Living Within Our Means 

and Investing in the Future

The President’s Plan for Economic 

Growth and Deficit Reduction

September 2011

OFFICE OF MANAGEMENT AND BUDGET

BUDGET.GOV

OFFICE OF MANAGEMENT AND BUDGET

BUDGET.GOV

Living Within Our Means 

and Investing in the Future

The President’s Plan for Economic 

Growth and Deficit Reduction

i

THE MESSAGE OF THE PRESIDENT

To the Congress of the United States:

This continues to be a time of challenge for our country. We face an economic crisis that has left millions 

of our neighbors jobless, and a political crisis that has made things worse. Millions of Americans are 

looking for work. Across our country, families are doing their best just to scrape by—giving up nights out 

with the family to save on gas or make the mortgage, or postponing retirement to send a child to college.

These men and women grew up with faith in an America where hard work and responsibility paid 

off. They believed in a country where everyone gets a fair shake and does their fair share; they 

believed that if you worked hard and played by the rules, you would be rewarded with a decent 

salary and good benefits. If you did the right thing, you could make it in America.

For decades now, Americans have watched that compact erode. They have seen the decks too often 

stacked against them. And they know that Washington has not always put their interests first. Too 

often, our Nation’s capital has been consumed by partisanship. Too often, the needs of special interests 

or politics have been put ahead of what is best for the country.

That is what must change. The American people work hard to meet their responsibilities. Now, as the Nation 

faces an economy that is not growing and creating jobs as it should, so must its leaders. While the continued 

recovery of our economy will be driven by the businesses and workers across our land, policymakers in 

Washington can take steps to help Americans right now and set the most favorable conditions we can for 

growth and job creation for years to come. We can live within our means and invest for the future.

That is why last week I presented to the Congress and the American people the American Jobs Act, to 

provide a jolt to the economy and give companies confidence that if they invest and hire, there will be 

customers for their products and services. This jobs bill will put more people back to work and more 

money in the pockets of those who are working. It will create more jobs for construction workers, more 

jobs for teachers, more jobs for veterans, and more jobs for the long-term unemployed. It will provide a 

tax break for companies that hire new workers, and it will cut payroll taxes in half for every working 

American and every small business. It will create jobs for people to rebuild our aging infrastructure 

and repair and modernize at least 35,000 schools. Moreover, the proposals in the American Jobs Act are 

the kind of proposals that have been supported by Democrats and Republicans in the past.

I am committed to paying for this jobs bill. The Budget Control Act that I signed into law last month 

will cut annual Government spending by about $1 trillion over the next 10 years. It also charges the 

Joint Select Committee on Deficit Reduction with finding an additional $1.5 trillion in savings. As 

part of this jobs bill, I am asking the Congress to increase that amount so that it covers the full cost 

of the American Jobs Act. In addition, I believe that the Congress should seize the opportunity that 

this new Committee presents and do much more so that we can put the country on a sustainable 

fiscal path, which is critical for our long-term economic growth and competitiveness. 

For this reason, I am sending to the Congress this detailed plan to pay for this jobs bill and realize 

more than $3 trillion in net deficit reduction over the next 10 years. Combined with the approximately 

$1 trillion in savings from the first part of the Budget Control Act, this would generate more than 

$4 trillion in deficit reduction over the next decade. This would bring the Nation to the point where 

current spending is no longer adding to our debt and where our debt is no longer increasing as a 

share of our economy—an important milestone on the way to restoring fiscal discipline and moving 

us toward balance. 
This plan is a balanced one that asks everyone to do their part. It includes nearly $580 billion in cuts 

and reforms to mandatory programs, of which $320 billion is savings from Federal health programs 

such as Medicare and Medicaid. These changes are necessary to maintain the promise of Medicare as 

we know it. 

The plan also realizes more than $1 trillion in savings over the next 10 years from our drawdowns 

in Afghanistan and Iraq. And the plan calls for the Congress to undertake comprehensive tax reform 

that lowers tax rates, closes loopholes, boosts job creation here at home, cuts the deficit by $1.5 

trillion, and observes the Buffett Rule—that people making more than $1 million a year should not 

pay a smaller share of their income in taxes than middle-class families pay. To assist the Committee in 

its work, I also included specific tax loophole closers and measures to broaden the tax base. Together 

with the expiration of the high-income tax cuts from 2001 and 2003, these measures would be more 

than enough to reach this $1.5 trillion target. 

They include cutting tax preferences for high-income households, eliminating tax breaks for oil and 

gas companies, closing the carried interest loophole for investment fund managers, and eliminating 

benefits for those who use corporate jets.

In sum, the plan I am sending to the Congress today is a blueprint for how we can reduce this deficit, pay 

down our debt, and pay for the American Jobs Act in the process. I have little doubt that some of these 

proposals will not be popular with those who benefit from these affected programs. And some of these 

changes are ones that we would not make if it were not for our fiscal situation. But we are all in this 

together, and all of us must contribute to getting our economy moving again and on a firm fiscal footing. 

After all, we are all connected. No single individual built America on his or her own. We built it 

together.We have been, and always will be, “one Nation, under God, indivisible, with liberty and justice 

for all.” We have always been a people with responsibilities to ourselves and with responsibilities to 

one another. This means that as Americans work hard to find a job, keep their businesses afloat and 

grow, and provide for their kids, their representatives in Washington must meet their responsibilities 

and make the tough choices needed to get our economy back on track.

This plan lives up to a simple idea: as a Nation, we can live within our means while still making the 

investments we need to prosper. It follows a balanced approach: asking everyone to do their part, so no 

one has to bear all the burden. And it says that everyone—including millionaires and billionaires—

has to pay their fair share.

These may be tough times for our country, but I have a deep faith in the American spirit, and we 

are tougher than the times we live in and bigger than the politics we have recently seen. If we all 

put partisanship aside and roll up our sleeves, I have no doubt that we can meet the challenges of 

the moment and show the world once again why the United States of America remains the greatest 

country on Earth.

Barack Obama

The White House,

 September 19, 2011.
iii

TABLE OF CONTENTS

The Message of the President ��������������������������������������������������������������������������������������������������������������������i

List of Tables ����������������������������������������������������������������������������������������������������������������������������������������������v

List of Charts ���������������������������������������������������������������������������������������������������������������������������������������������v

Introduction ������������������������������������������������������������������������������������������������������������������������������������������������1

The American Jobs Act ������������������������������������������������������������������������������������������������������������������������������7

Mandatory Savings ����������������������������������������������������������������������������������������������������������������������������������17

Health Savings �����������������������������������������������������������������������������������������������������������������������������������������35

Tax Reform �����������������������������������������������������������������������������������������������������������������������������������������������45

Summary Tables ��������������������������������������������������������������������������������������������������������������������������������������53

Page

v

LIST OF TABLES

Table S–1. Bridge between OMB Mid-Session Review Baseline and Deficit Assuming

 Enactment of Recommendations to the Joint Select Committee �������������������������������55

Table S–2. Bridge between OMB Mid-Session Review BEA Baseline Deficit 

and Adjusted Mid-Session Review Baseline Deficit �����������������������������������������������������56

Table S–3. Bridge between CBO August Baseline Deficit and Deficit Assuming 

Enactment of Recommendations to the Joint Select Committee ��������������������������������57

Table S–4. Bridge between CBO August Baseline Deficit and 

Adjusted CBO August Baseline Deficit �������������������������������������������������������������������������58

Table S–5. Joint Committee Recommendations ���������������������������������������������������������������������������������59

Table S–6. Deficit Reduction since January 2011 ������������������������������������������������������������������������������65

Page

LIST OF CHARTS

Chart 1. Annual Deficits as a Percent of GDP ��������������������������������������������������������������������������������66

Chart 2. Debt Held by the Public as a Percent of GDP ������������������������������������������������������������������67

Page

INTRODUCTION

1

At the beginning of this year, our economy was 

finally gaining some traction after enduring 

a historic recession and coming back from the 

brink of a depression. During the previous six 

quarters, real gross domestic product (GDP) 

had grown at an average rate of 3 percent and, 

over the previous 12 months, the private sector 

had created 1.3 million new jobs. The financial 

system was no longer in crisis. The credit and 

capital markets were functioning, and the cost of 

stabilizing the financial and automobile sectors 

was amounting to a fraction of initial estimates.

Yet we also learned that the recession was 

deeper than many experts first thought: revised 

estimates showed that the economy contracted 

at a 7.8 percent annualized rate in the last 

quarter of 2008 and first quarter of 2009, the 

steepest six-month period of contraction on 

record. Then, this past spring, a trio of world 

events created strong headwinds to continued 

strong growth: uprisings in the Middle East 

sent oil prices skyrocketing; an earthquake in 

Japan prevented American auto companies 

from getting the parts they needed to keep our 

factories churning; and a widespread debt crisis 

in Europe roiled markets across the globe. 

Taken together, this has meant that economic 

growth and job creation, while remaining 

positive, have not been strong enough to 

significantly bring down a persistently high 

unemployment rate.

At the same time, our country must address 

years of fiscal irresponsibility. When the 

President took office, he faced an annual 

deficit of $1.3 trillion and projected deficits of 

trillions more in the years thereafter. Driving 

these deficits were decisions made over the 

previous eight years not to pay for two tax cuts 

and a Medicare prescription drug benefit. The 

sharp decline in receipts along with the steep 

increase in automatic outlays to help those 

in need and the efforts needed to jumpstart 

economic growth also added to these deficits.

Even as the President has focused on getting 

the economy going again, he also has worked 

to get the Nation’s fiscal house in order. The 

President insisted on new transparency and 

accountability in budgeting, for instance, 

bringing the costs of overseas contingency 

operations (OCO) onto the budget. The 

President signed into law statutory pay-asyou-go legislation, a key ingredient in previous 

years of fiscal responsibility and budget 

surpluses. In March 2010, the President 

signed into law the Affordable Care Act, which 

will cut the deficit by more than $200 billion 

in its first 10 years and more than $1 trillion 

in its second, as well as addressing the central 

driver of our long-term debt: rising health care 

costs. And, this summer, he signed into law 

the Budget Control Act of 2011 (BCA), which 

represents a major down payment on deficit 

reduction by capping discretionary spending 

and reducing it to its lowest level as a share 

of the economy since the middle of the last 

century. Now that the economy is no longer 

in freefall, it is time to redouble this effort 

to put the Nation on the path toward fiscal 

sustainability.

The President’s recommendations to the 

Joint Select Committee on Deficit Reduction 

build on what we have accomplished so far 

and address the twin challenges that the 

country now faces. In the short term, we 

must reinvigorate the economic recovery with 

measures to boost economic growth, and most 

critically, to spur job creation by passing the 

American Jobs Act—and we must pay for these 

measures over time. In the medium and long 

term, we must reduce the deficit and stabilize 

the debt as a share of the economy in order to 

put the country on firm fiscal footing. Taken 

together, the plan would produce net savings 

of more than $3 trillion over the next decade, 

on top of the roughly $1 trillion in spending 

cuts from the BCA—for a total savings of 

more than $4 trillion over the next decade.

This would bring the country to a place, by the 

middle of this decade, where current spending 

is no longer adding to our debt, debt is falling 

as a share of the economy, and deficits are at a 

sustainable—if not preferable—level.
2 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

To win the future and thrive in a competitive, 

global economy, the United States must focus 

on both job creation and deficit reduction. We 

must get our economy growing and people 

working, and at the same time, live within 

our means so that we can invest in the things 

that will power economic growth for decades 

to come: education, innovation, clean energy, 

and infrastructure. To do this, we must pursue 

a balanced approach that looks at all parts of 

the budget and that does not put too much of a 

burden on any one part of society.

Pursuing a balanced approach is what the 

President did in his 2012 Budget released 

in February, in the Framework for Shared 

Prosperity and Shared Fiscal Responsibility 

released in April that built on the Budget to 

identify $4 trillion in deficit reduction, and in a 

similarly sized plan presented to congressional 

Republicans during negotiations this summer.

Unfortunately, partisan divides precluded 

coming to agreement on a balanced package 

that included revenue increases.

Instead, the President signed into law the 

BCA, which put in place a down payment 

toward deficit reduction and a structure to 

accomplish even more. With approximately $1 

trillion in deficit reduction achieved over the 

next decade through the use of discretionary 

spending caps, it took a substantial step 

toward bringing down our deficit. Yet, with 

discretionary spending projected to reach 

historically low levels, we need to look at 

other parts of the budget for savings so that 

we pursue deficit reduction in a balanced way.

This is not only critical to future economic 

growth, but if the Committee fails to achieve 

at least $1.2 trillion in deficit reduction, then 

a sequester would be triggered that could have 

devastating consequences for both defense and 

non-defense programs. 

The Administration believes that the 

Congress can and should enact sound policies 

and not rely on an automatic sequester 

to reduce our deficits. Accordingly, the 

Administration believes that the Committee 

should use its unique standing to put forward 

an ambitious, comprehensive, and balanced 

deficit reduction plan that would place the 

country on firm fiscal footing by the middle of 

this decade and jumpstart economic growth 

and job creation.

THE AMERICAN JOBS ACT

To create jobs, the President on September 8th

unveiled the American Jobs Act—a plan made 

up nearly entirely of the kind of proposals that 

have been supported by both Democrats and 

Republicans, and that the Congress should 

pass right away to get the economy moving 

now. The purpose of the American Jobs Act is 

simple: put more people back to work, put more 

money in the pockets of working Americans, 

and do so without adding a dime to the deficit.

First, the American Jobs Act will provide 

tax cuts to help America’s small businesses 

hire and grow. The American Jobs Act 

would cut payroll taxes in half to 3.1 

percent up to their first $5 million in wages, 

providing broad tax relief to all businesses 

but targeting it to the 98 percent of firms 

with wages below this level, and it would 

completely eliminate payroll taxes next year 

for any business that increases its payroll 

by hiring new workers or increasing wages 

for existing workers. The Act would also 

extend 100 percent expensing through 2012, 

allowing all firms—small and large—to take 

an immediate tax deduction on investments 

in new plants and equipment.

Second, this jobs bill will put workers back 

on the job while rebuilding and modernizing 

America. Specifically, the President is 

proposing tax credits to hire veterans, including 

those with a service-connected disability, who 

have been unemployed for more than six 

months. He supports investing $35 billion to 

prevent up to 280,000 teacher layoffs and to 

keep police officers and firefighters on the job.

And to upgrade the Nation’s infrastructure, the 

President is proposing a $30 billion investment 

in modernizing public schools and community 

colleges; an immediate $50 billion investment 

in America’s roads, rails, and airports; a $10 

billion investment to establish a National 

Infrastructure Bank; and an expansion of 
INTRODUCTION 3

high-speed wireless networks to 98 percent of 

Americans. In addition, the President is calling 

for a $15 billion investment in a national 

effort to put construction workers on the job 

rehabilitating and refurbishing hundreds of 

thousands of vacant and foreclosed homes and 

businesses. 

Third, the American Jobs Act puts forward 

pathways back to work for Americans 

looking for jobs. It accomplishes this by 

undertaking the most significant reforms 

to the Nation’s unemployment system in 40 

years to help those without jobs transition 

to the workplace. Also, the Act will extend 

unemployment insurance, preventing 6 

million people looking for work from losing 

their benefits and offers employers a tax 

credit of up to $4,000 for hiring workers 

who have been looking for a job for over six 

months. And the President’s plan will provide 

hundreds of thousands of low-income youth 

and adults with opportunities to work and to 

achieve needed training in growth industries 

through a new Pathways Back to Work fund.

Fourth, the American Jobs Act will put 

more money in pockets of every American 

worker and family. The Act will expand the 

payroll tax cut passed last December by 

cutting workers payroll taxes in half next 

year. This provision will provide a tax cut of 

$1,500 to the typical family earning $50,000 

a year.

Taken together, these measures will provide 

a needed boost to our economy and do so in a 

way that maximizes the impact of every dollar 

invested and puts a premium on creating or 

retaining jobs. Moreover, the American Jobs 

Act will not add a dime to the deficit. It includes 

specific offsets that will, in combination, more 

than fully pay for its cost. These offsets are part 

of the larger deficit reduction plan detailed in 

this volume, but have been specifically made 

part of the American Jobs Act to ensure that it 

is paid for. This is accomplished by a provision 

in the American Jobs Act that increases the 

$1.5 trillion Joint Committee deficit reduction 

target by $450 billion to cover the full cost 

of the jobs creation provisions. The bill then 

specifies that if the Joint Committee meets 

the increased deficit reduction target, the 

specific offsets in the American Jobs Act will 

be turned off. Thus, whatever the outcome of 

the Joint Committee’s efforts, the deficit will 

not increase if the American Jobs Act is signed 

into law.

DEFICIT REDUCTION

The President is asking the Joint Committee 

to take into account the costs of the jobs 

bill and make sure that it proposes enough 

deficit reduction to cover these costs, the $1.5 

trillion it is charged to identify in the BCA, 

and additional deficit reduction that will put 

the country on a fiscally sustainable path. In 

total the plan, together with the spending 

cuts already enacted in the Budget Control 

Act, would cut the deficit by more than $4 

trillion over the next decade, with nearly $2 

of spending cuts for every $1 raised through 

tax reform. As a result of this plan, the deficit 

would fall from 8.8 percent of GDP this year 

to 2.3 percent of GDP, while the Budget would 

be in what economists call “primary balance” 

by the middle of the decade. The debt under 

this plan would be on a declining path as a 

share of the economy over the next decade, 

falling from a high of 77 percent of GDP in 

2013 to 73 percent of GDP in 2021.

To reach these amounts, the President is 

putting forward a balanced approach that both 

asks for shared sacrifice from all Americans 

and draws from across the budget. This should 

include additional spending cuts in mandatory 

programs, modest adjustments in important 

entitlement programs such as Medicare and 

Medicaid, capping spending on Overseas 

Contingency Operations (OCO), and reforming 

our tax code so that we ask our biggest 

corporations and wealthiest Americans to pay 

their fair share.

Specifically, the President is proposing $257 

billion in cuts and reforms to a wide range of 

mandatory programs from Federal retirement 

to agricultural subsidies, reform of the 

Pension Benefit Guaranty Corporation, new 

program integrity initiatives, and getting rid 
4 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

of unneeded Federal real property to reduce 

the deficit.

In health care programs, the President is 

recommending a series of reforms that build 

on the historic savings in the Affordable 

Care Act. Overall, these proposals will save 

$248 billion in Medicare over 10 years and 

$73 billion in Medicaid and other health 

programs—and more than a trillion dollars 

in deficit reduction in the second decade. They 

accomplish this in a way that does not shift 

significant risks onto the individuals these 

programs serve, slash benefits, or undermine 

the fundamental compact they represent to 

our Nation’s seniors, people with disabilities, 

and low-income families. Even though these 

reforms can and will save money, they also will 

strengthen these vital programs and ensure 

that they are robust and healthy to serve 

Americans for years to come.

In OCO, the Administration believes that 

the Joint Committee should reflect the 

Administration’s current policy of drawing 

down our troop presence in Afghanistan and 

the transition from a military to a civilian-led 

mission in Iraq. Accordingly, the funding level 

matched to this plan caps OCO over the 10-

year budget window for a savings of more than 

$1 trillion.

Finally, the President is calling on the 

Congress to undertake comprehensive tax 

reform that meets five key principles: 1) 

lowers tax rates, 2) ends inefficient tax breaks, 

3) cuts the deficit by $1.5 trillion, 4) increases 

job creation and growth in the United States, 

and 5) observes the Buffett Rule that people 

making over $1 million should not pay lower 

taxes than those in the middle class.

To advance tax reform, the President is 

offering a detailed set of specific tax loophole 

closers and measures to broaden the tax base 

that, together with the expiration of the highincome tax cuts, would be more than sufficient 

to hit the $1.5 trillion target for tax savings.

These measures include cutting tax preferences 

for high-income households, eliminating tax 

breaks for oil and gas companies, closing the 

carried interest loophole for investment fund 

managers, and eliminating benefits for those 

who use corporate jets.

Tax reform should draw on these specific 

proposals, together with elimination of 

additional inefficient tax breaks. The 

President’s preference would be to incorporate 

these specific tax measures into comprehensive 

tax reform that lowers rates and reduces 

complexity. However, they could also be 

passed on a standalone basis to help reduce 

the deficit in a balanced way. Either approach 

would significantly improve the country’s 

fiscal standing, represent an important step 

toward more fundamentally transforming our 

tax code, and serve as a strong foundation for 

economic growth and job creation.

If the Joint Committee is unable to undertake 

comprehensive tax reform, the President 

believes the discrete measures he has proposed 

should be enacted on a standalone basis. 

All together, the President’s plan would, as 

of 2014, cut the debt as a share of the economy 

and put the country on a sustainable fiscal 

course.  However, the President believes that 

we must lock in that path and make sure 

future policymakers do not roll back what we 

accomplish now as well as encourage further 

action if actual results turn out worse than 

expected.  That is why he is including in his 

plan a debt cap which will ensure that our 

Nation’s debt is on a declining path as a share 

of our economy.  

If by 2014, budget projections do not show 

that the debt-to-GDP ratio has stabilized 

and is declining in the second half of the 

decade, the debt cap will trigger an acrossthe-board spending reduction, including 

spending through the tax code.  The trigger 

will ensure that deficits as a share of the 

economy average no more than 2.8 percent 

of GDP in the second half of the decade.

Consistent with prior fiscal enforcement 

mechanisms put in place by Presidents 

Ronald Reagan, George H.W. Bush, and 

Bill Clinton and agreed to by Republicans 

and Democrats under the BCA, the trigger 
INTRODUCTION 5

would not apply to Social Security, lowincome programs, or benefits for Medicare 

enrollees. The cap would not apply during 

an economic downturn or interfere with 

our Nation’s ability to respond to a national 

security emergency. Rather, it is in place as 

insurance against future political inaction or 

an unfortunate turn of events.

CONCLUSION

There are those who will oppose some of these 

proposals, whether it is savings in Medicare 

and Medicaid or revenue increases of any 

kind. There are powerful and vocal interests 

who will vigorously object to any changes to 

their programs. The President believes that we 

need to put aside politics as usual. We cannot 

afford the finger-pointing and kicking the can 

down the road. If we are all willing to sacrifice 

a little to put our fiscal house in order, then 

no one will have to sacrifice a lot. While there 

will be some worthy programs that will be cut 

and some revenue that will be raised from the 

wealthiest two percent of Americans, if we do 

not act now, it will be more difficult to take 

action in the years to come. Moreover, if we do 

not act now, we will fail to get our economy out 

of its rut and millions of Americans back to 

work and put our Nation on firm fiscal footing.

For all that we have been through, the 

United States of America still has the 

capacity to meet big challenges. We have 

not lost the ability to shape our own destiny.

We remain the wealthiest nation on Earth.

We have the best workers and universities 

as well as the most daring innovators 

and entrepreneurs. Our problems today 

lie not with the character of our country, 

but with the state of our politics. Gridlock 

and partisanship are nothing new in 

Washington, but the American people have 

never been more fed up with this city than 

they are today. At this moment, we need to 

come together as Americans and do the work 

of the American people. That is the promise 

of the Joint Committee and the opportunity 

before it. The Administration hopes these 

recommendations assist the Joint Committee 

in its vital work.

THE AMERICAN JOBS ACT

7

While our economy is no longer at the 

brink of the second Great Depression, there 

are still millions of Americans who have 

not yet felt the effects of the recovery. Too 

many have spent months looking for a job 

to no avail. Others are doing their best just 

to scrape by—giving up a night out with the 

family to save on gas, spending less at the 

grocery store, or postponing their retirement 

to send a child to college—and know that 

they have no room for error. These men and 

women believe in the promise of America: 

that if you work hard and play by the rules, 

you will be able to provide for your family 

and give your children a brighter future.

For too long, that promise has come up 

empty for too many Americans. They are 

meeting their responsibility, and now those 

in Washington must meet theirs by ending 

the political games, doing what they can to 

help the economy grow, providing the tools 

and assistance our businesses and workers 

need to succeed, and restoring some of the 

fairness and security that has made America 

the engine and envy of the world.

Policy pursued in Washington cannot 

solve our problems, but there are specific 

steps we can take immediately that will 

make a real difference in the economy and 

in people’s lives. That is why the President 

sent to the Congress the American Jobs Act.

The American Jobs Act will put more people 

back to work, put more money in the pockets 

of those who are working, and do so without 

adding a dime to the deficit. It will create 

more jobs for construction workers, more jobs 

for teachers, more jobs for veterans, and more 

jobs for the long-term unemployed. It will 

provide a tax break to companies that hire 

new workers, a tax break for small business 

owners, and a middle-class tax cut for 150 

million workers.

Moreover, this jobs bill will help the country 

not just recover from this economic crisis, but 

also rebuild the economy the American way: 

based on balance, fairness, and the same set 

of rules for everyone from Wall Street to Main 

Street. It will create the jobs of the future 

by helping small business entrepreneurs, by 

investing in education, and by making things 

the world buys.

The planks of the American Jobs Act are the 

kind of proposals that have been supported by 

both Democrats and Republicans, and it will 

be fully paid for with specific offsets.

Tax Cuts to Help America’s Small

Businesses Hire and Grow

Growing the economy and spurring job 

creation by America’s businesses, especially 

the small businesses which are so important 

to our economic health, is the President’s top 

priority. That is why, over the course of the 

last year, he pushed for additional measures 

to jump-start our economic recovery and help 

small businesses: tax credits for businesses 

that hire unemployed workers, and tax 

cuts and expanded access to credit for small 

businesses. In December, the President 

signed into law a bipartisan measure that 

provided tax cuts that also gave businesses 

two powerful incentives to invest and create 

jobs: 100-percent expensing on the purchase of 

equipment, and an extension of the research 

and experimentation tax credit.

With the President’s jobs and growth plan, 

he builds on those steps that have been so 

critical to America’s families and business 

owners by providing new tax cuts for millions 

of small businesses to provide incentives for 

investments and hiring. These tax cuts would 

be available to all businesses, regardless of 

size, but are designed to target their impact 

toward the smallest businesses.

Provide a payroll tax cut to businesses, 

with a focus on small employers. The 

President’s plan will extend the payroll tax 

cut to firms by cutting in half their payroll tax 

on the first $5 million in payroll. Next year, 

instead of paying 6.2 percent on their payroll 
8 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

expenses, firms would pay only 3.1 percent.

The President’s plan would provide tax cuts 

for all of America’s six million firms, with 

focused relief for the Nation’s five million 

small firms with fewer than 20 employees.

The Congressional Budget Office (CBO) 

estimates that every dollar in payroll tax 

cuts for employers increases economic output 

by $0.40 to $1.20 over the next five years.

Under the President’s plan, a typical company 

with 12 employees and an annual payroll of 

$392,000 would get a tax cut of $12,200 next 

year. Because of the additional employeeside payroll tax cut, its workers would get tax 

cuts that averaged $1,000. There has been 

bipartisan support for a payroll tax cut for 

employers as a means to spur job growth.

Establish a complete payroll tax 

holiday for new jobs or wage increases.

In addition to the 3.1 percent payroll tax cut 

for all firms, the President’s plan provides a 

direct incentive to encourage firms to hire 

additional employees or raise wages for 

their current employees. The American Jobs 

Act would completely refund payroll taxes 

paid on added workers or wage increases for 

current workers above the level of last year’s 

payroll. To focus the benefit of this tax cut 

on small businesses, payroll tax relief would 

be capped at $50 million in new wages.

For example, under the President’s plan, 

a warehouse with a payroll last year of $7 

million that hires 40 new workers this year 

and adds $2 million in payroll would get a full 

refund on the 6.2-percent payroll taxes paid 

on the added $2 million in payroll—for a tax 

cut of $124,000. (That tax cut would come on 

top of the maximum 3.1-percent payroll tax 

reduction of $155,000 on its base payroll.) 

This tax holiday would be augmented by 

targeted tax cuts for hiring the long-term 

unemployed as well as veterans who have 

been out of work six months or more. CBO 

has identified this type of job creation tax 

cut as one of the most effective ways to help 

accelerate job growth.

Extend 100 percent business expensing 

through 2012. The President is proposing 

an extension of the 100-percent expensing 

provision that he signed into law in 2010, 

which rewards firms for making investments 

by allowing them to deduct the full value of 

those investments from their tax obligations 

through 2012. Extending 100-percent 

expensing for an additional year would put 

an additional $85 billion in the hands of 

businesses in 2012. Most of this relief would be 

recouped by the Treasury as businesses regain 

their strength. An analysis of the 100-percent 

expensing provision in the December tax deal 

by the Treasury Department found that this 

policy would lower the average cost of capital 

for business investment by 75 percent and in 

2011, businesses have cited the benefits of 

such policies.

Help entrepreneurs and small 

businesses access capital and grow. The 

President also supports administrative, 

regulatory and legislative measures—

including those developed and recommended 

by the President’s Jobs Council—to 

help small firms start and expand. This 

includes changing the way the Government 

does business with small firms. The 

Administration recently announced a 

plan to accelerate Government payments 

to small business contractors to help put 

money in their hands faster. The President 

has also charged his Chief Information 

Officer and Chief Technology Officer to 

stand up a one-stop, online portal for small 

businesses to easily access Government 

services. As part of the President’s Startup 

America initiative, the Administration will 

work with the Securities and Exchange 

Commission to conduct a comprehensive 

review of securities regulations from the 

perspective of these small companies to 

reduce the regulatory burdens on small 

business capital formation in ways that 

are consistent with investor protection, 

including expanding “crowdfunding” 

opportunities and increasing mini-offerings.

In addition, the President’s plan calls for 

the Congress to increase guarantees for 

bonds to help small businesses compete 

for infrastructure projects and remove 

burdensome withholding requirements that 

keep capital out of the hands of job creators.
THE AMERICAN JOBS ACT 9

Putting Workers Back on the Job While

Rebuilding and Modernizing America

The President’s plan will put Americans 

back to work in key areas that are central 

to America’s future competitiveness. It will 

repair and modernize classrooms across the 

country and make sure that teachers who 

have been laid off because of budget cuts 

can be brought back to work. It will take on 

the fact that the American Society of Civil 

Engineers awarded the United States a ‘D’ 

for the overall condition of its infrastructure.

Both to modernize the Nation’s roads, 

railways, airports, and schools and to put 

hundreds of thousands of workers back on 

the job, the President is proposing a strategy 

that combines immediate investments in 

infrastructure with innovative reforms to 

ensure that the best projects get financing.

These investments in infrastructure would 

not only put people to work now, but also 

yield lasting benefits for the economy, 

increasing growth in the long run. In fact, 

we know that investments in infrastructure 

have a substantial multiplier effect—

creating economic growth and jobs now and 

laying the foundation for the future as well.

The Administration is proposing to:

Offer tax credits and career readiness 

efforts to boost veterans’ hiring. The 

President believes we have an obligation 

to make sure our veterans are able to 

navigate this difficult labor market and 

succeed in the civilian workforce, and that 

is why he is proposing a plan to lower 

veteran unemployment and ensure that 

servicemembers leave the military careerready with a new Returning Heroes Tax 

Credit of up to $4,800 for unemployed 

veterans, and a Wounded Warriors Tax 

Credit of up to $9,600 that will increase 

the existing tax credit for firms that hire 

unemployed veterans with service-connected 

disabilities. The President also plans to form 

a Department of Defense-led task force 

to maximize the career-readiness of all 

servicemembers, and enhancing job search 

services through the Department of Labor 

for recently-transitioning veterans.

Prevent teacher layoffs and keep police 

officers and firefighters on the job. As many 

as 280,000 education jobs are on the chopping 

block in the upcoming school year due to 

continued State budget constraints. These cuts 

could have a significant impact on children’s 

education, through the reduction of school days, 

increased class size, and the elimination of 

key classes and services. The President’s plan 

will support State and local efforts to retain, 

rehire, and hire early childhood, elementary, 

and secondary educators (including teachers, 

guidance counselors, classroom assistants, 

afterschool personnel, tutors, and literacy 

and math coaches). The President’s plan 

will invest $30 billion to ensure that schools 

are able to keep teachers in the classroom, 

preserve or extend the regular school day and 

school year, and also support important afterschool activities. The President’s plan also 

includes $5 billion to support the hiring and 

retention of public safety and first responder 

personnel. By supporting such jobs, the plan 

aims to keep communities safe from crime and 

able to maintain critical emergency response 

capabilities.

Modernize at least 35,000 schools.

The President’s plan calls for substantial 

investments in our school infrastructure, 

modernizing and upgrading America’s public 

schools to meet 21st Century needs. The cost of 

maintaining more than 100,000 public schools 

is substantial for already overstretched 

districts. The accumulated backlog of deferred 

maintenance and repair amounts to at least 

$270 billion. Schools spend over $6 billion 

annually on their energy bills, more than they 

spend on computers and textbooks combined.

For children in the Nation’s poorest districts, 

these deferred projects too often mean 

overcrowded schools with crumbling ceilings 

and a lack of the basic wiring infrastructure 

needed for computers, projectors, and other 

technology. The President’s plan will invest 

$30 billion in enhancing the condition of our 

Nation’s public schools—with $25 billion going 

to K-12 schools, including a priority for rural 

schools and dedicated funding for Bureau 

of Indian Education funded schools, and 

$5 billion to community colleges (including 
10 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

tribal colleges). The range of critical repairs 

and needed construction projects would 

put hundreds of thousands of Americans—

construction workers, engineers, maintenance 

staff, boiler repairmen, and electrical 

workers—back to work. 

Make an immediate investment in our 

roads, rails, and airports. In order to 

jumpstart critical infrastructure projects 

and create hundreds of thousands of jobs, 

the President’s plan includes $50 billion in 

immediate investments for highway, highway 

safety, transit, passenger rail, and aviation 

activities—with one fifth of the funding 

advancing a transformation of how we finance 

transportation infrastructure and what we 

finance.

•	 Investments in making our Nation’s 

highway systems safer and more 

efficient. The President’s plan includes 

investments totaling $27 billion to make 

our Nation’s highway systems more 

efficient and safer for passenger and 

commercial transportation.

•	 Repairing transit systems and improving our rail systems. The plan 

includes $9 billion of investments to 

repair our Nation’s transit systems, 

many of which are desperately in need 

of modernization. It also includes $2 

billion in funding to improve intercity 

passenger rail service. These funds will 

connect communities, reduce travel 

times and congestion, and create skilled 

manufacturing jobs.

•	 Improving our airports. The plan also 

includes airport improvement grants of 

$2 billion to improve safety, add capacity, 

and modernize airport infrastructure 

across the country.

•	 Opportunities for all in the transportation sector. The President’s plan 

will invest an additional $50 million 

in 2012 to enhance employment and 

job training opportunities that will 

benefit minorities, women, and socially 

and economically disadvantaged 

individuals in transportation-related 

activities, including construction, 

contract administration, inspection, 

and security. His plan will also invest an 

additional $10 million in 2012 to help 

minority-owned and disadvantaged 

business enterprises gain better access 

to transportation contracts. And it will 

ensure that infrastructure investments 

allow for the hiring of local workers, 

to maximize economic benefits for 

communities where projects are located.

•	 Funding for innovative transportation.

The plan includes $10 billion for 

innovative mechanisms to finance and 

invest in infrastructure. This includes 

$4 billion to develop high-speed 

rail corridors; $1 billion to support 

NextGen Air Traffic Modernization 

efforts, which will employ technology 

to make the National Airspace System 

safer and more efficient; and $5 billion 

for the TIGER and TIFIA programs, 

which target competitive dollars to 

innovative, multi-modal transportation 

programs. 

•	 Expediting high-impact infrastructure 

projects. The President recently 

issued a Presidential Memorandum in 

coordination with his Jobs Council 

directing departments and agencies 

to identify high impact, job-creating 

infrastructure projects that can be 

expedited through outstanding review 

and permitting processes within the 

control and jurisdiction of the Federal 

Government. The President also 

directed the creation of a Projects 

Dashboard to ensure the details of 

each project identified will be available 

for stakeholders to follow through the 

expedited review process and provide 

public input. This initiative will create 

infrastructure related jobs and use the 

lessons learned to develop best practices 

that can be applied more broadly to 

permitting and review processes going 

forward.
THE AMERICAN JOBS ACT 11

Establish a National Infrastructure 

Bank. To direct Federal resources for 

infrastructure to projects that demonstrate 

the most merit and may be difficult to fund 

under the current patchwork of Federal 

programs, the President is also calling for the 

creation of a National Infrastructure Bank 

(NIB), based on the bipartisan model proposed 

in the Senate. The NIB would represent a 

bold reform of our Nation’s infrastructure 

financing, independent of the political 

process. It would fund the most important and 

economically viable infrastructure projects to 

the Nation across the transportation, energy, 

and water sectors. The NIB would also rely 

on the private sector, never extending loans 

or loan guarantees that finance more than 50 

percent of a project’s costs, and in many cases 

providing much less, just enough to induce 

private investment. The NIB’s key provisions 

would include:

•	 Independent, non-partisan operations 

led by transportation and financial 

experts. While the NIB would be a 

Government-owned entity, it would not 

be controlled by any Federal agency and 

instead would operate independently.

No more than four voting members of 

its seven-member board could be from 

the same political party. Board members 

would have to possess significant 

expertise either in the management of 

a relevant financial institution or in the 

financing, development, or operation of 

infrastructure projects.

•	 Broad eligibility for infrastructure 

and unbiased project selection.

Eligible projects would include 

transportation, water, and energy 

infrastructure. In general, projects 

would have to be at least $100 million 

in size and be of national or regional 

significance. Projects would have a clear 

public benefit, meet rigorous economic, 

technical and environmental standards, 

and be backed by a dedicated revenue 

stream. Geographic, sector, and size 

considerations would also be taken into 

account.

•	 Addressing market gaps for 

infrastructure financing. The NIB 

would issue loan and loan guarantees 

to eligible projects. Loans issued by 

NIB would use approximately the 

same interest rate as similar-length 

U.S. Treasury securities and could be 

extended up to 35 years, giving the NIB 

the ability to be a “patient” partner sideby-side with State, local, and private 

co-investors. To maximize leverage from 

Federal investments, the NIB would 

finance no more than 50 percent of the 

total costs of any project.

Put people back to work rehabilitating 

homes, businesses, and communities.

The recession has left communities across 

the country with large numbers of foreclosed 

homes and businesses, which is weighing 

down property values, increasing blight and 

crime, and standing in the way of economic 

recovery. In these same communities, there 

are also large numbers of people looking for 

work, especially in the construction industry, 

where more than 1.9 million jobs have been 

lost since the beginning of the recession in 

December 2007. The President is proposing 

Project Rebuild to help address both of these 

problems by connecting Americans looking for 

work in distressed communities with the work 

needed to repair and repurpose residential and 

commercial properties. Building on successful 

models piloted through the Neighborhood 

Stabilization Program, Project Rebuild 

will invest $15 billion in proven strategies 

that leverage private capital and expertise 

to rehabilitate hundreds of thousands of 

properties in communities across the country.

Key components include: 

•	 Focus on distressed commercial 

properties and redevelopment to 

stabilize communities. Many regions 

with concentrated home foreclosures 

also have concentrations of vacant 

commercial structures that weigh on 

property values and make it less likely 

that new businesses will come into the 

community and invest new capital.

Project Rebuild will tackle this problem 
12 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

directly by allowing grantees to rebuild 

and repurpose distressed commercial 

real estate.

•	 Participation of for-profit entities to 

gain expertise, leverage Federal dollars 

and speed program implementation.

Many successful redevelopment 

strategies involve unique collaborations 

between local governments, non-profit 

organizations, and developers and other 

private actors. Project Rebuild will seek 

to empower and expand these types 

of collaborations by allowing Federal 

funding to support for-profit development 

when consistent with project aims and 

subject to strict oversight requirements 

to ensure that the funds are being used 

as intended.

•	 Increase support for “land banking.”

Land banks work with communities 

to buy, hold, and redevelop distressed 

properties as part of a long-term 

redevelopment strategy and have 

shown impressive results in stemming 

property price declines and stabilizing 

communities across the country. Project 

Rebuild will seek to scale successful land 

bank models, providing much needed 

infusions of capital that they can leverage 

to raise private sector investment. This 

will increase the breadth and depth 

of their reach in helping communities 

better handle their distressed properties.

•	 Create jobs to maintain properties 

and avoid community blight.

In addition to creating jobs in the 

construction and redevelopment industry, 

Project Rebuild will enable grantees 

to use funds to establish property 

maintenance programs to create jobs and 

mitigate “visible scars” left by vacant or 

abandoned properties.

Expand nationwide wireless Internet 

services for the public and the first 

responders and reduce the deficit.

The President’s plan follows the model in 

bipartisan legislation from Senators Jay 

Rockefeller and Kay Bailey Hutchison and 

includes an investment to develop and deploy 

a nationwide, interoperable wireless network 

for public safety. The plan includes reallocating 

the D Block for public safety (costing $3 billion) 

and an additional $7 billion to support the 

deployment of this network and technological 

development to tailor the network to meet 

public safety requirements. This is part of a 

broader deficit-reducing wireless initiative 

that would free up public and private spectrum 

to enable the private sector to deploy highspeed wireless services to at least 98 percent 

of Americans, even those living in remote rural 

and farming communities. In addition, freeing 

up spectrum from the private sector through 

voluntary incentive auctions that were 

included in both the Rockefeller-Hutchison bill 

and the House-passed budget resolution would 

raise money to pay for these investments in 

public safety and also reduce the deficit.

Pathways Back to Work for

Americans Looking for Jobs

The President is proposing the most 

innovative reforms to the unemployment 

insurance (UI) system in more than 40 years, 

including changes that will prevent layoffs and 

give States more flexibility to use Federal UI 

funds to get Americans who have lost their jobs 

back to work. The President’s plan is targeted 

to address unemployment in an aggressive, 

multi-pronged way, drawing from ideas about 

what is working from around the country 

and from both parties. First, the President’s 

plan marks the most comprehensive attempt 

in decades to reshape the unemployment 

insurance system to grapple with long-term 

unemployment and scarce job openings.

Second, the President’s plan will provide 

direct support to put hundreds of thousands 

of Americans back to work with tax credits 

for hiring people who have been unemployed 

the longest, and prevent six million Americans 

looking for work from losing their benefits. The 

Administration is proposing to:

Reform the UI system to provide greater 

flexibility while preserving benefits for six 

million people. Drawing on the best ideas of 
THE AMERICAN JOBS ACT 13

both parties and the most innovative States, the 

President’s plan will equip the UI system to better 

address our current long-term unemployment 

challenge. In these times, the Federal emergency 

unemployment system must offer not just a 

weekly check, but also an aggressive strategy 

to connect the unemployed to work—through 

reforms ranging from rigorous assessment and 

job-search assistance to flexible work-based uses 

of Federal funds to smart strategies to prevent 

layoffs in the first place:

•	 Rigorous reemployment assistance. 

Research has shown that providing 

more job search assistance can speed 

individuals’ return to work. Robust 

reemployment services combined with 

eligibility assessments provide an 

opportunity to review the claimant’s 

work-search activities—a step that 

not only reduces improper payments, 

but that also provides an opportunity 

for UI recipients to receive face-to-face 

job search counseling. By requiring 

these services for all new claimants 

for Emergency Unemployment Compensation (EUC, the Federal UI program 

for the long-term unemployed), the 

President’s plan will ensure that the 

long-term unemployed receive maximum 

assistance and services to speed their 

return to work.

States will be required to conduct 

Reemployment and Eligibility Assessments, to review most EUC claimants’ 

eligibility for benefits, and provide 

them with reemployment and career 

information to develop a work-search 

plan. New EUC claimants will be 

required to check-in with their local 

One-Stop Career Centers. This will 

serve three purposes: to provide the 

claimant with labor market and career 

information and support the claimant’s 

development of a reemployment and 

work-search plan; to refer the claimant 

to reemployment services delivered 

through the One-Stop Career Center; 

and to review the claimant’s eligibility 

for EUC benefits.

•	 Work Sharing: UI reform to prevent 

layoffs. Preventing layoffs in the first 

place is a win-win for workers and 

businesses. The President’s plan—

consistent with proposals championed 

by leaders like Senator Jack Reed—

calls for work sharing that would let 

workers receive pro-rated UI benefits as 

compensation for a reduction in hours 

at businesses that would otherwise lay 

workers off. 

•	 State flexibility for bold reforms to 

put the long-term unemployed back 

to work. The President is proposing to 

provide additional funds to allow States 

to introduce new programs aimed at longterm unemployed workers, including:

Bridge to Work. A number of States 

have innovative programs that 

give workers the opportunity to 

take temporary, voluntary work 

to keep up their skills and train at 

the workplace for a new job, while 

continuing to receive unemployment 

insurance. The President’s plan 

builds on what works in programs 

like Georgia Works and Opportunity 

North Carolina, while instituting 

important fixes and reforms that 

ensure minimum wage and fair 

labor protections are being enforced.

This plan would authorize States 

to implement “Bridge to Work” 

programs to help connect the longterm unemployed to employers—

through temporary work that allows 

employers to bring on potential new 

employees and helps the unemployed 

maintain or learn new skills.

Wage insurance to support paths to rehiring through a different career. Wage 

insurance compensates workers who 

take a new job for lower pay rather 

than claiming unemployment benefits.

The President’s plan would give States 

flexibility to set up wage insurance 

programs for older workers who take a 

loss of pay to return to work.
14 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Starting a new business. A number of 

States—including Delaware, Maine, 

Maryland, New Jersey, Oregon, and 

Pennsylvania—have self-employment 

assistance programs that encourage 

and enable unemployed workers to 

create their own jobs by starting their 

own small businesses. The President’s 

plan would allow States across the 

Nation to support programs like these 

with Federal UI funds, rewarding 

dislocated workers willing to strike 

out on their own and removing 

barriers that discourage participation 

in existing programs.

•	 Continue unemployment benefits 

next year. To support unemployed people 

as they work their way back to a job, we 

need to make sure that benefits do not run 

out next year. EUC will prevent six million 

Americans from losing benefits in 2012.

Provide tax credits for businesses 

that hire the long-term unemployed.

The President’s plan includes a special bonus 

credit of $4,000 for firms that hire the longterm unemployed. On top of cutting payroll 

taxes in half for all American businesses, and 

a full payroll tax holiday for hiring or raising 

wages, this credit will add $8 billion to the 

“bang-for-the-buck” of dollars employers spend 

to hire unemployed workers. With 6.2 million 

people unemployed for at least six months, 

providing a targeted incentive to hire these 

out-of-work individuals ensures that we do 

not waste the skills and ambitions of those 

bearing the brunt of the painful recovery from 

recession. As economists across the political 

spectrum have noted—including Federal 

Reserve Chairman Ben Bernanke in recent 

weeks—long-term unemployment poses a 

risk to long-term growth by eroding skills and 

reducing attachment to the labor force.

Invest in low-income youth and adults.

The President is proposing an aggressive 

strategy to expand employment opportunities for 

communities that have been particularly hard 

hit by the recession, and that may take longer 

to get back on their feet due to greater income 

losses and smaller savings than higher-income 

workers. In August 2011, African Americans 

had an unemployment rate of 16.7 percent 

and Hispanics had an unemployment rate of 

11.3 percent. The numbers were even worse for 

youth: 45 percent of all youth between the ages 

of 16 to 24 were employed last month, and only 

33.8 percent of African American youth. In fact, 

only 21 out of every 100 teens in low-income 

families had a job this past summer. Building 

on highly successful Recovery Act programs that 

provided job opportunities for low-income adults 

and youths, the President’s “Pathways Back to 

Work” Fund will make it easier for workers to 

remain connected to the workforce and gain new 

skills for long-term employment. This $5 billion 

initiative will include:

•	 Support for summer and year-round 

jobs for youth. The Recovery Act provided 

over 367,000 summer job opportunities 

through the public workforce investment 

system to young people in the summers 

of 2009 and 2010. Such programs not 

only provided young people with their 

first paycheck, but taught them lifelong employment skills. Building on this 

success, the new Pathways Back to Work 

Fund will provide States with support for 

summer job programs for low-income youth 

in 2012, and year-round employment for 

economically disadvantaged young adults.

•	 Subsidized employment opportunities 

for low-income individuals who are 

unemployed. This effort builds off the 

successful TANF Emergency Fund wage 

subsidy program that supported 260,000 

jobs through the recovery. According to 

an analysis by the Center on Budget and 

Policy Priorities, this flexible program 

allowed States to reduce the cost and risk 

associated with new hiring, encouraging 

private-sector businesses to hire new 

workers.

•	 Support for local efforts to 

implement promising work-based 

strategies and to provide training 

opportunities. This initiative would 

support efforts that have good records 
THE AMERICAN JOBS ACT 15

of placing low-income adults and 

youths in jobs quickly. Local officials, in 

partnership with local workforce boards, 

business, community colleges, and other 

partners, will be able to apply for funding 

to support promising strategies designed 

to lead to employment in the short-term. 

Combat discrimination against 

the unemployed. Recent reports have 

highlighted companies that are increasingly 

expressing preferences for applicants 

who already have a job. Specifically, some 

companies are posting job listings that 

include language such as “unemployed 

candidates will not be considered” or “must 

be currently employed” or “must be employed 

within the last six months.” The exclusion 

of unemployed applicants is a troubling and 

arbitrary screen that is bad for the economy, 

bad for the unemployed, and ultimately bad 

for firms trying to find the best candidates.

This is particularly true at a time when so 

many Americans have found themselves out 

of work through no fault of their own. New 

Jersey has passed legislation to address this 

practice, and members of the Congress also 

have introduced legislation. The President 

is calling for legislation that would make it 

unlawful to refuse to hire applicants solely 

because they are unemployed or to include 

in a job posting a provision that unemployed 

persons will not be considered. 

More Money in the Pockets of Every

American Worker and Family

The President’s plan would put more money 

in the pockets of working and middle-class 

Americans by providing tax relief to 160 

million workers—extending the payroll tax 

cut passed last December. He is proposing to:

Cut the employee payroll tax in half 

next year for 160 million workers. Almost 

every working American pays payroll taxes, 

and middle-class Americans face a higher 

burden because more of their income comes 

from wages and salaries. The President’s plan 

will cut payroll taxes in half for employees 

next year. Rather than having 6.2 percent of 

their wages deducted in payroll taxes, workers 

will only pay 3.1 percent next year. This builds 

on the 2 percentage point payroll tax reduction 

that the President secured for workers in 

2011—providing 160 million Americans the 

certainty of ongoing tax relief and increasing 

the amount of that relief by more than 50 

percent. Independent forecasters have stated 

that a failure to extend last year’s payroll tax 

cut would reduce growth next year by onehalf to two-thirds of a percentage point. The 

President’s plan would not only extend this 

cut, but expand it by 50 percent. 

Cutting the payroll tax cut in half for 

employees in 2012 will provide a tax cut of 

$180 billion to American workers. A payroll 

tax cut provides middle-class families with 

substantial tax relief. This measure will result 

in a tax cut of more than $1,500 for the typical 

family earning $50,000. That represents a 

continuation of the $1,000 tax cut they are 

receiving this year, plus an additional $500 to 

help pay bills and cover expenses. For a family 

earning $80,000 per year, the President’s plan 

would cut their taxes by about $2,500. That is 

a continuation of the $1,600 tax cut from last 

year, plus an additional $900 tax cut next year.

Providing certainty to American families now 

that they will receive a generous tax cut in 

their paychecks next year is a common sense 

idea that has enjoyed bipartisan support in 

the past.

Help more Americans refinance mortgages at today’s historically low interest 

rates. The President has instructed his 

economic team to work with Fannie Mae 

and Freddie Mac, their regulator the Federal 

Housing Finance Agency, major lenders and 

industry leaders to remove the barriers that 

exist in the current refinancing program 

(Home Affordable Refinance Program) to 

help more borrowers benefit from today’s 

historically low interest rates. This has the 

potential to not only help these borrowers, but 

their communities and the American taxpayer, 

by keeping borrowers in their homes and 

reducing risk to Fannie Mae and Freddie Mac.

MANDATORY SAVINGS

17

In the Budget Control Act, the President 

signed into law a measure that will generate 

approximately $1 trillion in deficit reduction 

over the next decade through the use of discretionary spending caps. With discretionary spending projected to reach historically 

low levels, we need to look at other parts of 

the budget for savings. Mandatory programs, 

those that are not generally appropriated on 

an annual basis, are an important area to find 

savings. In some areas, these programs have 

not been updated or reformed for years. In 

others, parochial politics has allowed waste to 

pile up or programs to stray from their mission. The President is proposing $257 billion 

in savings over 10 years in mandatory programs outside of the health area. This list 

does not include mandatory savings in higher 

education programs, because savings from 

these types of programs should be directed 

back into helping America’s students enter 

and finish college. 

Agricultural Sector

A strong agricultural sector is important 

to maintaining a strong rural economy. The 

Administration supports the farm and rural 

sectors through a number of means, including funding agricultural research programs, 

providing assistance to beginning and disadvantaged farmers, pursuing trade agreements, and increasing funding for programs 

to expand U.S. agricultural exports. For 

the past decade, the agricultural sector has 

been extremely strong. Farm income has 

been high and continues to increase, with 

net farm income forecast to be $103.6 billion in 2011, up $24.5 billion (31 percent) 

from the 2010 forecast—the highest inflation-adjusted value for net farm income recorded in more than 35 years. The top five 

earnings years for the past three decades 

have occurred since 2004, attesting to the 

profitability of farming this decade. The 

Administration remains committed to a 

strong safety net for farmers, one that protects them from revenue losses that result 

from low yields or price declines, and strong 

crop insurance programs. But there are programs and places where funding is unnecessary or too generous. To reduce the deficit, 

the Administration proposes to eliminate or 

reduce those programs, while strengthening 

the safety net for those that need it most.

The Administration is proposing to:

Eliminate direct payments. The direct 

payment program provides producers fixed 

annual income support payments for having historically planted crops that were supported by Government programs, regardless 

of whether the farmer is currently producing 

those crops—or producing any crop, for that 

matter. Direct payments do not vary with 

prices, yields, or producers’ farm incomes. As 

a result, taxpayers continue to foot the bill for 

these payments to farmers who are experiencing record yields and prices; more than 50 

percent of direct payments go to farmers with 

more than $100,000 in income. Economists 

have shown that direct payments have priced 

young Americans out of renting or owning the 

land needed to enter into farming. In a period 

of severe fiscal restraint, these payments are 

no longer defensible, and eliminating them 

would save the Government roughly $3 billion per year. 

Reduce subsidies to crop insurance 

companies. Crop insurance is a foundation 

of our farm safety net. Our Nation’s farmers and agricultural bankers understand the 

value of this effective risk management program, and currently 83 percent of eligible program crop acres are enrolled in the program.

However, the program continues to be highly 

subsidized and costs the Government approximately $8 billion a year to run: $2.3 billion 

per year for the private insurance companies 

to administer and underwrite the program 

and $5.7 billion per year in premium subsidies to the farmers. The Administration has 

made a continued effort to improve the crop 

insurance program by covering more crops, 

while implementing it more efficiently. 
18 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

In 2010, the U.S. Department of Agriculture 

(USDA) and the crop insurance companies 

agreed to changes that saved $6 billion over 

10 years from administrative expense reimbursement and underwriting gains while also 

improving service to underserved States. The 

Administration believes there are additional 

opportunities for streamlining of the administrative costs of the program. A USDA commissioned study found that when compared 

to other private companies, crop insurance 

companies’ rate of return on investment 

(ROI) should be around 12 percent, but that 

it is currently expected to be 14 percent. The 

Administration is proposing to lower the crop 

insurance companies’ ROI to meet the 12 percent target, saving $2 billion over 10 years. In 

addition, the current cap on administrative expenses is based on the 2010 premiums, which 

were among the highest ever. A more appropriate level for the cap would be based on 2006 

premiums, neutralizing the spike in commodity prices over the last four years, but not harming the delivery system. The Administration, 

therefore, proposes setting the cap at $0.9 

billion adjusted annually for inflation, which 

would save $3.7 billion over 10 years. Finally, 

the Administration proposes to price more accurately the premium for catastrophic (CAT) 

coverage policies, which will slightly lower the 

reimbursement to crop insurance companies.  

The premium for CAT coverage is fully subsidized for the farmer, so the farmer is not impacted by the change.  This change will save 

$600 million over 10 years.

The Administration also proposes modest 

changes in subsidies for producers. Today, producers only pay 40 percent of the cost of their 

crop insurance premium on average, with the 

Government paying for the remainder. This 

cost-share arrangement was implemented in 

2000, when very few producers participated 

in the program and “ad-hoc” agricultural disaster assistance bills were regularly enacted.

The Congress increased the subsidy for most 

insurance coverage by over 50 percent at the 

time to encourage greater participation. Today, 

participation rates are 83 percent on average, 

and the rationale for high subsidy rates has 

weakened. The proposal would shave two basis points off any coverage premium subsidy 

levels that are currently offered above 50 percent, saving $2 billion over 10 years. Farmers 

who have premium subsidies of 50 percent or 

less would not be affected. 

Better target agricultural conservation assistance. Farmers, ranchers, and 

forest landowners share a critical role in conserving the Nation’s soil, water, and related 

natural resources.  The Administration is 

very supportive of programs that create incentives for private lands conservation and 

has made great strides in leveraging these 

resources with those of other Federal agencies towards greater landscape-scale conservation; however, the dramatic increase 

in funding (roughly 500 percent since enactment of the Farm Security and Rural 

Investments Act of 2002) has led to difficulties in program administration and redundancies among our agricultural conservation 

programs.  At the same time, high crop prices 

have both strengthened market opportunities to expand agricultural production on the 

Nation’s farmlands and decreased producer 

demand for certain agricultural conservation 

programs.  These current economic realities 

and the ability to better target existing funding for maximum environmental outcomes 

support a proposal to reduce the deficit while 

preserving the most important agricultural 

conservation programs.  To reduce the deficit, 

the Administration proposes to reduce conservation funding by $2 billion over 10 years 

by better targeting conservation funding to 

the most cost-effective and environmentallybeneficial programs and practices. Even under this proposal, conservation assistance is 

projected to grow by $60 billion over the next 

decade.

Extend mandatory disaster assistance.

The Administration strongly supports disaster assistance programs that protect farmers in their time of greatest need. The Food, 

Conservation, and Energy Act of 2008 provided producers with mandatory disaster assistance programs for the 2008 to 2011 crops. To 

strengthen the safety net, the Administration 

proposes to extend these programs, or simi-
MANDATORY SAVINGS 19

lar types of disaster assistance that are of a 

similar cost, for the 2012 to 2016 crops. The 

programs provide financial assistance to producers when they suffer actual losses in farm 

revenue, loss of livestock or the ability to graze 

their livestock, loss of trees in an orchard, and 

other losses due to diseases or adverse weather.

To be eligible for the programs, farmers must 

purchase crop insurance. The Supplemental 

Revenue Assistance Program provides whole 

farm revenue coverage to farmers at a revenue 

level that is essentially 15 percent higher than 

their crop insurance guarantee. Payments are 

limited so that the guaranteed level cannot exceed 90 percent of expected farm income in the 

absence of a natural disaster. 

Federal Worker and Military

Retirement Programs

The men and women who serve their fellow Americans in the Armed Forces and civil 

service are patriots who work for the Nation 

often at great personal sacrifice. Just as families and businesses must tighten their belts to 

live within their means, so must the Federal 

Government. One area to examine is the retirement and health benefits offered to the Federal 

military and civilian workforce. Over the past 

several years, there have been significant shifts 

both in how people work and how their benefits 

are structured. Organizations of all sizes have 

had to reform and alter the retirement benefits 

they give in order to remain competitive and, in 

some cases, solvent. As a result, compared to the 

private sector, the Federal retirement program 

can seem generous. For example, defined benefit pensions are becoming increasingly rare, and 

are now available to only one-third of private industry workers in large firms and 21 percent of 

all private employees. Some estimates put the 

split between employer and employee contributions in the private sector at 55 percent paid 

by employers and 45 percent paid by employees (combining defined benefit and defined contribution plans), whereas on average Federal 

employers pay 67 percent of contributions to 

the Federal Employees Retirement System 

(FERS), while employees pay 33 percent. In addition, a marked disparity exists between the 

fees most retired private sector workers pay for 

health care services and what retired military 

personnel pay. The Administration is proposing 

a group of reforms to better align these retirement programs with the private sector, while 

still preserving the Federal Government’s ability to recruit and retain the personnel that the 

American people need. The reductions sought 

in these programs are evenly split between civilian and military retirement programs. The 

Administration proposes to:

Reform civilian Federal worker 

retirement. Whether it is defending our 

homeland, restoring confidence in our 

financial system and administering a historic 

economic recovery effort, providing health 

care to our veterans, or searching for cures to 

the most vexing diseases, we rely on a highly 

skilled workforce committed to public service.

The Administration has implemented efforts 

to reform the hiring process and improve 

employee engagement, satisfaction, and 

wellness. In line with its strong commitment 

to Federal employees, the Administration 

believes that we can make modest changes 

to Federal worker retirement contributions 

while maintaining the ability to attract and 

retain highly qualified individuals to handle 

the challenging and complex work the Federal 

Government is expected to do. 

The Administration is proposing that the 

employee contribution toward accruing retirement costs would increase by a total of 1.2 

percent (0.4 percent a year over three years 

beginning in 2013), but the employee’s total 

pension would remain unchanged. In addition, 

the Administration is proposing to eliminate 

the FERS Annuity Supplement for new employees. While Federal agency contributions for 

currently accruing costs of employee pensions 

would decline, these employers would pay an 

additional amount toward unfunded liabilities 

of the retirement system that would leave total 

agency contributions unchanged over the 10-

year budget window. The Administration does 

not anticipate this policy change will negatively 

affect its human capital planning and management, nor inhibit the Government’s ability to 

serve the American people. This proposal is estimated to save $21 billion over 10 years.
20 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

While the modest retirement system change 

proposed above is important, we also need 

broader reform.  The Federal personnel system that governs pay and performance for the 

majority of Federal employees was codified in 

1949, when Government was composed of far 

more lower-grade employees handling relatively routine tasks that required few specialized or advanced skills and when computers 

were massive mainframes. Despite employee 

surveys revealing that Federal employees believe the current work environment fails to effectively deal with poor performers and does 

not reward innovation, reform efforts to date 

have not been able to address this foundational 

issue of Government performance. To manage 

the complex work agencies perform today in order to meet the needs of the American people, 

Federal managers and employees need a modernized personnel system that reflects the reality of the 21st century—where agencies offer 

compensation reflecting competing markets 

for employees, facilitate career-development 

mobility across agencies and with the private 

sector, address poor performers consistently 

and fairly, develop staff, and motivate better 

performance using the best evidence-based 

public and private sector practices. To advance 

this effort, the Administration recommends 

that the Congress establish a Commission 

on Federal Public Service Reform comprised 

of Members of the Congress, representatives 

from the President’s Labor-Management 

Council, members of the private sector, and 

academic experts. The Commission would develop recommendations on reforms to modernize Federal personnel policies and practices 

within fiscal constraints. Such reforms could 

include but would not be limited to compensation, staff development and mobility, and personnel performance and motivation.

Initiate annual fees for TRICARE-ForLife enrollment (TFL). One of the ways 

military retirees and their families are recognized for their essential service is through 

health insurance coverage called TRICARE.

Upon turning 65, beneficiaries transition to 

Medicare coverage, with TFL becoming second payer. The TFL program pays the beneficiaries’ Medicare out-of-pocket costs for 

medical services, generally leaving the beneficiary with no out-of-pocket costs aside from 

Medicare Part B premiums and drug co-pays.

In the private sector, this type of “Medigap” 

policy would likely require premiums, deductibles, and co-pays. In 2009 the average annual 

premium for a “Medigap” policy was $2,100.

By contrast, there are no premiums under 

the TFL programs. The Administration is proposing to introduce modest annual fees for 

the TFL program, beginning with a $200 annual fee in 2013. The fee then would increase 

to align with the modest increase in the fees 

under the regular TRICARE program for individuals under age 65 that was proposed in 

the President’s 2012 Budget. This proposal is 

estimated to save approximately $6.7 billion 

in mandatory spending over 10 years. 

Targeted increases to TRICARE 

pharmacy benefit co-payments. The 

Administration supports a generous health 

care benefit to recognize the service of military members and retirees. This includes providing affordable options to access prescriptions. However, the co-payments for military 

members have lagged behind other Federal 

and private plans. For example, the average 

co-payment for a costly brand-name drug purchased at a drug store by a Federal retiree in 

the most popular Federal Employees Health 

Benefits Program (FEHBP) plan option is estimated to be $45, compared to $9 for a military retiree. In an effort to slow the growth in 

DOD’s health care costs, the President’s 2012 

Budget included minor pharmacy co-pay 

adjustments, for which both the House and 

Senate indicated support. This new proposal 

would move the TRICARE pharmacy program 

closer to parity with the most popular Federal 

employee health plan, BlueCross BlueShield 

Standard and closer to the health plans that 

most Americans have from their employers.

The proposal would provide an incentive for 

consumers to choose less expensive pharmacy options by eliminating co-pays for generic 

mail-order drugs while, at the same time, 

shifting retail co-pays from a dollar figure to 

a percentage co-pay. This option would have 

no impact on active duty members, but would 

affect active duty families and all military re-
MANDATORY SAVINGS 21

tirees regardless of the age of the beneficiary.

The Administration’s proposal is estimated 

to save $15.1 billion in mandatory funds and 

$5.5 billion in discretionary funds over 10 

years.

Establish a commission to review military retirement benefits. The current 

military retirement system has served the 

military well in past years. In an era when 

defined-benefit plans were common, it helped 

the military to retain the personnel needed 

to maintain a vigorous and highly effective 

force. But the system was designed for a 

different era of work, and is now out of line 

with most other Government or private retirement plans. The non-disability program 

provides generous benefits to the relatively 

few members who stay for at least 20 years 

and no benefits for the roughly 80 percent of 

servicemembers who stay less than 20 years.

To consider reforms the Administration 

plans to set up a commission to develop recommendations for reforming the current 

military retirement system. The commission 

will review the impacts of reform proposals on military readiness, recruiting, retention, costs, and the quality of the force. The 

Administration plans to propose that the 

Commission’s recommendations be handled in a manner similar to the 2005 Base 

Realignment and Closure Commission’s recommendations. Under this approach, DOD 

would make a proposal to the commission, 

which can alter the proposal as it deems appropriate.  The commission proposals then 

go to the President, who may not alter the 

proposals but can decide whether to forward 

them to the Congress.  The Congress must 

approve or disapprove without any modifications. The Administration believes that any 

major military retirement reforms should include grandfathering provisions that ensure 

that the country does not break faith with 

military personnel now serving, including 

those serving in Afghanistan and Iraq.

End the overpayment of Federal contractor executives. Just as the Government 

must be prudent in paying Federal employees, 

it must also not overpay contractors.  Each year, 

the Government is required to establish a dollar cap on the amount that the Government will 

reimburse Federal contractors for the compensation they pay to their senior-most executives 

under cost-based contracts, which account for 

roughly $160 billion each year.  The cap does 

not limit how much contractors pay their executives—only how much the Government will 

reimburse them. A statutory formula sets the 

Government’s reimbursement cap to the annual compensation for the five top management 

employees at publicly-traded companies with 

annual sales over $50 million.  The cap started at $250,000 in 1995, but rose to $693,951 

last year in line with the rapid growth of 

private sector executive compensation over 

the past 15 years. Application of the current 

statutory formula could push the reimbursement cap to $750,000 for 2011. However, the 

Administration believes the Government is reimbursing too much for contractor executives, 

and the cap’s amount cannot be justified.  As 

a result, the Administration proposes to abolish the formula and instead tie the cap to the 

salary of senior-most Federal officials—specifically, Executive Schedule Level I, currently approximately $200,000. Setting the cap at this 

level will bring greater parity between Federal 

and contractor executives’ compensation.

Government Liabilities and Operations

Increase fees charged by Fannie Mae 

and Freddie Mac. Since taking office in 

January 2009, the Administration has taken 

numerous actions to help stabilize the housing 

market and provide critical support for struggling homeowners. This has included continuing the financial support for Fannie Mae and 

Freddie Mac under agreements initiated in 

2008 that ensure they have sufficient capital 

to honor their guarantees, meet their debt obligations, and facilitate the flow of mortgage 

capital to homeowners. To protect taxpayers 

and help rebuild the robust private mortgage market necessary to our Nation’s longterm economic well-being, the Administration 

proposes to modestly increase the fees that 

Fannie Mae and Freddie Mac charge mortgage 

lenders to guarantee repayment of new mortgage loans.
22 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Because of their Government support, 

Fannie Mae and Freddie Mac are able to price 

their mortgage guarantees below what it 

would cost private banks or financial institutions to provide the same guarantee. These 

“guarantee fees” should be increased over time 

to help the private market compete on a level 

playing field and reimburse taxpayer assistance, although the pace of these price changes 

will depend significantly on market conditions.

The President is proposing to begin this process with a modest increase of 10 basis points, 

or one-tenth of one percent, to Fannie Mae and 

Freddie Mac’s existing fees. Existing mortgages would be unaffected by this change and 

the monthly cost of a typical $220,000 new 

mortgage would increase by less than $15.

These small changes would reduce costs to the 

Government by $28 billion over 10 years. 

Reform the Aviation Passenger Security 

Fee to more accurately reflect the costs of 

aviation security. Reflecting its commitment 

to keeping air travel and commerce safe, the 

Administration has invested heavily in personnel, technology, and infrastructure to mitigate 

the constantly-evolving risks to aviation security. As risk changes, however, so too must the 

way in which we fund our aviation security efforts. In 2001, the Aviation and Transportation 

Security Act created the Aviation Passenger 

Security Fee, which was to be collected to offset the costs of the Transportation Security 

Administration’s (TSA’s) aviation security-related activities. The fee, in conjunction with 

a separate fee charged directly to air carriers, 

was put in place to ensure that the costs of 

aviation security were borne by the direct beneficiaries (e.g., air passengers, airlines) of aviation security services. The fee was originally 

intended to recover the full costs of aviation 

security. Since its establishment, however, the 

fee has been statutorily limited to $2.50 per 

passenger enplanement with a maximum fee 

of $5.00 per one-way trip. This recovers only 

43 percent of TSA’s aviation security costs, 

which have risen over the years while the fee 

has remained the same. 

The Administration proposes both to raise 

the fee and change the manner in which 

it is collected. Modeled after Chairman 

Paul Ryan’s proposal in the House’s 2012 

Concurrent Resolution on the Budget, the 

Administration’s proposal would:

•	 Replace the current “per-enplanement” 

fee structure with a “per one-way trip” 

fee structure so that passengers pay the 

fee only one time when travelling to their 

destination.

•	 Remove the current statutory fee limit 

and replace it with a statutory fee minimum of $5.00, with annual incremental 

increases of 50 cents from 2013 to 2017, 

resulting in a fee of $7.50 in 2017 and 

thereafter.

•	 Allow the Secretary of Homeland 

Security to adjust the fee (to an amount 

equal to or greater than the new statutory fee minimum) through regulation 

when necessary.

•	 Set aside a specific amount of fee revenue 

to be returned to the General Fund for 

deficit reduction over 10 years.

The proposed fee would collect an estimated $8.8 billion in additional fee revenue over 

five years, and $24.9 billion over 10 years. The 

Administration’s proposal would direct $15 

billion to be deposited into the General Fund 

for debt reduction, with any additional revenues in excess of this amount being applied as 

offsets to TSA’s discretionary appropriations. 

More equitably share payments for air 

traffic services. Roughly two-thirds of the 

air traffic control system’s current costs are 

financed by aviation excise taxes. Most of the 

tax revenue is collected from commercial aviation through ticket taxes, segment fees, international head taxes, and fuel taxes. General 

aviation users currently pay a fuel tax, but this 

revenue does not cover their fair-share-use of 

air traffic services. All flights that use controlled air space require a similar level of air 

traffic services. However, commercial and general aviation can pay very different aviation 

fees for those same air traffic services. For ex-
MANDATORY SAVINGS 23

ample, a large commercial aircraft would pay 

between $1,300 to $2,000 in taxes for a flight 

from Los Angles to San Francisco while a corporate jet flying the same route and using the 

same Federal Aviation Administration (FAA) 

air traffic services would pay about $60 in 

taxes. To reduce the deficit and more equitably 

share the cost of air traffic services across the 

aviation user community, the Administration 

proposes to establish a new mandatory surcharge for air traffic services. This proposal 

would create a $100 per flight fee, payable to 

the FAA, by aviation operators who fly in controlled airspace. Military aircraft, public aircraft, recreational piston aircraft, air ambulances, aircraft operating outside of controlled 

airspace, and Canada-to-Canada flights would 

be exempted. The revenues generated by the 

surcharge would be deposited into the Airport 

and Airway Trust Fund. This fee would generate an estimated $11 billion over 10 years.

Assuming the enactment of the fee, total 

charges collected from aviation users would finance roughly three fourths of airport investments and air traffic control system costs.

Provide Postal Service financial relief 

and undertake reform. The Administration 

recognizes the enormous value of the U.S. Postal 

Service (USPS) to the Nation’s commerce and 

communications, as well as the urgent need 

for reform to ensure its future viability. USPS 

faces a long-term, structural operating deficit 

that has been exacerbated by the precipitous 

drop in mail volume in the last few years due 

to the economic crisis and the continuing shift 

toward electronic communication. Absent legislative intervention, USPS will be insolvent 

by the end of September 2011 when it will 

be unable to make the statutory $5.5 billion 

Retiree Health Benefit prefunding payment to 

the Office of Personnel Management, will have 

exhausted its cash reserves, and will have hit 

its cumulative statutory Treasury borrowing 

ceiling of $15 billion. Bold action is needed to 

ensure that USPS can continue to operate in 

the short-run and achieve viability in the longrun. To that end, the President is proposing a 

comprehensive reform package that would: 1) 

restructure Retiree Health Benefit pre-funding in order to accelerate moving these Postal 

payments to an accruing cost basis and reduce 

near-year Postal payments; 2) provide USPS 

with a refund over two years of the $6.9 billion 

surplus in Postal contributions to the FERS 

program; 3) reduce USPS operating costs by 

giving USPS authority, which it has said it will 

exercise, to reduce mail delivery from six days 

to five days; 4) allow USPS to offer non-postal 

products and increase collaboration with State 

and local governments; and 5) give USPS the 

ability to better align the costs of postage with 

the costs of mail delivery while still operating 

within the current price cap, and permit USPS 

to seek the modest one-time increase in postage rates it proposed a year ago. These reforms 

would provide USPS with over $20 billion in 

cash relief over the next several years and in 

total would reduce the Federal deficit by $19 

billion over 10 years.

Strengthen the safety net for workers’ 

retirement benefits. All Americans deserve 

a secure retirement. The Administration 

has proposed to create new opportunities to 

save for retirement by establishing a system 

of automatic workplace pensions and doubling the small employer pension plan startup credit. In addition, the Administration 

has issued regulations that would increase 

401(k) fee disclosure, so that workers can 

make more informed choices about how to 

invest their retirement savings. The Pension 

Benefit Guaranty Corporation (PBGC), 

which protects the retirement security of 

44 million workers in defined benefit pension plans, is also critical to the success of 

a robust pension system. When underfunded 

plans terminate, PBGC assumes responsibility for paying the insured benefits. PBGC 

is responsible for paying current and future 

retirement benefits to more than 1.5 million 

workers and retirees.

PBGC receives no taxpayer financing, and 

relies primarily on premiums paid by insured 

plans. PBGC premiums are currently much 

lower than what a private financial institution would charge for insuring the same risk 

and are insufficient for PBGC to meet its longterm obligations. As of the end of September 

2010, PBGC faced a $23 billion deficit. The 
24 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Administration proposes to encourage companies to fully fund their pension benefits and 

ensure PBGC’s continued financial soundness 

by giving the PBGC Board the authority to adjust premiums to better account for the risk 

the agency is insuring. This proposal would 

raise much-needed revenue for PBGC while 

providing incentives for firms both to continue 

offering pensions and to improve plan funding so they can keep their pension promises.

Without action, the PBGC’s deficit will increase and we may face, for the first time, the 

need for an infusion of taxpayer funds to keep 

PBGC solvent.

The proposal consists of two parts: 1) a 

gradual increase in the single-employer flatrate premium that will raise approximately 

$4 billion by 2021; and 2) PBGC Board discretion to increase the single-employer variable-rate premium to raise $12 billion by 

2021. Beginning in 2014, the Board would 

be given discretion to increase variable-rate 

premiums, which are based on plan underfunding. Currently, premiums are set at $9 

per $1,000 of underfunding. Under the proposal, two-thirds of the Board would have to 

certify that changes to the variable premium 

schedule would be estimated to generate at 

least $12 billion through 2021. If the Board 

were unable to certify the premium schedule, 

it would be required to make adjustments to 

ensure generated revenues of at least $12 

billion. The Board would be prohibited from 

raising premiums to generate more than $13 

billion. In determining variable-rate premiums, the Board would consider a number of 

factors, including a plan’s risk of losses to 

PBGC, the amount of a plan’s possible claims, 

and other factors the Board’s directors determine appropriate. In addition, the Board 

would be required to consult with stakeholders prior to setting a new premium schedule 

and would also establish a hardship waiver 

and other limitations on plan-specific premium increases. PBGC would be required to 

publish a notice of its determination in the 

Federal Register, including the basis for the 

determination and the amount of the expected increase in income. This proposal would 

save $16 billion over the next decade.

Reform the National Flood Insurance 

Program (NFIP) by eliminating the premium subsidy for certain properties. 

Currently, 1.2 million or 20 percent of all NFIP 

properties are charged premiums well below 

the actuarial value of the insured liability. On 

average (including subsidized and unsubsidized policies) NFIP premium collections cover approximately 70 percent of the actuarial 

value of the insured liability. To address this 

concern, the Administration supports a proposal, as passed by the House in H.R. 1309, 

which would impact approximately 375,000 or 

30 percent of the 1.2 million subsidized policies. Specifically, the proposal would:

•	 Increase premiums over five years for a 

subset of subsidized properties: non-residential or non-primary residences, residences sold to new owners, and severe 

repetitive loss properties. 

•	 Redefine severe repetitive loss properties as residences with at least four paid 

claims greater than $5,000 or with two 

paid claims that cumulatively exceed the 

market value of the house.

•	 One year after enactment, increase premiums for all policy holders fitting the 

above named categories (non-residential 

or non-primary residences, residences 

sold to new owners, and severe repetitive 

loss properties) by no more than 20 percent per year until the amount collected 

covers the full expected cost of the insurance. 

•	 New policies that fit this category of subsidized properties one year after enactment would immediately pay the full cost 

actuarial premium.

The Administration also supports other 

measures in H.R. 1309 that would increase 

the maximum policy coverage for structure 

and contents and authorize studies and pilots 

to test alternative approaches to flood insurance that are sustainable and cost-effective.

The NFIP would collect about $700 million in 

additional premium revenue over five years 
MANDATORY SAVINGS 25

and approximately $4.2 billion over 10 years.

These increased revenues could be deposited 

in either the National Flood Insurance Fund 

or into the General Fund.

Government Assets

Auction radio spectrum to expand 

wireless broadband and invest in a 

broadband network for public safety users. Expanding access to mobile Internet and 

other wireless communications will benefit 

American families and businesses and support a more competitive economy. The Federal 

Communications Commission (FCC) estimates 

that mobile data use will increase by 35 times 

over 2009 levels by 2014, thus creating greater 

demand for spectrum. Recognizing this, the 

Administration committed last year to repurpose 500 megahertz of spectrum through auctions and other means to meet the growing 

demand for spectrum placed on commercial 

network capacity from smartphones and other 

mobile technologies. The Administration also 

has strongly promoted vital improvements 

in the communication capabilities of first responders and other public safety users. A wide 

variety of public safety organizations and the 

National Governors Association have also supported a first responders broadband network. 

To further these goals, the Administration 

proposes to raise more than $24 billion by extending the FCC authority to auction spectrum 

and by providing new authority to hold incentive auctions, through which current spectrum 

licensees voluntarily relinquish spectrum 

rights in exchange for a fair portion of auction proceeds. In addition, the Administration 

would free-up spectrum currently used by 

Federal agencies for auction, including by providing enhanced flexibility through the existing Spectrum Relocation Fund to help agencies 

repurpose and relocate. This will enhance the 

Administration’s ongoing interagency effort to 

develop options for relocating Federal agencies 

from valuable spectrum. In cases where auctions are not appropriate, the FCC would be 

directed to collect $4.8 billion in fees over the 

next 10 years to promote efficient resource use.

Spectrum assigned to television broadcasters 

and public safety uses would be exempt from 

this fee. The proposal would also allow spectrum licenses for satellite services that are primarily domestic (such as satellite TV services) 

to be assigned via competitive bidding, as they 

had been prior to a 2005 court decision.

As long envisioned by the Administration 

and members of both parties in the Congress, 

the Administration would invest $7 billion of 

spectrum auction proceeds and reserve spectrum valued at nearly $3 billion for use in a 

modern, nationwide, and interoperable public safety broadband network. This network 

will provide first responders access to secure, 

interoperable video and voice communications. By achieving interoperable communications nationally and utilizing commercial 

infrastructure tailored to the requirements 

of first responders, this investment holds the 

potential to improve public safety communications and applications, promote cost-efficient 

networks through greater economies of scale, 

and achieve the security and reliability necessary for first responder communications. The 

Administration believes the build-out of a public safety network would be best managed by 

a new independent corporation—with a Board 

representing local, State and Federal public 

safety users—to promote nationwide interoperability and meet the collective requirements 

of public safety users. In total, the proposal 

would provide nearly $10 billion in funds and 

spectrum for a public safety broadband network, while reducing the deficit by over $18 

billion over 10 years.

Get rid of unneeded Federal real property. The Administration proposes to create 

an independent real property board to recommend disposal and consolidation opportunities to the Congress.  The Government 

Accountability Office (GAO) has recognized 

longstanding inefficiencies in the Federal real 

estate portfolio, identifying it as a prime candidate for reform in its recent March 2011 report 

on proposals to reduce the cost of Government 

operations.  Within the 1.1 million buildings, 

structures, and land parcels that the Federal 

Government owns or operates are significant 

opportunities to sell unneeded property, con-
26 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

solidate agency leases, co-locate agency operations, and improve the sustainability of 

the Government’s operations. The Civilian 

Property Realignment Act (CPRA) would establish an independent board of experts to 

expedite the disposal of unneeded properties 

and the consolidation of properties across and 

within agencies.  Modeled after the successful Base Realignment and Closure (BRAC) 

Commission, the board would achieve this disposal and consolidation of Federal real property through a process that forwards bundled 

recommendations to the Congress for a direct 

vote.  Although the Congressional Budget 

Office (CBO) does not score savings for this 

proposal, the Administration believes that this 

process would save the Federal Government at 

least $4 billion over 10 years from sales proceeds. In addition, the Administration believes 

the proposal would result in decreased operating costs and efficiencies through better space 

management.

Program Integrity

For many years, the Federal Government 

has erroneously cut checks to the wrong person at the wrong time or for the wrong reason.

Cutting waste and combating these kinds of 

erroneous payments has been a priority for 

President Obama. He set a goal of preventing $50 billion in improper payments and recapturing $2 billion by the end of 2012.  The 

Administration has taken important steps towards achieving the President’s goals, which 

have yielded early results. The Administration 

began using cutting edge forensic technology 

to detect and prevent fraud and error before 

it happens and implemented new accountability to these errors, posting details of error rates at PaymentAccuracy.gov, and for 

the first time adding sanctions for programs 

that fail to meet a minimum threshold for error. In 2010, the Government-wide improper 

payment rate declined to 5.49 percent, a decrease from the 5.65 percent reported in 2009.  

Agencies also reported that they recaptured 

$687 million in improper payments in 2010—

the highest amount recovered to date.  The 

President’s 2012 Budget proposes even more 

aggressive tools that will help drive down this 

waste.  If enacted, these proposals will result 

in over $160 billion in savings to the Federal 

Government over 10 years. Building on these 

efforts the Administration proposes to:

Crack down on tax cheats and delinquents through investments in Internal 

Revenue Service (IRS) tax enforcement 

and compliance. In the BCA, funding 

was provided for program integrity efforts 

in the Social Security Administration and 

Department of Health and Human Services, 

but not the IRS. Yet the IRS’s tax enforcement 

and compliance activities are critical to the 

fairness and integrity of the U.S. tax system, 

and also generate a positive ROI for taxpayers 

of roughly $7-to-$1. Because of this contribution to deficit reduction, the Administration 

has consistently proposed high-priority increases in IRS tax enforcement. Putting program integrity funding in the Joint Committee 

package is now especially urgent because 

tight discretionary caps will otherwise force 

lower investment and higher deficits. The 

Administration is seeking an incremental 10-

year tax enforcement investment which includes more than $350 million in new tax enforcement and compliance initiatives, plus the 

inflationary costs of maintaining current IRS 

enforcement activities. This additional 2012 

funding will support new initiatives capable of 

bringing in over $2 billion in additional revenue when the new resources reach maturity in 

2014.  Subsequent increases in 2013 through 

2016 will include further additional funding 

increments for new revenue-generating initiatives, all of which will be sustained through 

2021. CBO has scored such a policy as reducing 

the deficit by about $3.2 billion over 10 years.

OMB believes that relative to the current law 

BEA baseline, and particularly in light of the 

tight discretionary caps, a provision that provides protected funding for program integrity 

efforts will have a significantly larger effect, 

saving an estimated $30 billion or more.

Reduce the improper payment rate in 

the Unemployment Insurance (UI) program. The Administration is proposing a set 

of innovative reforms to the UI program, including changes that will prevent layoffs and 
MANDATORY SAVINGS 27

give States more flexibility to use Federal UI 

funds to get Americans who have lost their 

jobs back to work. The President’s plan is 

targeted to address unemployment in an aggressive, multi-pronged way, drawing from 

ideas about what is working from around the 

country and from both parties. As we make 

UI more flexible and responsive to the needs 

of the unemployed and the Nation, we cannot tolerate waste in the program. However, 

UI is run as a Federal-State partnership; 

the error rates vary widely by State; and the 

high error rates in some States lead the UI 

program to have one of the highest improper payment rates of any Federal program.

Reemployment and Eligibility Assessments 

(REAs)—in-person interviews with UI claimants to determine continued eligibility for benefits and whether additional reemployment 

assistance is needed—are an important part 

of the Administration’s strong improper payments reduction strategy. The Administration 

proposes a multi-year discretionary allocation adjustment starting with $10 million in 

2012 along with $60 million in base funding 

to allow States to conduct REAs. These assessments will strengthen UI program integrity by 

identifying ineligible claimants and reducing 

improper payments. They will also help reduce 

UI benefit costs by helping unemployed individuals return to work more quickly than they 

would were this targeted assistance not provided. This policy would reduce the deficit by 

$256 million over 10 years.

Improve Collection of Pension Information from States and Localities.  The 

Social Security Windfall Elimination Provision 

(WEP) and Government Pension Offset (GPO) 

provisions are adjustments to the Social 

Security formula which ensure that non-covered workers do not receive a higher proportional benefit than workers with similar earnings who worked their entire careers in covered 

employment. Currently, WEP and GPO adjustments are only applied when an individual worker attests that he or she has a pension in non-covered employment or the Social 

Security Administration (SSA) discovers that 

an individual is receiving a non-covered pension. While SSA is able to conduct data matches with the Office of Personnel Management 

to identify Federal workers who have been 

employed in non-covered employment, there 

is currently no similar data system to obtain 

information on State or local pensioners. This 

proposal provides up to $50 million to State 

and local governments to develop such a system for more timely and accurate data collection and direct pension information reporting 

to SSA. This proposal would improve enforcement of the current law WEP and GPO provisions, resulting in improved payment accuracy 

for the Old-Age and Survivor, and Disability 

Insurance Programs, and is projected to save 

approximately $3.1 billion over 10 years by 

preventing overpayments.  

Step up collection of debts owed to the 

Federal Government. The Department of 

the Treasury manages the collection of delinquent tax and non-tax debt owed to various State and Federal agencies through the 

Treasury Offset Program (TOP), which collects delinquent non-tax debts (including 

child support) by offsetting outgoing Federal 

payments, and the Federal Payment Levy 

Program, which employs a continuous levy 

(deduction) on Federal payments to collect delinquent taxes from individual taxpayers. As of 

June 30, 2011, the Treasury’s debtor database 

included approximately $437 billion in delinquent debts, including $308 billion in Federal 

debts (of which $200 billion is tax debt), and 

$129 billion in State debts (including $111 billion in child support). In 2007, GAO estimated 

that approximately 60,000 Federal contractors 

were delinquent on over $7 billion in Federal 

taxes, and in 2008, it found that over 27,000 

Medicare providers owed more than $2 billion 

in tax debt. This is money owed the Federal 

Government, and allowing those who cheat 

the system is unfair to us all. That is why the 

Administration is proposing the following reforms that will generate $911 million in savings over 10 years:

•	 Increase IRS levy authority to 100 

percent for Federal contractor payments. The tax code was amended by 

the American Jobs Creation Act of 2004, 

which sought to authorize a 100 per-
28 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

cent levy of Federal vendor payments.

However, a technical error had the unintended effect of limiting the levy to 15 

percent. This proposal, which was also 

included in the 2012 Budget, would correct the error and allow the Treasury to 

collect some of the sizable delinquent tax 

debt owed by Federal contractors. This 

will yield $141 million over 10 years.

•	 Increase IRS levy authority to 100 

percent for Medicare payments. The 

Congress recently authorized the levy 

(tax) and offset (non-tax) of Medicare payments to collect delinquent tax and nontax debts through the Federal Payment 

Levy Program (FPLP); however, the 

Treasury currently levies only up to 15 

percent of a payment to Medicare providers with delinquent tax debt. This reform 

would increase the levy to 100 percent 

when collecting tax debts, which would 

bring it in line with the 100 percent payment offset (through TOP) applied to 

non-tax debt collection. This will generate $770 million in savings over 10 years.

•	 Offset Federal tax refunds to collect State income taxes from debtors 

who currently reside in other States. 

Under current law, Federal tax refunds 

may be offset to collect delinquent State 

income taxes only if the delinquent taxpayer resides in the State collecting the 

tax. This proposal would allow Treasury 

to offset tax refunds to collect delinquent 

State tax obligations regardless of where 

the debtor resides; however, collections 

are returned to States and do not score 

as Federal savings.

•	 Allow agencies to contact delinquent 

debtors via their cellular phones.

The Administration also proposes to 

amend the Communications Act of 1934 

to facilitate collection of debts owed to or 

guaranteed by the Federal Government, 

by facilitating contact of delinquent debtors who are most readily reached on their 

cell phones. This provision is expected to 

provide substantial increases in collections, particularly as an increasing share 

of households no longer have landlines 

and rely instead on cell phones. 

Other Reforms and Savings

Reform Abandoned Mine Lands (AML) 

payments. The coal industry as a whole is 

currently held responsible for cleaning up 

abandoned coal mines by paying a fee that finances grants to States and Tribes for reclamation. This linkage was lost, however, when 

the Congress in 2006 authorized additional 

unrestricted payments to certain States and 

Tribes that had already completed their coal 

mine reclamation work. In addition, regular 

reclamation funds are not well targeted at 

the highest priority abandoned mine lands, 

because amounts are distributed by a production-based formula so that funding goes to the 

States with the most coal production, not the 

greatest reclamation needs. States can use 

their funding for a variety of purposes, including the reclamation of abandoned hardrock 

mines, for which there is no other source of 

Federal funding.

The Administration proposes to reform the 

coal AML program to reduce unnecessary 

spending and ensure that the Nation’s highest priority sites are reclaimed. First, the 

Administration proposes to terminate unrestricted payments to the States and Tribes 

that have been certified for completing their 

coal reclamation work, since these payments 

do not contribute to reclaiming abandoned coal 

mines. Second, the Administration proposes 

to reform the distribution process for the remaining funds to allocate available resources 

competitively to the highest priority coal AML 

sites. Through a competitive grant program, 

a new AML Advisory Council will review and 

rank the abandoned mine lands sites, so that 

the Department of the Interior, in coordination 

with States and Tribes, can distribute grants 

to reclaim the highest priority coal sites each 

year.

Mining for hardrock minerals (e.g., silver and 

gold) has also left a legacy of abandoned mines 

across the United States. The Administration 
MANDATORY SAVINGS 29

proposes to create a parallel AML program 

for abandoned hardrock sites. Like the coal 

program, hardrock reclamation would be financed by a new AML fee on the production of 

hardrock minerals on both public and private 

lands. This would hold the hardrock mining industry responsible for cleaning up the hazards 

left by its predecessors. The funds would be distributed through a competitive grant program 

to reclaim the highest priority hardrock sites 

on Federal, State, tribal, and private lands.

Altogether, this proposal will save $1.3 billion 

over the next 10 years. Equally important, it 

would focus available coal fees to better address the Nation’s most dangerous abandoned 

coal mines and establish a new approach to 

cleaning up abandoned hardrock mines across 

the country.

Restore the solvency of the Unemployment Insurance system by helping 

employers now and restoring State fiscal 

responsibility. Unemployment Insurance 

(UI) provides a vital safety net for workers 

who are laid off. Over the past several years, 

UI benefits have kept many families afloat 

during tough financial times, and in 2010 

these benefits prevented 3.2 million individuals—including nearly 1 million children—

from falling into poverty. UI is also one of 

the most effective levers we have for promoting economic growth—generating up to $2 

of economic activity for every $1 spent. The 

President has strongly supported expanding 

this critical safety net and has called for an 

extension of unemployment benefits for another year. At the same time, we must recognize the fact that the economic downturn has 

taken a toll on the solvency of the UI program.

Twenty-eight States currently owe more than 

$37 billion to the Federal Unemployment 

Trust Fund, and many have little prospect 

of paying these loans back in the foreseeable 

future. Employers in those States are now 

facing Federal tax increases as a result of 

this indebtedness. The Administration proposes to put the UI system back on the path 

to solvency by providing immediate relief to 

employers to encourage job creation now and 

reestablishing State fiscal responsibility going forward.

The Administration’s proposal provides two 

forms of up-front, two-year relief to employers 

in indebted States: relieving States of interest 

payments on Federal borrowing that are typically paid through an automatic surtax on employers; and suspending automatic increases 

in Federal UI taxes on employers in indebted 

States. These two forms of relief would significantly reduce employers’ UI tax burden, allowing them the flexibility to create jobs that the 

economy desperately needs.

The proposal also would encourage States to 

put their programs on sounder financial footing by increasing the Federal UI taxable wage 

base in 2014 from $7,000 to $15,000—near the 

same real level as set under President Ronald 

Reagan in 1983—and indexing it to average 

wages. At the same time, the Federal tax rate 

would be decreased to ensure that the Federal 

UI taxes employers pay are held roughly constant. States would also maintain flexibility in 

how they set the tax rate paid by employers to 

finance their own UI trust funds. While States 

would be required to set a wage base at least 

equal to the new Federal level by 2014, they 

could also choose to reduce their tax rates in 

response to the wage base increase.

Although States have been hit hard by the 

economic downturn, many have chronically 

underfunded their UI programs and relied on 

borrowing from the Federal Government to 

make up the shortfall. This borrowing often 

leads States to increase taxes on employers 

during recessions, when businesses can least 

afford the added burden. Increasing the wage 

base would encourage these States to adopt a 

responsible tax structure that is able to fully 

fund their UI benefits. By 2020, this proposal 

is projected to reduce the number of State programs still in debt to the Federal Government 

from 17 to 2. Taken together, this package of 

reforms will reduce the deficit by $33 billion 

over 10 years.

Require the financial services industry 

to pay back taxpayers. The Administration 

is calling for a Financial Crisis Responsibility 

Fee on the largest financial institutions to fully compensate taxpayers for the extraordinary 
30 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

support they provided to the financial sector 

through the Troubled Asset Relief Program 

(TARP) and other Government actions. The 

assistance given to the largest financial firms 

represented an extraordinary step that no 

one wanted to take, but one that was necessary in order to stem a deeper financial crisis 

and set the economy on a path to recovery. The 

cost associated with the excessive risk-taking 

by the largest financial institutions continues 

to ripple through the economy. Furthermore, 

although many of the largest financial firms 

have repaid the Treasury for their TARP assistance, they continue to implicitly benefit from 

the TARP funds that bolstered their balance 

sheets during a period of great economic upheaval. While the expected deficit cost of the 

TARP program has fallen by $66 billion since 

the 2011 Mid-Session Review to approximately $48 billion in the 2012 Budget, shared responsibility requires that the largest financial 

firms pay back the taxpayer for the extraordinary support they received. The fee will be restricted to financial firms with assets over $50 

billion and will be imposed until all TARP costs 

have been recouped. The Administration’s 

Financial Crisis Responsibility Fee aligns with 

the congressional intent of the TARP legislation that requires the President to propose a 

way for the financial sector to pay back taxpayers so that not one penny of the Government’s 

TARP-related debt is passed on to the next 

generation. It would extend beyond 2021 as 

necessary to achieve these ends. The structure 

of this fee would be consistent with principles 

agreed to by the G-20 Leaders and similar to 

fees proposed by other countries. This fee will 

reduce the deficit by $30 billion over 10 years.

Increase pesticide user charges. The 

Environmental Protection Agency (EPA) 

screens and registers new pesticides before they 

reach the market and ensures that pesticides 

already in commerce are safe when used in accordance with the label.  Presently, EPA collects 

fees from entities seeking to register their pesticides and from entities seeking to maintain 

their existing registrations; however, the fees 

only cover a small portion of the full cost for 

EPA to register a pesticide. The Administration 

proposes to better cover the costs of EPA’s pesticide registration services by increasing the 

amount charged for currently authorized pesticide user charges. Amendments to the Federal 

Insecticide, Fungicide, and Rodenticide Act require EPA to review all registered pesticides 

on a 15-year cycle to ensure that registrations 

reflect current science. The Administration’s 

proposed increases to registration and maintenance fees are intended to cover the increased 

costs posed by these reviews and a greater portion of overall program costs. In addition, although the Federal Food, Drug, and Cosmetic 

Act of 1938, as amended, requires EPA to collect fees for the establishment and reassessment of pesticide tolerances, the collection of 

these fees has been blocked through 2012 by 

statute. The Administration proposes to eliminate this prohibition and collect the tolerance 

fee beginning in 2012. This will save $740 million over 10 years. 

Lift the cap on pre-manufacture notice 

user charges. EPA presently collects fees 

from chemical manufacturers seeking to market new chemicals. These fees are authorized 

by the Toxic Substances Control Act and are 

subject to a statutory cap. The Administration 

proposes to lift the cap so that EPA can recover 

a greater portion of the program cost. This will 

save $76 million over 10 years. 

Establish a hazardous waste electronic 

manifest system. The Resource Conservation 

and Recovery Act of 1976, as amended, (RCRA) 

requires transporters of hazardous waste to 

document information on the waste’s generator, destination, quantity, and route. Currently, 

the tracking system relies on paper copies that 

are not frequently digitized for data analysis 

or quality control. The Administration proposes to collect fees from users of a new electronic 

manifesting system beginning in 2014. Use of 

electronic records will allow EPA to more efficiently monitor and analyze future waste shipments. Full implementation of the electronic 

system may reduce industry reporting costs 

under RCRA by $77 million to $126 million 

annually. This proposal is supported by industry stakeholders and members of the Congress 

as an efficient cost-saving measure. This will 

save $31 million over 10 years. 
MANDATORY SAVINGS 31

Reauthorize the special assessment 

from domestic nuclear utilities. The 

Administration believes nuclear energy must 

be part of our energy mix and is committed to its safe development to help support a 

low-carbon energy future. For example, to 

advance the Nation’s nuclear industry, the 

Administration has offered conditional commitments for $8.33 billion in nuclear loan 

guarantees for two new nuclear reactors at 

a plant in Burke, Georgia and $2 billion for 

AREVA’s Eagle Rock Enrichment Facility near 

Idaho Falls, Idaho.

Along with this commitment to the industry is a shared responsibility to make 

sure our cleanup liabilities are met. The 

Department of Energy’s Uranium Enrichment 

Decontamination and Decommissioning Fund 

was established in 1992 to pay the decontamination and decommissioning (D&D) costs of 

the Department of Energy’s gaseous diffusion plants in Tennessee, Ohio, and Kentucky.

These uranium enrichment plants served our 

defense mission as well as nuclear industry 

needs. The authorization of the special assessment from domestic utilities and Federal contribution expired in 2007, and there is currently insufficient funding to cover the remaining 

costs of D&D of the plants. The Administration 

proposes to reauthorize the special assessment 

from domestic utilities and Federal contribution into the Fund for another 15-year period.

The amount collected from industry for a fiscal year would be $200 million and the Federal 

contribution would be $463 million (both annually adjusted for inflation). This proposal 

reiterates the ongoing need to decontaminate, 

decommission, and remediate the uranium 

processing facilities, and provides $2 billion in 

savings over 10 years.

Repeal mandatory oil and gas research 

and development program.  To foster the 

clean energy economy of the future and reduce 

our reliance on fossil fuels that contribute to 

climate change, the Administration proposes 

to repeal provisions in the 2005 Energy Policy 

Act which establish and fund the mandatory 

oil and gas research and development (R&D) 

program that promotes fossil fuel production.

These R&D activities have historically funded 

development of technologies that can be commercialized quickly, and are thus activities 

which should instead be funded by the companies that benefit from the projects. Mandatory 

funding for this program sunsets in 2014.

Repeal of this program, effective for 2012 and 

beyond, will save $150 million over the 10-year 

budget window.

Realize savings at the Department of 

the Interior (DOI). The Administration is 

proposing six mandatory savings proposals at 

DOI that would provide a total savings of $1.6 

billion over 10 years. These proposals would 

give taxpayers a fair return from energy development and mining on Federal lands and 

waters, while providing incentives for companies to get leases into production or relinquish 

them. In some cases, the proposals seek to 

share equitably the costs of oversight with the 

States or companies that benefit. 

•	 Institute a fee on non-producing oil 

and gas leases. The Administration 

proposes to encourage energy production 

on Federal lands and waters leased for 

development. As noted in the March 2011 

Blueprint for a Secure Energy Future, 

more than 70 percent of the tens of millions of offshore acres under lease are 

inactive. A $4 per acre fee on non-producing Federal leases on lands and waters would provide a financial incentive 

for oil and gas companies to either get 

their leases into production or relinquish 

them so that the tracts can be leased to 

and developed by new parties. The proposed $4 per acre fee would apply to all 

new leases and would be indexed annually. In October 2008, the GAO issued a 

report critical of past efforts by Interior 

to ensure that companies diligently develop their Federal leases. Although the 

GAO report focused on administrative 

actions, this legislative proposal is consistent with the GAO recommendations 

and is similar to other non-producing 

fee proposals recently considered by the 

Congress. This will save $1 billion over 

10 years. 
32 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

•	 Make permanent net receipts sharing for energy minerals. Mineral and 

energy leases on Federal lands generate significant revenue, half of which 

is shared with the States. The costs of 

administering these leases should also 

be shared with the States, which is now 

accomplished through an annual appropriations provision, referred to as net 

receipts sharing. This proposal would 

make this equitable arrangement permanent, beginning in 2013. This will save 

$412 million over 10 years. 

•	 Reform hardrock mining on Federal 

lands. The Administration proposes providing a fair return to the taxpayer from 

hardrock production on Federal lands by 

establishing a leasing program under the 

Mineral Leasing Act of 1920 for certain 

hardrock minerals (e.g., gold, silver, lead, 

zinc, copper, uranium, and molybdenum) 

currently covered by the General Mining 

Law of 1872. After enactment, mining for 

these metals on Federal lands would be 

governed by the new leasing process and 

subject to annual rental payments and a 

royalty of not less than five percent of gross 

proceeds. Half of the receipts would be distributed to the States in which the leases 

are located and the remaining half would 

be deposited in the Treasury. Existing 

mining claims would be exempt from the 

change to a leasing system, but would be 

subject to increases in the annual maintenance fees under the General Mining Law 

of 1872. Holders of existing mining claims 

for these minerals could, however, voluntarily convert claims to leases. This will 

save $36 million over 10 years. 

•	 Boost Federal share of geothermal 

energy receipts. This proposal would 

provide a fair return to taxpayers from 

geothermal leases on Federal lands.

Traditionally, the Treasury receives 50 

percent of revenues from mineral leases 

on Federal lands, with the States receiving the rest. This proposal would restore 

this practice for geothermal leases, which 

currently return 25 percent of receipts to 

the Treasury. This will save $70 million 

over 10 years. 

•	 Repeal oil and gas fee prohibition 

and mandatory permit funds. The 

Administration supports the environmentally sustainable development of energy 

resources on Federal lands, with industry sharing in the cost of administering 

permits. To facilitate this process, the 

Bureau of Land Management (BLM) relies on cost recovery fees for processing 

applications for oil and gas permits to 

drill. The Congress has implemented permit fees through appropriations language 

for the last several years and the 2012 

Budget proposes to continue this practice.

This proposal would make permanent 

the authority to establish fees, providing 

certainty to companies submitting applications. Fee receipts could then replace a 

mandatory funding account, which would 

be terminated to generate savings. This 

will save $66 million over 10 years. 

•	 Reauthorize the Federal Land 

Transaction Facilitation Act (FLTFA) 

of 2000. FLTFA allows BLM to sell lands 

identified as suitable for disposal in recent land use plans and use the revenue 

to fund the acquisition of environmentally sensitive lands. The Administration 

proposes to reauthorize FLTFA, which 

recently expired, with small savings generated from a lag in spending revenue.

This will save $20 million over 10 years. 

Reform inland waterways funding. In 

allocating funds within the Army Corps of 

Engineers (Corps) budget, the Administration 

gives priority to those projects that offer the 

greatest returns to the Nation in achieving 

economic, environmental, and public safety 

objectives. This includes providing priority 

funding for the maintenance of existing highperforming inland waterways. However, it has 

had to limit capital spending because the current way of producing the funds that support 

the user-financed share of these costs is not 

working as intended.
MANDATORY SAVINGS 33

The Corps constructs and rehabilitates the 

locks, dams, channels, and other features that 

enable barges to travel along 12,000 miles of 

developed inland waterways. Some of these 

waterways, such as the Mississippi and Ohio 

Rivers and the Illinois Waterway, support a 

high level of commercial traffic. In 1986, the 

Congress authorized use of an existing inland waterways fuel tax (now 20 cents per 

gallon) to finance 50 percent of the cost of 

most inland waterways capital investments.

The general taxpayer pays all of the remaining capital costs and all of the operation and 

maintenance (O&M) costs of inland waterways navigation.

While spending for capital investments on 

these waterways has increased significantly in recent years, revenue from the fuel tax 

has declined. The fuel tax now only covers 

about eight percent of the total costs that the 

Corps spends on behalf of the users, which 

make barge transportation possible (including 

O&M, all of which the general taxpayer pays).

By contrast, non-Federal partners in all of the 

other Corps programs contribute on average 

35 percent or more.

To address these concerns, the Administration supports enactment of a new user financing structure for the inland waterways to 

supplement the existing diesel fuel tax. This 

new fee would generate about $1 billion of additional revenue into the Inland Waterways 

Trust Fund over the next 10 years. This additional revenue would enable a more robust 

level of funding for safe, reliable, highly costeffective, and environmentally sustainable 

waterways, and contribute to deficit reduction and economic growth. 

HEALTH SAVINGS

35

For years, we have known that high 

health care costs are a major driver of our 

long-term deficits. The United States spent 

approximately $2.6 trillion on health care 

in 2010, or 17.6 percent of our GDP—more 

than any other developed nation.  Families 

with health insurance are seeing their 

take-home pay reduced and their budgets 

strained by high costs and spiraling 

premiums. State and local governments 

are also feeling this pinch. That is why the 

President signed into law the Affordable 

Care Act (ACA), which not only eliminated 

insurance company abuses and expanded 

access to health insurance to tens of millions 

of Americans but also took steps to reduce 

health care cost growth.  The Congressional 

Budget Office (CBO) estimates that the 

ACA will reduce the deficit by over $200 

billion over the next 10 years and over $1 

trillion in the following decade.  Beyond 

these savings, the ACA puts into place the 

most aggressive combination of reforms yet 

to cut waste, reduce errors and inefficiency, 

boost quality, and reduce the rate of health 

care cost growth.

While the ACA was an historic step toward 

getting health care costs under control, 

there is still more that we can do to realize 

efficiencies, cut waste, and improve Federal 

health care programs.   Most importantly, we 

can make modest adjustments to strengthen 

Medicare and Medicaid in a way that does 

not undermine the fundamental compact they 

represent to our Nation’s seniors, children, 

people with disabilities, and low-income 

families. The Administration’s proposals will 

save approximately $320 billion over the next 

decade. As these reforms save money, they 

also will strengthen these vital programs 

so that they are robust and healthy to serve 

Americans for years to come.

Medicare

The Medicare program helps give roughly 

50 million seniors and individuals with 

disabilities access to affordable health care.

While the ACA helped extend Medicare’s 

solvency by encouraging high-quality, 

efficient health care and addressing 

wasteful spending, the Medicare Trustees 

still estimate trust fund exhaustion in 2024.

The new proposals would make changes 

to Medicare that are gradual, protect 

current and middle-class beneficiaries, and 

strengthen Medicare overall. These proposals 

would save about $224 billion over 10 years 

by better aligning payments with the costs 

of care and improving providers’ payment 

incentives to provide high quality care. The 

proposals also make structural changes 

that include reducing Federal subsidies 

for high-income beneficiaries and creating 

financial incentives for newly eligible 

beneficiaries to seek high-value health care 

services to achieve an additional $24 billion 

in savings. These measures are expected 

to extend the solvency of the Medicare 

Hospital Insurance Trust Fund by about 

three years. These proposals are presented 

in the context of a Medicare baseline that 

assumes legislative action to permanently 

prevent current law reductions in Medicare 

physician payment rates consistent with 

the Administration’s commitment to fix the 

sustainable growth rate policy in a fiscally 

responsible way. Failing to do so simply 

masks the worsening long-run deficit. To 

save money and strengthen Medicare, the 

Administration proposes to:

Reduce Medicare coverage of bad debts. 

For most eligible provider types, Medicare 

currently generally reimburses 70 percent of 

bad debts resulting from beneficiaries’ nonpayment of deductibles and copayments after 

providers have made reasonable efforts to 

collect the unpaid amounts. Similar to the 

Fiscal Commission, this proposal will align 

Medicare policy more closely with private sector 

standards by reducing bad debt payments to 

25 percent for all eligible providers over three 

years starting in 2013. This proposal will save 

approximately $20 billion over 10 years.
36 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Better align graduate medical education 

payments with patient care costs. 

Medicare compensates teaching hospitals for 

the indirect costs stemming from inefficiencies 

created from residents “learning by doing.” 

The Medicare Payment Advisory Commission 

(MedPAC) has determined that these Indirect 

Medical Education (IME) add-on payments are 

significantly greater than the additional patient 

care costs that teaching hospitals experience, 

and the Fiscal Commission, among others, 

recommended reducing the IME adjustment.

This proposal would reduce the IME adjustment 

by 10 percent beginning in 2013, and save 

approximately $9 billion over 10 years.

Better align payments to rural 

providers with the cost of care. Medicare 

makes a number of special payments to account 

for the unique challenges of delivering medical 

care to beneficiaries in rural areas. These 

payments continue to be important; however, in 

specific cases, the adjustments may be greater 

than necessary to ensure continued access to 

care. The Administration proposes to improve 

the consistency of payments across rural hospital 

types, provide incentives for efficient delivery 

of care, and eliminate higher than necessary 

reimbursement. First, the Administration 

proposes to end an add-on payment for hospitals 

and physicians in low-population States.

Currently, hospitals and physicians in certain 

low-population States receive a special payment 

adjustment that exceeds the amount indicated 

by their labor costs or certain other costs. This 

proposal would end this add-on payment in 2013, 

to better align providers’ payments with their 

costs, and will save approximately $2 billion 

over 10 years. Secondly, to improve payment 

accuracy for Critical Access Hospitals (CAHs), 

the Administration proposes to reduce payments 

from 101 percent to 100 percent of reasonable 

costs and to eliminate the CAH designation 

for those that are fewer than 10 miles from the 

nearest hospital. This will ensure that this unique 

payment system is better targeted to hospitals 

meeting the eligibility criteria. These two CAH 

proposals will save approximately $4 billion over 

10 years. Together, these rural proposals will save 

approximately $6 billion over 10 years.

Encourage efficient post-acute care. 

Medicare covers services in skilled nursing 

facilities (SNFs), long-term care hospitals 

(LTCHs), inpatient rehabilitation facilities 

(IRFs) and home health.  Over the years, 

expenditures for these services have 

increased dramatically, and payments in 

excess of the costs of providing high quality 

and efficient care place a drain on Medicare.

Recognizing the importance of these 

services, the Administration supports the 

following policies that will save $42 billion 

over 10 years and improve the quality of 

care:

•	 Adjust payment updates for certain 

post-acute care providers. MedPAC 

analysis indicates that Medicare 

payment significantly exceeds the 

cost of patient care in post-acute care 

settings, resulting in high Medicare 

margins. This proposal would gradually 

realign payments with costs through 

adjustments to payment rate updates 

in 2014 through 2021 for these 

providers.  These adjustments build 

on recommendations from MedPAC’s 

March 2011 Report to the Congress, 

in which they recommended that the 

Congress eliminate payment updates 

for each of these provider types in 

2012. This proposal will save $32 billion 

over 10 years.

•	 Equalize payments for certain 

conditions commonly treated in 

IRFs and SNFs. Post-acute care related 

to a number of conditions, including hip 

and knee replacements, hip fractures, 

and certain pulmonary diseases are 

currently provided in both IRFs and 

SNFs, although Medicare payments 

are significantly greater when treated 

in IRFs. This policy would reduce the 

differences in payment for treatment of 

specified conditions to encourage care in 

the most clinically appropriate setting 

beginning in 2013. This proposal will 

save approximately $4 billion over 10 

years.
HEALTH SAVINGS 37

•	 Encourage appropriate use of 

inpatient rehabilitation hospitals. 

Medicare pays IRFs at a rate that 

reflects specialized rehabilitation care to 

patients with the most intensive needs.

IRFs must demonstrate this by meeting 

a compliance threshold which specifies 

a minimum percentage of patients with 

designated  medical conditions that 

require intensive rehabilitation services.

Starting in  1984, this compliance 

threshold was set at 75 percent, but it 

was reduced to 60 percent in 2007. This 

proposal would return the compliance 

threshold to its previous 75 percent level 

beginning in 2013 to better ensure that 

the higher IRF payments apply to cases 

requiring this level of care. This proposal 

will save approximately $3 billion over 

10 years.

•	 Adjust SNF payments to reduce 

hospital readmissions. The Affordable 

Care Act created payment adjustments 

for inpatient hospitals with high rates 

of readmissions, many of which could be 

avoided through better care. However, a 

comparable adjustment does not exist 

for SNFs. MedPAC analysis shows that 

nearly 14 percent of Medicare patients 

that are discharged from a hospital to a 

SNF are readmitted to the hospital for 

conditions that could have been avoided.

To promote high quality care in SNFs, 

this proposal reduces SNF payments by 

up to three percent beginning in 2015 for 

facilities with high rates of care-sensitive, 

preventable hospital readmissions. This 

proposal will save approximately $2 

billion over 10 years.

Align Medicare drug payment policies 

with Medicaid policies for low-income 

beneficiaries. Under current law, drug 

manufacturers are required to pay specified 

rebates for drugs dispensed to Medicaid 

beneficiaries. In contrast, Medicare Part D 

plan sponsors negotiate with manufacturers 

to obtain plan-specific rebates at unspecified 

levels. The Department of Health and 

Human Services (HHS) Office of Inspector 

General has found substantial differences 

in rebate amounts and net prices paid for 

brand name drugs under the two programs, 

with Medicare receiving significantly lower 

rebates and paying higher prices than 

Medicaid. Moreover, Medicare per capita 

spending in Part D is growing significantly 

faster than that in Parts A or B under 

current law. This proposal would allow 

Medicare to benefit from the same rebates 

that Medicaid receives for brand name and 

generic drugs provided to beneficiaries who 

receive the Medicare Low-Income Subsidy 

beginning 2013. Manufacturers previously 

paid Medicaid rebates for drugs provided 

to the dual eligible population prior to the 

establishment of Medicare Part D. The 

Fiscal Commission recommended a similar 

proposal to apply Medicaid rebates to dual 

eligibles for outpatient drugs covered under 

Part D. This option is estimated to save $135 

billion over 10 years.

Cut waste, fraud, and abuse in 

Medicare. In this fiscal environment, we 

cannot tolerate waste, fraud, and abuse in 

Medicare—or any Government program.

That is why the Administration has made 

this a priority through its Campaign to Cut 

Waste, together with long-standing efforts to 

boost program integrity and reduce improper 

payments (that is, payments made to the 

wrong person, in the wrong amount, or at the 

wrong time). The Administration is proposing 

a series of policies to build on these efforts that 

will save approximately $5 billion over the 

next 10 years. Specifically, the Administration 

proposes to:

•	 Recover erroneous payments made 

to insurers participating in Medicare 

Advantage. Medicare Advantage plans 

receive payments that are adjusted based 

on whether or not beneficiaries have 

certain health conditions that result in 

higher costs. The Centers for Medicare 

and Medicaid Services (CMS) audits 

a sample of plans’ records to validate 

the accuracy of adjusted payments, 

based on beneficiaries’ documented 

health conditions (validation audits).
38 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

This proposal would require CMS to 

extrapolate the error rate found in risk 

adjustment validation audits to the entire 

Medicare Advantage contract payment 

for a given year, leading to recoupment of 

overpayments made to these plans. This 

proposal will save approximately $2.3 

billion over 10 years.

•	 Reduce improper payments in 

Medicare. In June 2010, the President 

announced a goal of reducing the 

Medicare fee-for-service improper 

payment rate by half by 2012. Several 

robust proposals would contribute to 

reaching the President’s goal, as well as 

strengthen Medicare program integrity 

more broadly. These include: increasing 

scrutiny of providers using high-risk 

banking arrangements, allowing civil 

monetary penalties for providers who 

do not update enrollment information, 

creating a Medicare claims ordering 

system to validate physician orders for 

certain high-risk services, requiring 

prepayment or earlier review for all 

power wheelchairs, using a portion of 

Recovery Audit Contractor recoveries to 

implement actions that prevent improper 

payments and fraud, permitting exclusion 

of individuals affiliated with entities 

sanctioned for fraudulent or other 

prohibited actions from Federal health 

care programs, limiting the discharge of 

debt in bankruptcy proceedings in cases 

of fraudulent activity, and strengthening 

penalties for illegal distribution by others 

of Medicare, Medicaid, or Children’s 

Health Insurance Program (CHIP) 

beneficiary identification or billing 

privileges. These proposals will save 

nearly $1 billion over 10 years.

•	 Dedicate penalties for failure to use 

electronic health records toward 

deficit reduction. Current law offers 

incentive payments to hospitals and 

physicians who become meaningful users 

of electronic health records. Beginning 

in 2015, Medicare providers that fail to 

become meaningful users are subject to 

a penalty, and the penalty is credited 

to a special account beginning in 2020.

This proposal would instead use these 

penalties for deficit reduction beginning 

in 2021; this will save approximately 

$500 million over 10 years.

•	 Update Medicare payments to more 

appropriately account for utilization 

of advanced imaging. Medicare 

spending for imaging services paid for 

under the physician fee schedule has 

grown dramatically in recent years due to 

an increase in the number and intensity 

of these services. MedPAC has stated that 

this volume growth may signal that these 

services are mispriced and has supported 

Medicare payment changes for expensive 

imaging equipment. Beginning in 2013, 

this proposal implements a payment 

adjustment for advanced imaging 

equipment to account for higher levels of 

utilization of certain types of equipment.

This proposal will save approximately 

$400 million over 10 years.

•	 Require prior authorization for 

advanced imaging. The rapid growth 

in the number and intensity of imaging 

services in recent years raises concerns 

about whether these services are being 

used appropriately. This proposal would 

adopt prior authorization for the most 

expensive imaging services, beginning 

in 2013, to ensure that these services 

are used as intended and protect the 

Medicare program and its beneficiaries 

from unwarranted use. This is consistent 

with practices by private health 

insurance to manage spending growth 

and a GAO recommendation to consider 

prior authorization and other approaches 

to address rapid spending growth on 

these services. This proposal will save 

approximately $900 million over 10 

years.

Increase income-related premiums 

under Medicare Parts B and D. Under 

Medicare Parts B and D, certain beneficiaries 

pay higher premiums as a result of their 
HEALTH SAVINGS 39

higher levels of income. Beginning in 2017, 

the Administration proposes to increase 

income-related premiums under Medicare 

Parts B and D by 15 percent and maintain 

the income thresholds associated with 

income-related premiums until 25 percent of 

beneficiaries under Parts B and D are subject 

to these premiums. This will help improve 

the financial stability of the Medicare 

program by reducing the Federal subsidy of 

Medicare costs for those beneficiaries who 

can most afford them. This proposal will save 

approximately $20 billion over 10 years.

Modify Part B deductible for new 

beneficiaries. Beneficiaries who are 

enrolled in Medicare Part B are required to 

pay an annual deductible. This deductible 

helps to share responsibility for payment 

of Medicare services between Medicare 

and beneficiaries. To strengthen program 

financing and encourage beneficiaries to 

seek high-value health care services, the 

Administration proposes to apply a $25 

increase in the Part B deductible in 2017, 

2019, and 2021 for new beneficiaries.

Current beneficiaries or near retirees would 

not be subject to the revised deductible.

This proposal will save approximately $1 

billion over 10 years.

Introduce home health co-payments for 

new beneficiaries. Medicare beneficiaries 

currently do not make co-payments for 

Medicare home health services. This proposal 

would create a home health copayment of 

$100 per home health episode, applicable 

for episodes with five or more visits not 

preceded by a hospital or other inpatient 

post-acute care stay. This would apply to 

new beneficiaries beginning in 2017. This 

proposal is consistent with a MedPAC 

recommendation to establish a per episode 

copayment. MedPAC noted that “beneficiaries 

without a prior hospitalization account for a 

rising share of episodes” and that “adding 

beneficiary cost sharing for home health care 

could be an additional measure to encourage 

appropriate use of home health services.” 

This proposal will save approximately $400 

million over 10 years.

Introduce a Part B premium surcharge 

for new beneficiaries that purchase near 

first-dollar Medigap coverage. Medigap 

policies sold by private insurance companies 

provide beneficiaries additional support for 

covering healthcare costs by covering most or 

all of the cost sharing Medicare requires. This 

protection, however, gives individuals less 

incentive to consider the costs of health care 

services and thus raises Medicare costs and 

Part B premiums.  Of particular concern are 

Medigap plans that  cover substantially all 

Medicare copayments, including even the 

modest co-payments for routine care that 

most beneficiaries can afford to pay out of 

pocket. To encourage more efficient health 

care choices, the Administration proposes a 

Part B premium surcharge equivalent to about 

15 percent of the average Medigap premium 

(or about 30 percent of the Part B premium) 

for new beneficiaries that purchase Medigap 

policies with particularly low cost-sharing 

requirements, starting in 2017.  Current 

beneficiaries and near-retirees would not 

be subject to the surcharge. Other Medigap 

plans would be exempt from this requirement 

while still providing beneficiaries options for 

protection against high out-of-pocket costs.

This proposal will save approximately $2.5 

billion over 10 years.

Strengthen the Independent Payment 

Advisory Board (IPAB) to reduce longterm drivers of Medicare cost growth. 

Created by the ACA, IPAB has been highlighted by economists and health policy 

experts as a key contributor to Medicare’s 

long term solvency. Under current law, if the 

projected Medicare per capita growth rate 

exceeds a predetermined target growth rate, 

IPAB recommends to the Congress policies to 

reduce the rate of Medicare growth to meet the 

target.  IPAB recommendations are prohibited 

from increasing beneficiary premiums or costsharing, or restricting benefits. To further 

moderate the rate of Medicare growth, this 

proposal would lower the target rate from the 

GDP per capita growth rate plus 1 percent to 

plus 0.5 percent.  Additionally, the proposal 

would give IPAB additional tools like the 

ability to consider value-based benefit design 
40 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

and enforcement mechanisms such as an 

automatic sequester as a backstop for IPAB, 

the Congress, and the Secretary of HHS. This 

proposal would act as a backstop to the other 

proposed reforms.

Medicaid

Medicaid is a critical source of health 

insurance coverage for approximately 56 

million low-income beneficiaries including 

millions of children with disabilities and 

seniors in nursing homes. The ACA included 

provisions to increase anti-fraud efforts in 

Medicaid and placed a renewed focus on quality 

of care provided to Medicaid beneficiaries. To 

make Medicaid more flexible, efficient, and 

accountable, the following proposals would 

limit State financing practices that increase 

Federal spending, replace complicated 

matching formulas with a single matching 

rate specific to each State, and strengthen 

Medicaid program integrity. These proposals 

are projected to save approximately $66 billion 

over 10 years.

Reduce the Medicaid provider tax 

threshold beginning in 2015. Many States 

impose taxes on health care providers to help 

finance the State share of Medicaid program 

costs. However, some States use those tax 

revenues to increase payments to those same 

providers, and use that additional spending 

to increase their Federal Medicaid matching 

payments. The Administration proposes to 

limit these types of State financing practices 

that increase Federal Medicaid spending, 

by phasing down the Medicaid provider 

tax threshold, from the current law level 

of 6 percent in 2014, to 4.5 percent in 2015, 

4 percent in 2016, and 3.5 percent in 2017 

and beyond. By delaying the effective date 

until 2015, the proposal protects States from 

reductions in the short term. This proposal is 

projected to save $26.3 billion over 10 years.

Apply a single blended matching rate to 

Medicaid and CHIP starting in 2017. Under 

current law, States face a patchwork of different 

Federal payment contributions for individuals 

eligible for Medicaid and CHIP. Specifically, 

State Medicaid expenditures are generally 

matched by the Federal Government using 

the Federal medical assistance percentage 

(FMAP); CHIP expenditures are matched with 

enhanced FMAP (eFMAP); and the Affordable 

Care Act provides increased match for newlyeligible individuals and certain childless 

adults beginning in 2014. Beginning in 2017 

this proposal would replace these complicated 

formulas with a single matching rate specific 

to each State that automatically increases if a 

recession forces enrollment and State costs to 

rise. This proposal is projected to save $14.9 

billion over 10 years.

Limit Medicaid reimbursement of 

durable medical equipment (DME) based 

on Medicare rates. Under current law, 

States have experienced the same challenges 

in preventing overpayments for DME that 

previously confronted Medicare. The Medicare 

program is in the process of implementing 

innovative ways to increase efficiency for 

payment of DME through the DME Competitive 

Bidding Program, which is expected to save the 

Medicare program more than $17 billion and 

Medicare beneficiaries approximately $11 billion 

over 10 years. This proposal extends some of 

these efficiencies to Medicaid, starting in 2013, 

by limiting Federal reimbursement for a State’s 

Medicaid spending on certain DME services to 

what Medicare would have paid in the same 

State for the same services. This proposal is 

projected to save $4.2 billion over 10 years.

Strengthen third-party liability for 

Medicaid beneficiary claims. This proposal 

would affirm Medicaid’s position as a payer 

of last resort by removing exceptions to the 

requirement that State Medicaid agencies 

reject medical claims when another entity 

is legally liable to pay the claim, starting in 

2013.  Specifically, the Administration wants 

to allow States to avoid costs for prenatal and 

preventive pediatric claims when third parties 

are responsible, allow providers to collect 

medical child support for children with health 

insurance through a non-custodial parent, 

and allow Medicaid to recover costs from 

beneficiary liability settlements. This proposal 

is projected to save $1.3 billion over 10 years.
HEALTH SAVINGS 41

Re-base Medicaid disproportionate 

share hospital (DSH) allotments in 2021. 

This proposal continues the Affordable Care 

Act policy to better align Medicaid DSH 

payments with reductions in the number of 

uninsured in 2021 and beyond. Supplemental 

DSH payments are intended to help support 

hospitals that provide care to disproportionate 

numbers of low-income and uninsured 

individuals. The Affordable Care Act reduced 

State DSH allotments by $18.1 billion through 

2020 to reflect the reduced need as a result of 

the increased coverage provided in the Act.

The Administration proposes to compute 2021 

State DSH allotments based on States’ actual 

2020 DSH allotments, better aligning future 

Medicaid supplemental payments to hospitals 

with reduced levels of uncompensated care.

This proposal is projected to save $4.1 billion 

over 10 years.

Amend modified adjusted gross income 

(MAGI) for health insurance assistance 

programs to include Social Security 

benefits. Starting in 2014, eligibility for 

Exchange tax credits and cost sharing 

reductions, Medicaid, and CHIP will be 

determined based on an individual’s or 

families’ MAGI, as defined under the 

Affordable Care Act. Similar to legislation 

currently under consideration by the Congress, 

the Administration proposes to amend that 

definition to include the total amount of Social 

Security benefits in the calculation of MAGI, 

rather than just the taxable portion, when 

determining eligibility for these programs to 

better target those in need. This proposal is 

projected to save $14.6 billion over 10 years.

Reduce waste, fraud, and abuse in 

Medicaid. Medicaid funds should not be 

wasted on fraudulent claims, abuses of the 

rules, or general waste in implementing the 

program. The following policies will save $110 

million over the next 10 years while reducing 

waste, fraud, and abuse:

•	 Require manufacturers that improperly report items for Medicaid 

drug coverage to fully repay States. 

Federal law requires manufacturers to 

report a list of their “covered outpatient 

drugs” to CMS for Medicaid drug coverage, 

but some manufacturers improperly 

report items that do not belong (e.g., 

syringes). This proposal would recoup costs 

of covering improperly-reported items 

discovered after Medicaid reimbursement 

has occurred; the proposal leverages the 

Medicaid drug rebate program by directing 

manufacturers to pay a “rebate” equal to 

the amount the State paid for these items.

•	 Track high prescribers and utilizers 

of prescription drugs in Medicaid.

States already have the capability to 

implement monitoring systems for 

prescription drugs, but are not currently 

taking full advantage of these systems’ 

potential benefits. This proposal requires 

States to track drug claims for indications 

of waste, fraud, or abuse by providers or 

beneficiaries and to take steps to reduce 

wasteful or abusive prescribing practices.

•	 Enforce Medicaid drug rebate 

agreements. Under this proposal, 

HHS would, when cost-effective, conduct 

regular audits and surveys of Medicaid 

drug rebate agreements to ensure the 

Medicaid program is receiving proper 

prices and rebate amounts.

•	 Increase penalties on drug 

manufacturers for fraudulent noncompliance with Medicaid drug 

rebate agreements. This proposal 

would increase the statutory civil 

monetary penalties on manufacturers 

that knowingly report false information 

under their drug rebate agreements for 

calculation of Medicaid rebates.

•	 Require drugs to be properly listed 

with the FDA to receive Medicaid 

coverage. Though FDA law requires 

manufacturers to list their drugs with 

FDA, compliance is inconsistent. Recently, 

Medicare required that drugs must be 

properly listed with the FDA to receive 

Part D coverage; this proposal would add 

the same requirement in Medicaid.
42 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

•	 Prohibit States from using Federal 

funds as the State share of Medicaid 

or CHIP, unless specifically 

authorized by law. This proposal would 

prohibit States from using Federal funds 

as the State share of Medicaid or CHIP 

unless funds are specifically provided for 

that purpose under law.

Streamline and coordinate Federal 

Government oversight of State Medicaid 

programs and expand State flexibility. This 

proposal would alleviate State program integrity 

reporting requirements by consolidating 

redundant error rate measurement programs 

to create a streamlined audit program with 

meaningful outcomes, while maintaining 

the Federal and State’s government ability 

to identify and address improper payments.

Additionally, this proposal would give States 

flexibility to require “benchmark” benefit plan 

coverage for non-elderly, non-disabled adults 

with incomes over 133 percent of the Federal 

poverty level. Currently, States have the option 

to provide certain populations “benchmark” or 

“benchmark equivalent” plans, or alternative 

benefit packages that may be offered in lieu 

of the benefits covered under a traditional 

Medicaid State plan.

Other Health Savings

Beyond Medicare and Medicaid, there 

are a series of proposals in other health 

programs that will help reduce the deficit 

and provide consumers with more affordable 

pharmaceuticals; prioritize investments in 

public health outcomes proven to reduce 

drivers of health care cost growth; and 

provide States the flexibility to develop 

their own innovative strategies to ensure 

their residents have access to high 

quality, affordable health insurance.  The 

Administration proposes to:

Prohibit “pay for delay” agreements to 

increase the availability of generic drugs 

and biologics. The high cost of prescription 

drugs places a significant burden on Americans 

today, causing many to skip doses, split pills 

or forgo needed medications altogether. The 

Administration proposes to increase the 

availability of generic drugs and biologics by 

authorizing the Federal Trade Commission 

(FTC) to stop companies from entering into anticompetitive deals, known also as “pay for delay” 

agreements, intended to block consumer access 

to safe and effective generics. A 2010 Federal 

Trade Commission study that evaluated the 

universe of brand-generic settlements and 2008 

drug expenditure data found that on average, 

these agreements delayed entry of a generic 

by 17 months and cost American consumers as 

much as $3.5 billion per year. More recently, the 

FTC reported that the number of pay-for-delay 

agreements skyrocketed from 19 in 2009 to 31 

in 2010. 

Such deals block access to generics and can 

cost consumers billions of dollars because generic 

drugs are typically priced significantly less than 

their branded counterparts. These agreements 

reduce competition and raise the cost of care for 

patients both directly, through higher drug and 

biologic prices, and indirectly through higher 

health care premiums. The Administration’s 

proposal facilitates greater access to lower-cost 

generics and will generate $2.7 billion over 10 

years in savings to Federal health programs 

including Medicare and Medicaid. 

Reduce the exclusivity period for 

generic biologics. Access to affordable 

lifesaving medicines is essential to improving 

the quality and efficiency of health care.  The 

Administration’s proposal accelerates access to 

affordable generic biologics by modifying the 

length of exclusivity on brand name biologics 

to encourage faster development of generic 

biologics while retaining appropriate incentives 

for research and development for the innovation 

of breakthrough products.  Beginning in 2012, 

this proposal would award brand biologic 

manufacturers seven years of exclusivity 

rather than 12 years under current law and 

prohibit additional periods of exclusivity for 

brand biologics due minor changes in product 

formulations, a practice often referred to as 

“evergreening.” Reducing the exclusivity period 

increases the availability of generic biologics 

to encourage faster development of generic 

biologics while retaining appropriate incentives 
HEALTH SAVINGS 43

for research and development for the innovation 

of breakthrough products. The Administration’s 

proposal strikes a balance between promoting 

affordable access to medications and encouraging 

innovation to develop needed therapies.  The 

proposal will result in $3.5 billion in savings over 

10 years to Federal health programs including 

Medicare and Medicaid.

Streamline Federal Employee Health 

Benefit (FEHB) pharmacy benefit contracting. The Administration is committed 

to the efficient administration of the FEHB 

program in order to get the best deal for 

Federal employees and their families, as well 

as for taxpayers. The FEHB program pays 

$40 billion per year for health coverage, and 

drugs represent about 30 percent of claims 

expenditures. Under current law, health plans 

participating in the FEHB program contract 

with pharmacy benefits managers who 

negotiate prices with drug manufacturers and 

pharmacies on behalf of their enrollees. This 

fragmented purchasing strategy does not take 

full advantage of the combined purchasing 

power of the nearly eight million enrollees in 

the FEHB program. Under the Administration 

proposal, the Office of Personnel Management 

would contract directly for pharmacy benefit 

management services on behalf of all FEHB 

enrollees and their dependents. This will 

allow the FEHB program to more efficiently 

leverage its purchasing power to obtain a 

better deal for enrollees and taxpayers. This 

proposal is projected to save $1.6 billion over 

10 years.

Prioritize prevention and public health 

fund investments. The Prevention and 

Public Health Fund has supported effective, 

evidence-based public health activities 

that restrain health care costs and improve 

health outcomes, such as immunizations and 

reductions of health care associated infections.

The Administration proposes to scale-back the 

Fund by reducing resources by $3.5 billion over 

10 years starting in 2014, while maintaining 

high priority activities that improve health 

outcomes and restrain the rate of growth in 

private and public sector health care costs.

Prioritizing Prevention Fund activities would 

allow for significant investments in prevention 

and public health activities of more than $6 

billion over five years and $13.8 billion over 10 

years, while providing $3.5 billion in savings.

Accelerate the issuance of State 

Innovation Waivers. This proposal 

empowers States to develop their own 

innovative strategies to ensure their residents 

have access to high quality, affordable health 

insurance achieving the same outcomes as 

the ACA. Similar to legislation previously 

introduced by Senators Ron Wyden, Scott 

Brown, and Mary Landrieu and endorsed 

by the President, it would make “State 

Innovation Waivers” available starting in 

2014, three years earlier than under current 

law. These State strategies would need to 

provide affordable insurance coverage to at 

least as many residents as without the waiver 

and must not increase the Federal deficit. The 

Administration is committed to the budget 

neutrality of these waivers; an allowance for 

these waivers is included to account for the 

possibility that CBO will estimate costs for 

this proposal.

Provide resources to implement these 

reforms. To achieve the reforms proposed, 

HHS will need to implement significant 

changes to its systems and processes to ensure 

the savings proposed are achieved in a timely 

manner. To accomplish this, the proposal 

includes $400 million in funding for the 

Secretary of HHS.

TAX REFORM

45

The President is committed to reducing the 

deficit through a balanced approach—one 

that restrains spending across the budget, 

including in the tax code; asks the wealthiest 

among us to contribute to deficit reduction; and 

lays the foundation for future growth. That is 

why the President is calling on the Congress 

to undertake comprehensive tax reform to cut 

rates, cut inefficient tax breaks, cut the deficit, 

and increase jobs and growth in the United 

States—while observing the “Buffett Rule” 

that people making over $1 million should not 

pay lower taxes than the middle class.

Tax reform is critical to rebuilding our 

economy to be stronger and more stable than 

in the past.  Two of our biggest economic 

challenges—creating jobs and reducing longterm deficits—both depend on a simpler, fairer, 

more progressive tax system than we have 

today.  

The Administration believes, like many 

others, that tax cuts play an important role in 

job creation.  But the Administration believes 

that broad tax cuts for the middle class—

rather than for only the wealthiest one or two 

percent of Americans—are far more effective 

at creating jobs and growing the economy.  

When millions of middle class families across 

the country have more money in their bank 

accounts to spend in their communities, 

businesses large and small can grow, innovate, 

invest, and hire.  The success of the American 

economy has long been built on the vibrancy 

of our middle class, and our efforts to create 

a tax system that is fairer, simpler, and more 

progressive reflect that reality.

Tax reform is also an important part of 

reducing our long-term deficits and placing 

our country on a fiscally sustainable path.  

We cannot address a deficit a decade in the 

making through spending cuts alone—that 

is, unless we, as a country, agree to cut every 

program in the entire budget by more than a 

quarter, including all defense spending, Social 

Security and Medicare benefits, and veterans’ 

benefits, along with everything else.  The 

Administration believes in a balanced approach 

that cuts spending responsibly, but also asks 

the most well-off in society—many of whom, 

through loopholes and other exemptions, pay 

less in taxes than most middle class families—

to contribute their fair share towards reducing 

the deficit and healing our economy.

Comprehensive Tax Reform

The tax code has become increasingly 

complicated and unfair. Changes enacted 

during the previous Administration were 

skewed in favor of the wealthiest taxpayers 

and reduced the tax code’s overall progressivity.

Under today’s tax laws, those who can afford 

expert advice can avoid paying their fair 

share and interests with the most connected 

lobbyists can get exemptions and special 

treatment written into our tax code. While 

many of the tax incentives serve important 

purposes, taken together the tax expenditures 

in the law are inefficient, unfair, duplicative, 

or even unnecessary. The corporate tax system 

provides special incentives for some industries, 

like oil and gas producers, yet fails to provide 

sufficient incentives for companies to invest in 

America. Because our corporate tax system is 

so riddled with special interest loopholes, our 

system has one of the highest statutory tax 

rates among developed countries to generate 

about the same amount of corporate tax 

revenue as our developed country partners 

as a share of our economy; this, in turn, hurts 

our competitiveness in the world economy. In 

addition, a large fraction of the tax code is now 

temporary and expires periodically, adding 

uncertainty for households and businesses, 

and complicating the fiscal outlook.

The result is a tax code that neither 

serves the American people nor our economy.

Recent data show that the tax code places a 

relatively light tax burden on the wealthiest 

Americans. As Warren Buffett has pointed 

out, his effective tax rate is lower than his 

secretary’s, although this is not true for 
46 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

many small business owners and others who 

primarily receive labor income. The tax code 

also places a substantial compliance burden 

on taxpayers. For instance, taxpayers filing 

Form 1040 spent an average of 21 hours 

preparing their returns and most taxpayers—

about 60 percent—find themselves paying tax 

preparers to fill out their returns. We have 

not had a comprehensive reform of our tax 

code in a generation. The last time we had 

one, the Internet was a small tool used by 

researchers, the Euro did not exist, and global 

supply chains and commerce were far less 

developed. The time has come for tax reform 

to modernize our tax code, make it fairer, and 

to reduce its complexity.

That is why the President is calling on the 

Congress to enact comprehensive tax reform 

that meets five principles (see box above).

This will make our tax code simpler, fairer, 

and more efficient—and end a system that 

allows households making millions of dollars 

annually to pay lower tax rates than middleclass families.

This tax reform would make an important 

contribution as part of a balanced plan to 

reduce the deficit. For individuals, the highincome tax cuts enacted in 2001 and 2003 

would be allowed to expire and additional 

inefficient tax breaks would be cut to raise 

an additional $700 billion while observing 

the Buffett Rule and making the tax code fair 

for all Americans. For corporations, deficit 

neutral tax reform would make businesses 

pay for the cost of any of the roughly $300 

billion in temporary tax breaks over the 

next decade that would be continued as 

part of the reform but have generally been 

deficit financed in the past, like the Research 

and Experimentation credit. Together, 

individuals and corporations would be 

contributing roughly proportionately to 

deficit reduction.

Specific Measures to Cut Inefficient

Tax Breaks and Improve Compliance

The President recognizes that comprehensive 

tax reform will take time and will not be easy.

However, the President also believes that the 

Joint Committee must take action now that 

locks in improvements in our tax code that 

increase fairness and efficiency while helping 

put the Nation on a sustainable fiscal course. 

PRINCIPLES FOR TAX REFORM

1. Lower tax rates. The tax system should be simplified and work for all Americans 

with lower individual and corporate tax rates and fewer brackets.

2. Cut Inefficient and Unfair Tax Breaks. Cut tax breaks that are inefficient, unfair, 

or both so that the American people and businesses spend less time and less money 

each year filing taxes and cannot avoid their responsibility by gaming the system.

3. Cut the deficit. Cut the deficit by $1.5 trillion over the next decade through tax 

reform, including the expiration of tax cuts for single taxpayers making over $200,000 

and married couples making over $250,000.

4. Increase job creation and growth in the United States. Make America stronger 

at home and more competitive globally by increasing the incentive to work and invest 

in the United States.

5. Observe the Buffett Rule. No household making over $1 million annually should 

pay a smaller share of its income in taxes than middle-class families pay. As Warren 

Buffett has pointed out, his effective tax rate is lower than his secretary’s. No household making over $1 million annually should pay a smaller share of its income in 

taxes than middle-class families pay. This rule will be achieved as part of an overall 

reform that increases the progressivity of the tax code.
TAX REFORM 47

To begin the national conversation about 

tax reform, the President is offering a 

detailed set of specific tax loophole closers 

and measures to broaden the tax base 

that, together with the expiration of the 

high-income tax cuts, would be more than 

sufficient to hit the $1.5 trillion target for 

tax reform and cut inefficient expenditures 

as well as move the tax system closer to 

observing the Buffett Rule. These measures 

include: cutting tax preferences for highincome households; eliminating special tax 

breaks for oil and gas companies; closing the 

carried interest loophole for investment fund 

managers; and eliminating benefits for those 

who buy corporate jets. It is incumbent on 

everyone who supports comprehensive tax 

reform to not only call for lower rates but 

to identify specific tax loopholes and tax 

expenditures that they would be willing 

to reform or eliminate as part of a reform 

effort. The President is making good on this 

commitment by putting forward a specific, 

scorable set of tax expenditure reforms.

Tax reform should draw on items listed here, 

together with the elimination of additional 

inefficient tax breaks, to finance the reduction 

of marginal rates and comport with the 

Buffett Rule. If the Joint Committee is unable 

to undertake comprehensive tax reform, the 

President believes these measures should 

be enacted on a standalone basis. Although 

this would fall short of the President’s five 

principles for reform, it would move the tax 

system closer to several of them.

This fallback of allowing the high-income 

tax cuts to expire, and enacting specific 

loophole closers and base broadeners, would 

lock in deficit reduction from tax changes 

that is as specific and certain as the deficit 

reduction coming from the President’s 

proposed spending reductions, and would be a 

critical part of a balanced plan to put America 

on a course towards fiscal sustainability. This 

would significantly improve the country’s 

fiscal standing, represent an important step 

toward more fundamentally transforming our 

tax code, and serve as a strong foundation for 

economic growth and job creation.

The measures that could contribute 

to comprehensive tax reform or, absent 

such reform, act as a backstop, include 

bringing fairness to the individual tax code, 

incorporating measures in the American Jobs 

Act, closing business loopholes and broadening 

the business tax base, eliminating fossil fuel 

preferences, reforming the treatment of 

insurance companies and products, reforming 

the U.S. international tax system, and other 

changes. These proposals would generally 

become effective on January 1, 2013.

Bring Fairness to the 

Individual Tax Code

Allow the 2001 and 2003 high-income tax 

cuts to expire and return the estate tax 

to 2009 parameters. The tax cuts for those 

with household income above $250,000 per 

year passed in the Bush Administration were 

unfair and unaffordable at the time they were 

enacted and remain so today. In December 

2010, congressional Republicans insisted on 

extending them through 2012 and threatened 

to allow taxes to increase on middle-class 

families if the Administration did not agree.

Not extending the middle-class tax cuts would 

have hurt our nascent economic recovery, and 

would have imposed an enormous burden on 

working families. The Administration remains 

opposed to the extension of these high-income 

tax cuts past 2012 and supports the return of 

the estate tax exemption and rates to 2009 

levels. This would reduce the deficit by $866 

billion over 10 years.

Measures Incorporated in 

the American Jobs Act

Reduce the value of itemized deductions 

and other tax preferences to 28 percent 

for families with incomes over $250,000.

Currently, a millionaire who contributes 

to charity or deducts a dollar of mortgage 

interest, enjoys a deduction that is more than 

twice as generous as that for a middle-class 

family. The proposal would limit the tax rate 

at which high-income taxpayers can reduce 

their tax liability to a maximum of 28 percent, 

affecting only married taxpayers filing a joint 
48 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

return with income over $250,000 (at 2009 

levels) and single taxpayers with income 

over $200,000. This limit would apply to: all 

itemized deductions; foreign excluded income; 

tax-exempt interest; employer sponsored 

health insurance; and selected above-the-line 

deductions. The proposed limitation would 

return the deduction rate to the level it was 

at the end of the Reagan Administration. It 

would reduce the deficit by $410 billion over 

10 years.

Tax carried (profits) interests as 

ordinary income. A partnership does not 

pay income tax; instead, the income or loss 

and associated character flows through to 

the partners who must include such items on 

their individual income tax returns. Certain 

partners receive a partnership interest, 

typically an interest in future profits, in 

exchange for services (commonly referred to 

as a “carried interest”). Current law taxes the 

recipient of a carried interest on the value 

at the time granted, which may be based on 

the value the partner would receive if the 

partnership were liquidated immediately 

(for example, the value of an interest only 

in future profits would be zero). Because the 

partners, including partners who provide 

services, reflect their share of partnership 

items on their tax return in accordance with 

the character of the income at the partnership 

level, long-term capital gains and qualifying 

dividends attributable to carried interests may 

be taxed at a maximum 15-percent rate (the 

maximum tax rate on capital gains) rather 

than at ordinary income tax rates.

The President is proposing to designate a 

carried interest in an investment partnership 

as an “investment services partnership 

interest” (ISPI) and to tax a partner’s share of 

income from an ISPI that is not attributable 

to invested capital as ordinary income, 

regardless of the character of the income at 

the partnership level. In addition, the partner 

would be required to pay self-employment 

taxes on such income, and the gain recognized 

on the sale of an ISPI that is not attributable 

to invested capital would generally be taxed as 

ordinary income, not as capital gain. However, 

any allocation of income or gain attributable 

to invested capital on the part of the partner 

would be taxed as ordinary income or capital 

gain based on its character to the partnership 

and any gain realized on a sale of the interest 

attributable to such partner’s invested capital 

would be treated as capital gain or ordinary 

income as provided under current law. This 

would reduce the deficit by $13 billion over 10 

years.

Eliminate special depreciation rules 

for corporate purchases of aircraft. Under 

current law airplanes used in commercial and 

contract carrying of passengers and freight 

can be depreciated over seven years. Airplanes 

not used in commercial or contract carrying of 

passengers or freight, for example corporate 

jets, are depreciated over five years. The 

proposal would change depreciation schedules 

for corporate planes that carry passengers 

to seven years, effective for tax years after 

December 31, 2012. This would reduce the 

deficit by $5 billion over 10 years.

Eliminate oil and gas tax preferences. 

Current law provides a number of credits and 

deductions that are targeted towards certain 

oil and gas activities. In accordance with the 

President’s agreement at the G-20 Summit 

in Pittsburgh in December 2009 to phase 

out subsidies for fossil fuels so that we can 

transition to a 21st Century energy economy, 

the President is proposing to repeal a number 

of tax preferences available for fossil fuels.

The Administration proposes repealing the 

following tax preferences available for oil and 

gas activities beginning in 2013: 1) the use of 

percentage depletion with respect to oil and 

gas wells; 2) the ability to claim the domestic 

manufacturing deduction against income 

derived from the production of oil and gas; 3) 

the expensing of intangible drilling costs; 4) 

the deduction for costs paid or incurred for 

any tertiary injectant used as part of a tertiary 

recovery method; 5) the exception to passive 

loss limitations provided to working interests 

in oil and natural gas properties; and 6) twoyear amortization of independent producers’ 

geological and geophysical expenditures, 

instead of allowing amortization over the same 
TAX REFORM 49

seven-year period as for integrated oil and gas 

producers. This would reduce the deficit by $41 

billion over 10 years.

Modify tax rules for dual capacity 

taxpayers. The Administration proposes 

tightening the foreign tax credit rules that 

apply to taxpayers that are subject to a 

foreign levy and that also receive (directly or 

indirectly) a specific economic benefit from 

the levying country (so-called “dual capacity” 

taxpayers). This would reduce the deficit by 

$10 billion over 10 years.

Close Business Loopholes and 

Broaden the Business Tax Base

Repeal last-in, first-out (LIFO) method of 

accounting for inventories. Under the LIFO 

method of accounting for inventories, the cost 

of the items of inventory that are sold is equal 

to the cost of the items of inventory that were 

most recently purchased or produced. For many 

businesses where the price of goods in inventory 

rise over time, like oil and gas companies, the 

LIFO approach allows firms to artificially lower 

their tax liability. The President’s proposal would 

repealthe use of the LIFO accounting method for 

Federal tax purposes, effective for taxable years 

beginning after December 31, 2012. Assuming 

inventory costs rise over time, taxpayers 

required to change from the LIFO method

under the proposal generally would experience 

a permanent reduction in their deductions for 

cost of goods sold and a corresponding increase 

in their annual taxable income as older, cheaper 

inventory is taken into account in computing 

taxable income. Taxpayers required to change

from the LIFO method also would be required 

to report their beginning-of-year inventory at 

its first-in, first-out (FIFO) value in the year of 

change, causing a one-time increase in taxable 

income that would be recognized ratably over 

10 years. This would reduce the deficit by $52 

billion over 10 years.

Repeal lower-of-cost-or-market inventory 

accounting method. The President’s plan 

would prohibit the use of the lower-of-costor-market and subnormal goods methods of 

inventory accounting, which currently allow 

certain taxpayers to take cost-of-goods-sold 

deductions on certain merchandise before the 

merchandise is sold. The proposed prohibition 

would be effective for the first taxable year 

beginning after December 31, 2012, and any 

resulting income inclusion would be recognized 

over a four-year period. This would reduce the 

deficit by $8 billion over 10 years.

Eliminate preferences for the coal 

industry. The Administration proposes 

repealing the following tax preferences 

available for coal activities beginning in 2013: 

1) expensing of exploration and development 

costs; 2) percentage depletion for hard mineral 

fossil fuels; 3) capital gains treatment for 

royalties; and 4) the ability to claim the 

domestic manufacturing deduction against 

income derived from the production of coal 

and other hard mineral fossil fuels. This would 

reduce the deficit by $2 billion over 10 years.

Reform Treatment of Insurance 

Companies and Products

Modify rules that apply to sales of life 

insurance contracts. The seller of a life 

insurance contract generally must report 

the difference between the amounts received 

from the buyer and the adjusted basis for 

the contract as taxable income. When death 

benefits are received under the contract, the 

buyer is taxed on the excess of those benefits 

over the amounts paid for the contract, 

unless an exception to a “transfer-for-value 

rule” applies. Information reporting may not 

always be required in circumstances involving 

the purchase of a life insurance contract.

In response to the growth in the number 

and size of life settlement transactions, the 

proposal would expand information reporting 

on the sale of life insurance contracts and the 

payment of death benefits on contracts that 

were sold, and would modify the “transferfor-value” exceptions to prevent purchasers of 

policies from avoiding tax on death benefits 

that are received. The proposal would apply 

to sales or assignment of interests in life 

insurance policies and payments of death 

benefits for taxable years beginning after 
50 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

December 31, 2012. This would reduce the 

deficit by $1 billion over 10 years.

Modify dividends-received deduction 

(DRD) for life insurance companies’ 

separate accounts. Under current law, 

a life insurance company is required to 

“prorate” its net investment income between 

a company’s share and a policyholder’s 

share. The result of this proration is used to 

limit the funding of tax-deductible reserve 

increases with tax-preferred income, such as 

certain corporate dividends and tax-exempt 

interest. The complexity of this regime has 

generated significant controversy between 

life insurance companies and the Internal 

Revenue Service (IRS), particularly with 

regard to the dividends-received deduction 

for such companies’ separate accounts. In 

some cases, the existing regime produces a 

company’s share that exceeds the company’s 

actual economic interest in the underlying 

income. The proposal would replace this 

regime with one that is much simpler. Under 

the proposal, the DRD with regard to general 

account dividends would be subject to the 

same flat proration percentage that applies to 

non-life insurance companies under current 

law (15 percent); the DRD with regard to 

separate account dividends would be based on 

the proportion of reserves to total assets of the 

account. This would reduce the deficit by $5 

billion over 10 years.

Expand pro rata interest expense 

disallowance for corporate-owned life 

insurance (COLI). The interest deductions of 

a business other than an insurancecompany are 

reduced to the extent the interest is allocable 

to un-borrowed policy cash values on life

insurance and annuity contracts. The purpose 

of this pro rata disallowance is to prevent the 

deduction of interest expense that is allocable 

to inside buildup that is either tax-deferred 

or not taxed at all. A similar disallowance

applies with regard to reserve deductions of an 

insurance company. A current-law exception to 

this rule applies to contracts covering the lives 

of officers, directors and employees. Under the 

proposal, the exception for officers, directors 

and employees would be repealed unless those 

individuals are also 20-percent owners of the 

business that is the owner or beneficiary of the 

contracts. Thus, purchases of life insurance

by small businesses and other taxpayers that 

depend heavily on the services of a 20-percent 

owner would be unaffected, but the funding 

of deductible interest expenses with taxexempt or tax-deferred inside buildup would 

be curtailed. The proposal would apply to 

contracts issued after December 31, 2012, 

in taxable years ending after that date. This 

would reduce the deficit by $6 billion over 10 

years.

Reform the U.S International Tax System

Defer deduction of interest expense related to deferred income. Under current 

law, a taxpayer that incurs interest expense 

properly allocable and apportioned to foreignsource income may be able to deduct that 

expense even if some or all of the foreign 

source income is not subject to current U.S.

taxation. To provide greater matching of the 

timing of interest expense deductions and 

recognition of associated income, the proposal 

would defer the deduction of interest expense 

properly allocable and apportioned to foreignsource income to the extent the U.S. taxation 

of such income is deferred. This would reduce 

the deficit by $36 billion over 10 years.

Determine the foreign tax credit on a 

pooling basis. Under the proposal, a taxpayer 

would be required to determine foreign tax 

credits from the receipt of a dividend from a 

foreign subsidiary on a consolidated basis for 

all its foreign subsidiaries. Foreign tax credits 

from the receipt of a dividend from a foreign 

subsidiary would be based on the consolidated 

earnings and profits and foreign taxes of all 

the taxpayer’s foreign subsidiaries. This would 

reduce the deficit by $53 billion over 10 years.

Tax excess returns associated with 

transfers of intangibles offshore currently. The IRS has broad authority to 

allocate income among commonly controlled 

businesses under section 482 of the Internal

Revenue Code. Notwithstanding the transfer 

pricing rules, there is evidence of income 
TAX REFORM 51

shifting offshore, including through transfers 

of intangible rights to subsidiaries that bear 

little or no foreign income tax. Under the 

proposal, if a U.S parent transfers an intangible

to a controlled foreign corporation (CFC) in

circumstances that demonstrate excessive 

income shifting from the United States, then 

an amount equal to the excessive return would 

be treated as subpart F income. This would 

reduce the deficit by $19 billion over 10 years.

Limit shifting of income through 

intangible property transfers. The 

definition of intangible property for purposes 

of the special rules relating to transfers of 

intangibles by a U.S. person to a foreign 

corporation (section 367(d) of the Internal 

Revenue Code) and the allocation of income 

and deductions among taxpayers (section 482) 

would be clarified to prevent inappropriate 

shifting of income outside the United States.

This would reduce the deficit by $1 billion over 

10 years.

Limit earnings stripping by expatriated 

entities. Under the proposal, the rules that 

limit the deductibility of interest paid to 

related persons subject to low or no U.S. tax 

on that interest would be amended to prevent 

inverted companies from using foreign-related 

party and certain guaranteed debt to reduce 

inappropriately the U.S. tax on income earned 

from their U.S. operations. This would reduce 

the deficit by $4 billion over 10 years.

Other Changes

Reinstate Superfund taxes. The 

President is proposing to reinstate the 

taxes that were deposited in the Hazardous 

Substance Superfund prior to their expiration

on December 31, 1995. These taxes, which 

contributed to financing the cleanup of the 

Nation’s highest risk hazardous waste sites, 

are proposed to be reinstated for periods (excise 

taxes) or tax years (income tax) beginning 

after 2012, with expiration for periods and tax 

years after 2021. The proposed taxes include 

the following: 1) an excise tax of 9.7-cents-perbarrel on crude oil and imported petroleum

products; 2) an excise tax on hazardous 

chemicals listed in section 4661 of the Internal 

Revenue Code (26 U.S.C. § 4661) at rates that 

vary from 22 cents to $4.87 per ton; 3) an excise 

tax on imported substances that use listed 

hazardous chemicals as a feedstock (in an

amount equivalent to the tax that would have 

been imposed on domestic production of the 

chemicals); and 4) a corporate environmental 

income tax imposed at a rate of 0.12 percent 

on the amount by which the modified AMT

income of a corporation exceeds $2 million.

This would reduce the deficit by $19 billion 

over 10 years.

Make unemployment insurance (UI) 

surtax permanent. The net Federal UI tax 

on employers dropped from 0.8 percent to 0.6 

percent with respect to wages paid after June 

30, 2011. The President’s plan would extend 

the 0.8 percent rate permanently, effective as 

of June 30, 2011. This would reduce the deficit 

by $15 billion over 10 years.

Increase certainty with respect to 

worker classification. Under current 

law, worker classification as an employee 

or as a self-employed person (independent 

contractor) is generally based on a commonlaw test for determining whether an 

employment relationship exists. Under a 

special provision (section 530 of the Revenue 

Act of 1978), a service recipient may treat a 

worker who may actually be a common law 

employee as an independent contractor for 

Federal employment tax purposes if, among 

other things, the service recipient has a 

reasonable basis for treating the worker as an 

independent contractor. If a service recipient 

meets the requirements of this special 

provision with respect to a class of workers, 

the IRS is prohibited from reclassifying the 

workers as employees, even prospectively. The 

special provision also prohibits the IRS from 

issuing generally applicable guidance about 

the proper classification of workers.

The President’s plan would permit the IRS to 

issue generally applicable guidance about the 

proper classification of workers and to permit 

the IRS to require prospective reclassification 

of workers who are currently misclassified 
52 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

and whose reclassification is prohibited 

under the special provision. Penalties would 

be waived for service recipients with only 

a small number of employees and a small 

number of misclassified workers, if the service 

recipient had consistently filed all required 

information returns reporting all payments 

to all misclassified workers and the service 

recipient agreed to prospective reclassification 

of misclassified workers. It is anticipated that 

after enactment, new enforcement activity 

would focus mainly on obtaining the proper 

worker classification prospectively, since in 

many cases the proper classification of workers 

may not be clear. The proposal would be 

effective upon enactment, but the prospective 

reclassification for those covered by the special 

provision would not be effective at least one 

year after the date of enactment. This would 

reduce the deficit by $8 billion over 10 years.
53

Summary Tables

SUMMARY TABLES 55

Table S–1. BRIDGE BETWEEN OMB MID-SESSION REVIEW BASELINE AND DEFICIT 

ASSUMING ENACTMENT OF RECOMMENDATIONS TO THE JOINT SELECT COMMITTEE

(In billions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-2016 2012-2021

Mid-Session Review adjusted baseline deficit before 

Budget Control Act (BCA) caps ��������������������������������� 1,316 1,060 912 854 968 1,088 1,058 1,075 1,158 1,255 1,345 4,883 10,774Percent of GDP ������������������������������������������������������������ 8.8% 6.8% 5.5% 4.9% 5.3% 5.6% 5.2% 5.0% 5.2% 5.4% 5.5%

BCA discretionary caps:

Cap reductions, program integrity, and cap 

adjustment for proposed disaster relief ��������� ......... –25 –55 –77 –91 –102 –110 –119 –128 –137 –147 –351 –992

Debt service ��������������������������������������������������������� ......... –* –1 –4 –8 –13 –19 –25 –32 –39 –47 –26 –188

Total ����������������������������������������������������������������� ......... –25 –56 –81 –99 –115 –130 –144 –159 –176 –194 –377 –1,180

Mid-Session Review adjusted baseline deficit with 

BCA caps ����������������������������������������������������������������� 1,316 1,035 856 773 869 972 929 931 998 1,079 1,151 4,506 9,593Recommendations to the Joint Select Committee:

American Jobs Act ���������������������������������������������� ......... 324 155 –6 –3 –8 –7 –4 –2 –1 –2 462 447Mandatory savings 1 ������������������������������������������� ......... 12 –3 –40 –43 –34 –29 –27 –31 –30 –32 –107 –257Health savings 1 �������������������������������������������������� ......... * –11 –17 –22 –28 –38 –41 –46 –53 –65 –78 –320Cap Overseas Contingency Operations (OCO) 

funding 2 ���������������������������������������������������������� ......... –24 –78 –103 –115 –120 –123 –126 –129 –132 –135 –439 –1,084

Tax reform ����������������������������������������������������������� –* –14 –89 –134 –154 –171 –185 –191 –200 –211 –224 –562 –1,573Debt service ��������������������������������������������������������� ......... 1 4 3 –8 –23 –41 –60 –81 –103 –127 –23 –436

Total ����������������������������������������������������������������� –* 300 –23 –297 –343 –383 –423 –449 –487 –530 –586 –747 –3,222

Total deficit reduction ����������������������������������������������������� –* 274 –79 –378 –443 –499 –552 –593 –647 –706 –780 –1,124 –4,403Resulting deficit �������������������������������������������������������������� 1,316 1,334 833 476 525 589 506 482 511 549 565 3,758 6,371

Percent of GDP ......................................................... 8.8% 8.5% 5.1% 2.7% 2.9% 3.0% 2.5% 2.2% 2.3% 2.4% 2.3%

Memorandum:

Debt held by the public ����������������������������������������������� 10,264 11,685 12,689 13,316 13,982 14,698 15,309 15,885 16,479 17,107 17,753

Percent of GDP ..................................................... 68.6% 74.6% 76.9% 76.4% 75.9% 75.6% 74.8% 74.2% 73.8% 73.4% 73.0%

Debt net of financial assets ���������������������������������������� 9,194 10,508 11,333 11,808 12,333 12,922 13,427 13,909 14,420 14,969 15,534

Percent of GDP ������������������������������������������������������� 61.4% 67.0% 68.7% 67.8% 66.9% 66.5% 65.6% 65.0% 64.6% 64.2% 63.9%

Primary deficit (+) / surplus (–) ���������������������������������� 1,100 1,099 532 82 42 40 –106 –181 –197 –202 –225 1,795 885

Percent of GDP ������������������������������������������������������� 7.4% 7.0% 3.2% 0.5% 0.2% 0.2% –0.5% –0.8% –0.9% –0.9% –0.9%

* $500 million or less.1 Based on OMB estimates of CBO scoring.2 Illustrative allocation of savings from the proposal to cap OCO appropriations through 2021.
56 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Table S–2. BRIDGE BETWEEN OMB MID-SESSION REVIEW BEA BASELINE 

DEFICIT AND ADJUSTED MID-SESSION REVIEW BASELINE DEFICIT

(In billions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

Mid-Session Review BEA baseline deficit ........................................... 1,314 1,011 654 475 526 585 493 449 468 495 510 3,251 5,666

Extend the 2001 and 2003 tax cuts and index the AMT for inflation ��� 1 33 228 330 364 401 436 467 500 535 572 1,356 3,867Prevent reduction in Medicare physician payments ������������������������������ ......... 13 22 23 25 28 30 33 36 40 43 111 293Reflect incremental cost of funding existing Pell maximum grant 

award ���������������������������������������������������������������������������������������������������� ......... –* –* 3 8 8 7 6 6 6 6 18 50

Baseline assumption of possible emergencies 1 �������������������������������������� 1 3 7 8 9 9 10 10 10 10 10 36 86Debt service ���������������������������������������������������������������������������������������������� ......... * 3 15 36 57 83 109 137 169 204 111 813

Mid-Session Review adjusted baseline deficit before Budget 

Control Act (BCA) caps ....................................................................... 1,316 1,060 912 854 968 1,088 1,058 1,075 1,158 1,255 1,345 4,883 10,774

BCA discretionary caps:

Cap reductions, program integrity, and cap adjustment for 

proposed disaster relief ������������������������������������������������������������������� ......... –25 –55 –77 –91 –102 –110 –119 –128 –137 –147 –351 –992

Debt service ����������������������������������������������������������������������������������������� ......... –* –1 –4 –8 –13 –19 –25 –32 –39 –47 –26 –188

Total �������������������������������������������������������������������������������������������������� ......... –25 –56 –81 –99 –115 –130 –144 –159 –176 –194 –377 –1,180

Mid-Session Review adjusted baseline deficit with BCA caps .. 1,316 1,035 856 773 869 972 929 931 998 1,079 1,151 4,506 9,593

* $500 million or less.1 These amounts represent a placeholder for major disasters requiring Federal assistance for relief and reconstruction. Such assistance might be provided in the form of discretionary or mandatory outlays or tax relief. This placeholder is separate from the Budget Control Act cap adjustment for disaster relief.
SUMMARY TABLES 57

Table S–3. BRIDGE BETWEEN CBO AUGUST BASELINE DEFICIT AND DEFICIT ASSUMING 

ENACTMENT OF RECOMMENDATIONS TO THE JOINT SELECT COMMITTEE

(In billions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

Adjusted CBO August baseline deficit ������������������������������������������������������� 1,284 1,024 933 815 826 972 1,004 1,069 1,207 1,323 1,430 4,571 10,603

Percent of GDP ���������������������������������������������������������������������������������������� 8.5% 6.5% 5.8% 4.8% 4.6% 5.1% 5.0% 5.1% 5.5% 5.8% 6.0%

Budget Control Act discretionary caps:

Cap reductions, program integrity, and cap adjustment for

proposed disaster relief ������������������������������������������������������������������� ......... –24 –47 –61 –69 –77 –84 –91 –98 –107 –116 –278 –774

Debt service ����������������������������������������������������������������������������������������� ......... –* –1 –2 –4 –8 –13 –18 –24 –31 –38 –13 –138

Total ������������������������������������������������������������������������������������������������� ......... –25 –48 –62 –72 –85 –97 –109 –123 –138 –153 –292 –912

Recommendations to the Joint Select Committee:

American Jobs Act ������������������������������������������������������������������������������� ......... 324 155 –6 –3 –8 –7 –4 –2 –1 –2 462 447

Mandatory savings 1 ��������������������������������������������������������������������������� ......... 12 –3 –40 –43 –34 –29 –27 –31 –30 –32 –107 –257

Health savings 1 ���������������������������������������������������������������������������������� ......... * –11 –17 –22 –28 –38 –41 –46 –53 –65 –78 –320

Cap Overseas Contingency Operations (OCO) funding 2 ������������������ ......... –12 –58 –95 –111 –118 –122 –126 –130 –134 –138 –395 –1,044

Tax reform 1 ���������������������������������������������������������������������������������������� –* –* –50 –136 –163 –175 –185 –195 –204 –210 –215 –525 –1,534

Debt service ����������������������������������������������������������������������������������������� ......... 4 5 3 –3 –17 –36 –57 –79 –103 –129 –9 –413

Total ������������������������������������������������������������������������������������������������� –* 328 36 –291 –344 –381 –417 –449 –491 –531 –581 –652 –3,121

Total deficit reduction ��������������������������������������������������������������������������������� –* 303 –12 –354 –417 –465 –514 –558 –613 –669 –735 –944 –4,033

Resulting deficit ������������������������������������������������������������������������������������������ 1,284 1,328 921 462 410 507 490 510 593 654 695 3,627 6,570

Percent of GDP ���������������������������������������������������������������������������������������� 8.5% 8.5% 5.7% 2.7% 2.3% 2.7% 2.4% 2.4% 2.7% 2.9% 2.9%

Memorandum:

Debt held by the public ��������������������������������������������������������������������������� 10,164 11,507 12,538 13,109 13,629 14,235 14,824 15,428 16,109 16,847 17,624

Percent of GDP ������������������������������������������������������������������������������������ 67.3% 73.5% 77.5% 77.2% 75.2% 74.5% 74.0% 73.6% 73.6% 73.7% 74.0%

Debt net of financial assets �������������������������������������������������������������������� 9,306 10,620 11,530 11,988 12,385 12,887 13,369 13,867 14,447 15,087 15,769

Percent of GDP ������������������������������������������������������������������������������������ 61.7% 67.8% 71.3% 70.6% 68.3% 67.4% 66.8% 66.2% 66.0% 66.0% 66.2%

Primary deficit (+) / surplus (–) �������������������������������������������������������������� 1,062 1,086 650 159 57 76 –28 –79 –52 –43 –45 2,028 1,781

Percent of GDP ������������������������������������������������������������������������������������ 7.0% 6.9% 4.0% 0.9% 0.3% 0.4% –0.1% –0.4% –0.2% –0.2% –0.2%

* $500 million or less.1 Based on OMB estimates of CBO scoring.2 Illustrative allocation of savings from the proposal to cap OCO appropriations through 2021.
58 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Table S–4. BRIDGE BETWEEN CBO AUGUST BASELINE DEFICIT 

AND ADJUSTED CBO AUGUST BASELINE DEFICIT

(In billions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

CBO August baseline deficit .......................................................................... 1,284 973 623 380 322 402 362 349 405 430 440 2,701 4,687

Remove Budget Control Act discretionary caps ��������������������������������������������� ......... 27 49 62 70 77 84 91 98 106 115 285 778Extend the 2001 and 2003 tax cuts and index the AMT for inflation ����������� ......... 11 238 340 385 414 444 476 509 546 586 1,389 3,949Prevent reduction in Medicare physician payments ��������������������������������������������� ......... 12 19 23 26 29 31 34 37 41 45 109 298Debt service ������������������������������������������������������������������������������������������������������ ......... 1 4 11 23 50 84 119 157 199 244 88 891

Adjusted CBO August baseline deficit ......................................................... 1,284 1,024 933 815 826 972 1,004 1,069 1,207 1,323 1,430 4,571 10,603
SUMMARY TABLES 59

Table S–5. JOINT COMMITTEE RECOMMENDATIONS

(Deficit increases (+) or decreases (-) in millions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

American Jobs Act:

Tax Cuts to Help America's Small Businesses Hire and 

Grow:Cut employer payroll taxes in half and provide bonus 

payroll cut for new jobs/wages ������������������������������������� ......... 60,686 14,992 –4,383 –1,736 –602 –177 –32 ......... ......... ......... 68,957 68,748

Extend 100% expensing in 2012 ������������������������������������� ......... 50,660 17,898 –21,275 –13,712 –9,731 –7,171 –4,666 –2,990 –1,839 –1,377 23,840 5,797Help entrepreneurs and small businesses access capital 

and grow ����������������������������������������������������������������������� ......... 3 ......... ......... ......... ......... ......... ......... ......... ......... ......... 3 3

Delay application of withholding on government 

contractors ��������������������������������������������������������������������� ......... ......... 5,900 –5,403 ......... ......... ......... ......... ......... ......... ......... 497 497

Putting Workers Back on the Job While Rebuilding and 

Modernizing America:Support teacher rehiring and first responders ��������������� ......... 21,000 14,000 ......... ......... ......... ......... ......... ......... ......... ......... 35,000 35,000Modernize schools ������������������������������������������������������������ ......... 15,000 6,000 6,000 3,000 ......... ......... ......... ......... ......... ......... 30,000 30,000Invest in immediate surface transportation priorities ����� ......... 11,030 16,320 8,130 4,860 3,070 2,100 1,630 1,550 910 400 43,410 50,000Create infrastructure bank ��������������������������������������������� ......... 300 600 1,930 1,915 745 948 1,190 1,740 632 ......... 5,490 10,000Extend exemption from AMT treatment for certain taxexempt bonds ���������������������������������������������������������������� ......... 19 48 25 24 23 23 22 21 20 19 139 244Rehabilitate and repurpose vacant property 

(neighborhood stabilization) ����������������������������������������� ......... 50 4,650 7,100 3,200 ......... ......... ......... ......... ......... ......... 15,000 15,000

Implement Veterans hiring initiative ����������������������������� ......... 29 29 15 9 5 2 1 ......... ......... ......... 87 90Enact national wireless initiative1 ���������������������������������� ......... 1,244 1,329 –250 –1,449 –2,516 –3,143 –2,462 –2,238 –784 –1,031 –1,642 –11,300

Pathways Back to Work for Americans Looking for Jobs:

Reform and extend unemployment insurance ��������������� ......... 29,997 17,608 112 137 138 143 124 132 129 68 47,992 48,588Provide jobs tax credit for long term unemployed ��������� ......... 3,243 3,278 1,231 862 642 465 345 267 191 71 9,256 10,595Create pathways back to work fund ������������������������������� ......... 2,010 2,205 785 ......... ......... ......... ......... ......... ......... ......... 5,000 5,000

More Money in the Pockets of Every American Worker and 

Family:Cut employee payroll taxes in half in 2012 �������������������� ......... 129,156 49,691 ......... ......... ......... ......... ......... ......... ......... ......... 178,847 178,847

Total, American Jobs Act ����������������������������������������������������� ......... 324,427 154,548 –5,983 –2,890 –8,226 –6,810 –3,848 –1,518 –741 –1,850 461,876 447,109

Mandatory Savings:1

Agriculture:

Reduce agriculture subsidies ������������������������������������������ ......... –50 –5,118 –2,788 –1,650 –1,974 –2,631 –3,278 –4,662 –4,551 –4,395 –11,580 –31,097Better target conservation assistance ���������������������������� ......... –100 –296 –266 –222 –215 –211 –207 –213 –209 –209 –1,099 –2,148

Federal employees:

Increase employee defined benefit contributions ����������� ......... ......... –779 –1,593 –2,444 –2,500 –2,558 –2,617 –2,677 –2,739 –2,802 –7,316 –20,709Increase TRICARE pharmacy benefit co-payments ������� ......... –256 –511 –948 –1,256 –1,410 –1,719 –1,969 –2,161 –2,354 –2,554 –4,381 –15,138Initiate annual premiums for TRICARE-For-Life 

enrollment ��������������������������������������������������������������������� ......... ......... –400 –600 –600 –700 –700 –800 –900 –900 –1,100 –2,300 –6,700
60 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued

(Deficit increases (+) or decreases (-) in millions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

Government liabilities and operations:

Increase guarantee fees charged by Fannie Mae and 

Freddie Mac ������������������������������������������������������������������ ......... ......... –1,950 –2,700 –2,800 –3,000 –3,100 –3,300 –3,400 –3,600 –3,700 –10,450 –27,550

Reform the aviation passenger security fee to more 

accurately reflect the costs of aviation security ���������� ......... –10 –735 –1,041 –1,361 –1,663 –2,012 –2,023 –2,037 –2,051 –2,067 –4,810 –15,000

Introduce fee to better cover costs of air traffic services ......... –521 –1,063 –1,085 –1,108 –1,129 –1,151 –1,173 –1,196 –1,219 –1,242 –4,906 –10,887Enact Postal Service financial relief and reform ������������ ......... 6,120 2,345 –2,505 –3,505 –3,505 –3,505 –3,505 –3,505 –3,505 –3,505 –1,050 –18,575Ensure a strong safety net for workers’ retirement 

benefits ������������������������������������������������������������������������� ......... ......... ......... –685 –1,352 –1,638 –1,907 –2,190 –2,443 –2,768 –3,020 –3,675 –16,003

Reform the National Flood Insurance Program (NFIP) 

by phasing out the premium subsidy for certain properties ���������������������������������������������������������������������� ......... ......... –45 –119 –215 –335 –483 –649 –704 –778 –834 –714 –4,162

Government assets:

Enact national wireless initiative 2 ���������������������������������� ......... ......... ......... ......... –1,000 –1,000 –1,000 –1,000 –1,000 –1,000 –1,000 –2,000 –7,000Dispose of unneeded real property 3 ��������������������������������� ......... –200 –400 –600 –1,500 –400 –200 –200 –200 –200 –200 –3,100 –4,100

Program Integrity, Asset Management, and Miscellaneous 

Fees:Additional Program Integrity:

Improve collection of pension information from States 

and localities (WEP/GPO) ���������������������������������������� ......... 13 20 17 –212 –405 –537 –547 –517 –496 –476 –567 –3,140

Strengthen IRS tax enforcement and compliance ������� ......... 1,932 2,188 1,513 747 25 –973 –1,673 –2,057 –2,314 –2,591 6,405 –3,203Improve the integrity of the Unemployment 

Insurance program �������������������������������������������������� ......... –11 –26 –33 –37 –38 –33 –27 –20 –16 –15 –145 –256

Strengthen Treasury debt collection ��������������������������� ......... –64 –86 –89 –90 –92 –95 –96 –98 –99 –102 –421 –911

Reform coal and hardrock Abandoned Mine Lands 

(AML) programs ����������������������������������������������������������� ......... –100 –315 –281 –174 –89 –31 –66 –89 –64 –43 –959 –1,252

Restore the solvency of the Unemployment Insurance 

system by helping employers now and restoring State fiscal responsibility ������������������������������������������������������� ......... 5,723 5,551 –22,421 –20,425 –10,217 –1,743 2,882 1,882 3,373 2,435 –41,789 –32,960

Recoup financial sector assistance ���������������������������������� ......... ......... –1,000 –3,000 –3,000 –3,000 –4,000 –4,000 –4,000 –4,000 –4,000 –10,000 –30,000Miscellaneous:

Enact pesticide registration and premanufacture 

notice fees ����������������������������������������������������������������� ......... –50 –51 –80 –83 –89 –89 –92 –92 –95 –95 –353 –816

Charge for the use of the hazardous waste electronic 

manifest system �������������������������������������������������������� ......... ......... ......... –6 –5 –5 –3 –3 –3 –3 –3 –16 –31

Reauthorize special assessment from domestic 

nuclear utilities �������������������������������������������������������� ......... –150 –253 –205 –209 –213 –218 –223 –228 –233 –239 –1,030 –2,171

Repeal ultra-deepwater oil and gas research and 

development program ���������������������������������������������� ......... –3 –20 –40 –45 –30 –10 –2 ......... ......... ......... –138 –150

Enact Department of Interior savings proposals ������� ......... –17 –116 –136 –162 –159 –178 –193 –209 –227 –236 –590 –1,633Reform inland waterways funding ������������������������������ ......... –40 –80 –80 –80 –120 –120 –120 –150 –150 –150 –400 –1,090

Total, mandatory savings ���������������������������������������������������� ......... 12,216 –3,140 –39,771 –42,788 –33,901 –29,207 –27,071 –30,679 –30,198 –32,143 –107,384 –256,682
SUMMARY TABLES 61

Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued

(Deficit increases (+) or decreases (-) in millions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

Health Savings:1

Medicare Providers:

Bad Debts:

Reduce Medicare coverage of patients’ bad debts ������ ......... ......... –600 –1,300 –2,100 –2,200 –2,400 –2,600 –2,800 –3,000 –3,200 –6,200 –20,200

Graduate Medical Education:

Align Graduate Medical Education payments with 

patient care costs ����������������������������������������������������� ......... ......... –700 –800 –1,000 –1,000 –1,000 –1,100 –1,100 –1,200 –1,200 –3,500 –9,100

Better Align Payments to Rural Providers with the Cost 

of Care:End add-on payments for hospitals and physicians in 

frontier states ����������������������������������������������������������� ......... ......... –200 –200 –200 –200 –200 –200 –300 –300 –300 –800 –2,100

Reduce Critical Access Hospital (CAH) payments 

from 101% of reasonable costs to 100% of reasonable costs �������������������������������������������������������� ......... ......... –100 –100 –100 –100 –100 –100 –100 –100 –200 –400 –1,000

Prohibit CAH designation for facilities that are less 

than 10 miles from the nearest hospital ������������������ ......... ......... –100 –200 –200 –300 –300 –400 –400 –500 –600 –800 –3,000

Encourage Efficient Post-Acute Care: 

Adjust payment updates for certain post-acute care 

providers ������������������������������������������������������������������� ......... ......... ......... –700 –1,600 –2,500 –3,300 –4,300 –5,500 –6,600 –8,000 –4,800 –32,500

Equalize payments for certain conditions commonly 

treated in IRFs and SNFs ���������������������������������������� ......... ......... –400 –400 –400 –500 –500 –500 –600 –600 –600 –1,700 –4,500

Encourage appropriate use of inpatient rehabilitation 

hospitals ������������������������������������������������������������������� ......... ......... –100 –200 –200 –200 –300 –300 –400 –400 –500 –700 –2,600

Adjust skilled nursing facility payments to reduce 

hospital readmissions ����������������������������������������������� ......... ......... ......... ......... –200 –200 –300 –300 –300 –300 –400 –400 –2,000

Drug Rebates:

Align Medicare drug payment policies with Medicaid 

policies for low-income beneficiaries ������������������������ ......... ......... –8,300 –11,600 –13,200 –14,500 –14,800 –15,400 –17,000 –18,700 –21,500 –47,600 –135,000

Cut Waste, Fraud, and Improper Payments in Medicare:

Recover erroneous payments made to insurers 

participating in Medicare Advantage ���������������������� ......... ......... –300 –300 –300 –300 –300 –200 –200 –200 –200 –1,200 –2,300

Reduce fraud, waste, and abuse in Medicare ������������� ......... ......... ......... ......... ......... –100 –100 –100 –100 –100 –100 –100 –600Dedicate penalties for failure to use electronic health 

records toward deficit reduction ������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –500 ......... –500

Update Medicare payments to more appropriately 

account for utilization of advanced imaging ����������� ......... ......... –30 –30 –40 –40 –40 –50 –50 –60 –60 –140 –400

Require prior authorization for advanced imaging ���� ......... ......... –100 –100 –100 –100 –100 –100 –100 –100 –100 –400 –900

Interactions ����������������������������������������������������������������������� ......... ......... –400 –600 –700 –700 –700 –700 –900 –1,100 –1,200 –2,400 –7,000

Medicare Structural Reforms:

Increase income-related premiums under Medicare 

Parts B and D ���������������������������������������������������������������� ......... ......... ......... ......... ......... ......... –2,000 –2,200 –2,500 –6,000 –7,300 ......... –20,000
62 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued

(Deficit increases (+) or decreases (-) in millions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

Modify Part B deductible for new enrollees �������������������� ......... ......... ......... ......... ......... ......... –10 –40 –150 –300 –500 ......... –1,000

Introduce home health copayments for new 

beneficiaries ����������������������������������������������������������������� ......... ......... ......... ......... ......... ......... –50 –50 –100 –100 –100 ......... –400

Introduce a Part B premium surcharge for beneficiaries 

that purchase near first-dollar Medigap coverage ����� ......... ......... ......... ......... ......... ......... –100 –300 –500 –700 –900 ......... –2,500

Strengthen IPAB to reduce long-term drivers of Medicare 

cost growth ����������������������������������������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........

Medicaid and Other:

Medicaid (non-MAGI):

Reduce Medicaid provider tax threshold beginning in 

2015 �������������������������������������������������������������������������� ......... ......... ......... ......... –1,550 –2,750 –3,900 –4,200 –4,400 –4,600 –4,900 –4,300 –26,300

Apply a single blended matching rate to Medicaid 

and CHIP ������������������������������������������������������������������ ......... ......... ......... ......... ......... ......... –3,400 –3,100 –3,100 –2,500 –2,800 ......... –14,900

Limit Medicaid reimbursement of durable medical 

equipment (DME) based on Medicare rates ������������ ......... ......... –100 –100 –200 –300 –500 –600 –700 –800 –900 –700 –4,200

Strengthen Medicaid third party liability ������������������ ......... ......... –100 –100 –100 –100 –100 –200 –200 –200 –200 –400 –1,300Rebase Medicaid Disproportionate Share Hospital 

(DSH) allotments in 2021 ����������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... –4,100 ......... –4,100

Reduce waste, fraud, and abuse in Medicaid �������������� ......... ......... –10 –10 –10 –10 –10 –15 –15 –15 –15 –40 –110Streamline and coordiinate Federal Government 

oversight of State Medicaid programs and expand flexibility ����������������������������������������������������������������������������� ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... ......... .........

Amend MAGI for health insurance assistance Programs 

to include total Social Security benefits ���������������������� ......... ......... ......... –888 –694 –1,679 –1,955 –2,197 –2,376 –2,088 –2,706 –3,261 –14,583

Pharmaceutical Savings:

Prohibit pay for delay agreements ������������������������������ ......... ......... –100 –100 –100 –100 –200 –400 –500 –600 –600 –400 –2,700Reduce the exclusivity period for generic biologics ���� ......... ......... ......... ......... –100 –200 –400 –400 –600 –800 –1,000 –300 –3,500Streamline FEHBP pharmacy benefit contracting ���� ......... ......... –74 –148 –159 –170 –185 –198 –213 –232 –250 –552 –1,631

Prioritize Prevention and Public Health Fund 

investments ������������������������������������������������������������������ ......... ......... ......... –28 –283 –678 –523 –500 –500 –500 –500 –989 –3,512

Accelerate the issuance of State Innovation Waivers �������� ......... ......... ......... 1,000 2,000 1,000 ......... ......... ......... ......... ......... 4,000 4,000

Administrative costs for implementation �������������������������������� ......... 100 250 50 ......... ......... ......... ......... ......... ......... ......... 400 400

Total, health ������������������������������������������������������������������������� ......... 100 –11,464 –16,854 –21,536 –27,927 –37,773 –40,750 –45,704 –52,695 –65,431 –77,682 –320,036

Cap Overseas Contingency Operations funding 

through 2021 ....................................................................... ......... –23,562 –77,949–103,087–114,816–119,586–122,810–125,735–128,906–132,124–135,403 –439,000–1,083,978

Measures for Tax Reform:

Bring Fairness to the Individual Tax Code:

Allow the 2001 and 2003 high-income tax cuts and 

estate tax cuts to expire ����������������������������������������������� –49 –12,847 –46,593 –63,411 –76,929 –90,638 –100,730 –107,618 –114,641 –122,194 –130,410 –290,418 –866,011
SUMMARY TABLES 63

Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued

(Deficit increases (+) or decreases (-) in millions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

Measures Incorporated in the American Jobs Act:

Reduce the value of itemized deductions and other tax 

preferences to 28 percent for those with high incomes ������ ......... ......... –21,731 –36,038 –39,590 –43,048 –46,772 –50,405 –53,968 –57,511 –61,076 –140,407 –410,139

Tax carried (profits) interests in investment 

partnerships as ordinary income ��������������������������������� ......... ......... –1,940 –2,111 –2,019 –1,733 –1,402 –1,092 –947 –732 –525 –7,803 –12,501

Eliminate special depreciation rules for corporate 

purchases of aircraft ����������������������������������������������������� ......... ......... –126 –402 –620 –691 –793 –826 –603 –342 –250 –1,839 –4,653

Eliminate Oil and Gas Tax Preferences:

Repeal percentage depletion for oil and natural gas 

wells �������������������������������������������������������������������������� ......... ......... –664 –1,124 –1,151 –1,177 –1,207 –1,237 –1,267 –1,295 –1,360 –4,116 –10,482

Repeal domestic manufacturing deduction for oil and 

natural gas companies ���������������������������������������������� ......... ......... –623 –1,653 –1,749 –1,842 –1,932 –2,020 –2,108 –2,200 –2,296 –5,867 –16,423

Repeal expensing of intangible drilling costs (“IDCs”) ���� ......... ......... –1,849 –2,449 –1,716 –1,423 –1,433 –1,284 –1,031 –871 –741 –7,437 –12,797Repeal deduction for tertiary injectants ��������������������� ......... ......... –7 –10 –10 –10 –10 –9 –9 –9 –9 –37 –83Repeal exception to passive loss limitation for working 

interests in oil and natural gas properties ���������������� ......... ......... –23 –27 –24 –22 –21 –19 –18 –17 –16 –96 –187

Increase geological and small integrated geophysical 

amortization period for independent producers to seven years ���������������������������������������������������������������� ......... ......... –66 –244 –369 –338 –247 –160 –74 –15 –1 –1,017 –1,514

Modify the tax rules for dual capacity taxpayers ����������� ......... ......... –564 –974 –1,031 –1,085 –1,138 –1,190 –1,242 –1,296 –1,352 –3,654 –9,872

Close Business Loopholes and Broaden the Business Tax 

Base:Repeal last-in, first-out (“LIFO”) method of accounting 

for inventories ��������������������������������������������������������������� ......... ......... –2,598 –5,630 –6,432 –6,372 –6,315 –6,233 –6,149 –6,072 –5,984 –21,032 –51,785

Repeal lower-of-cost-or-market (“LCM”) inventory 

accounting method ������������������������������������������������������� ......... ......... –188 –1,435 –2,334 –1,532 –1,358 –309 –323 –337 –352 –5,489 –8,168

Eliminate Preferences for the Coal Industry:

Repeal expensing of exploration and development 

costs �������������������������������������������������������������������������� ......... ......... –27 –46 –48 –50 –51 –51 –49 –47 –42 –171 –411

Repeal percentage depletion for coal and hard 

mineral fossil fuels ��������������������������������������������������� ......... ......... –70 –119 –120 –124 –128 –133 –136 –143 –151 –433 –1,124

Repeal capital gains treatment for royalties �������������� ......... ......... –8 –22 –31 –38 –43 –47 –51 –55 –58 –99 –353Repeal domestic manufacturing deduction for coal 

and other hard mineral fossil fuels �������������������������� ......... ......... –27 –42 –40 –41 –45 –46 –48 –50 –50 –150 –389

Reform Treatment of Insurance Companies and Products:

Modify Rules that apply to sales of life insurance 

contracts ����������������������������������������������������������������������� ......... ......... –9 –42 –76 –89 –104 –132 –138 –158 –181 –216 –929

Modify dividends-received deduction (“DRD”) for life 

insurance company separate accounts ������������������������ ......... ......... –342 –550 –565 –641 –674 –689 –686 –674 –657 –2,098 –5,478

Expand pro rata interest expense disallowance for 

corporate-owed life insurance �������������������������������������� ......... ......... –22 –72 –158 –260 –414 –649 –923 –1,312 –1,757 –512 –5,567
64 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

Table S–5. JOINT COMMITTEE RECOMMENDATIONS—Continued

(Deficit increases (+) or decreases (-) in millions of dollars)

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Totals

2012-

2016

2012-

2021

Reform the U.S. International Tax System:

Defer deduction of interest expense related to deferred 

income ��������������������������������������������������������������������������� ......... ......... –3,521 –5,950 –6,128 –6,348 –6,580 –3,369 –1,190 –1,236 –1,289 –21,947 –35,611

Determine the foreign tax credit on a pooling basis ������ ......... ......... –3,242 –5,478 –5,643 –5,845 –6,059 –6,271 –6,492 –6,743 –7,036 –20,208 –52,809Tax currently excess returns associated with transfers 

of intangibles offshore ��������������������������������������������������� ......... ......... –1,322 –2,228 –2,288 –2,305 –2,297 –2,251 –2,177 –2,132 –2,137 –8,143 –19,137

Limit shifting of income through intangible property 

transfers ����������������������������������������������������������������������� ......... ......... –27 –60 –85 –111 –138 –165 –194 –224 –258 –283 –1,262

Limit earnings stripping by expatriated entities ����������� ......... ......... –223 –382 –401 –421 –442 –464 –488 –512 –538 –1,427 –3,871

Other Changes:

Reinstate Superfund Taxes ��������������������������������������������� ......... ......... –1,491 –2,023 –2,073 –2,105 –2,133 –2,179 –2,210 –2,230 –2,266 –7,692 –18,710Make the 0.2 percent unemployment insurance surtax 

permanent �������������������������������������������������������������������� ......... –1,345 –1,372 –1,404 –1,434 –1,458 –1,481 –1,500 –1,516 –1,532 –1,548 –7,013 –14,590

Increase certainty with respect to worker classification ������� ......... ......... –238 –572 –722 –804 –892 –982 –1,075 –1,173 –1,273 –2,336 –7,731

Total, tax reform ������������������������������������������������������������������� –49 –14,192 –88,913–134,498–153,786–170,551–184,839–191,330–199,753–211,112–223,613 –561,940–1,572,587

1 Based on OMB estimates of CBO scoring.2 Portion of budgetary effects not included under American Jobs Act.3 OMB estimate of sales proceeds. CBO has not scored savings for similar proposals.
SUMMARY TABLES 65

Table S–6. DEFICIT REDUCTION 

SINCE JANUARY 2011

(Deficit reduction (–) or increase (+) in billions of dollars)

2012-2021

Enactment of 2011 full-year appropriations ��������������������������������������������� –357Budget Control Act discretionary caps 1 ����������������������������������������������������� –992Recommendations to the Joint Select Committee:

American Jobs Act ����������������������������������������������������������������������������������� 447Mandatory savings 2 �������������������������������������������������������������������������������� –257Health savings 2 ��������������������������������������������������������������������������������������� –320Cap Overseas Contingency Operations (OCO) funding ������������������������ –1,084Tax reform ����������������������������������������������������������������������������������������������� –1,573

Debt service ������������������������������������������������������������������������������������������������� –715Total deficit reduction ��������������������������������������������������������������������������������� –4,850

1 Includes program integrity and the cap adjustment for proposed disaster relief.2 Based on OMB estimates of CBO scoring.
66 LIVING WITHIN OUR MEANS AND INVESTING IN THE FUTURE

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Percent of GDP

Chart 1. Annual Deficits as a Percent of GDP

Recommendations to the 

Joint Select Committee

OMB Adjusted Baseline

with BCA Caps
SUMMARY TABLES 67

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

60.0

65.0

70.0

75.0

80.0

85.0

90.0

Recommendations to the 

Joint Select Committee

OMB Adjusted Baseline

with BCA Caps

Percent of GDP

Chart 2. Debt Held by the Public 

as a Percent of GDP


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