decisions?
Temporary but
Is the Mechanism
replaced with new Permanent until new Temporary until savings
Temporary or Permanent Temporary Permanent Permanent
targets once initial budget enacted goal is reached
Permanent
goal is met
Does Enforcement
Mechanism
Include Automatic
Changes to Both Both Neither Both Both Spending Neither
Revenue,
Spending, Both, or
Neither?

Are Tax
Expenditures
Yes Yes Unspecified Yes Yes No No
Treated Similarly
to Spending?

Yes, a requirement for

Yes, opportunity for
Congress to revisit
Is Proposal
policies, and the
Accompanied by a
President to exercise
Process to
enhanced rescission
Facilitate Success?
authority, if targets
are not met
both the President’s
Yes, a requirement that
Budget and
the President transmits a
Congressional Budget
budget which holds
Unspecified Resolution include Unspecified No No
outlays at or below
proposals to stabilize
revenue and below 18
the debt and a fast-track
percent of GDP
process for legislation
that does so

* Numerous balanced budget amendments have been proposed in the current Congress. Used here as an example is S.J.Res. 10, which is co-sponsored by all 47
Senate Republicans. For a more detailed list of balanced budget amendments and their provisions, go to http://crfb.org/blogs/scales-tip-among-senate-gop-
balanced-budget-amendment.

1899 L STREET NW • SUITE 400 • W ASHINGTON, DC 20036 • PHONE : 202-986-2700 • FAX: 202-986-3696 • WWW. CRFB. ORG