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Paul Ryan's budget: What's in the GOP plan?

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Rep. Paul Ryan (R-Wis.)

/ AP Photo

House GOP Budget chairman Paul Ryan of Wisconsin unveiled a budget today that would reduce the deficit by $4.4 trillion over ten years by repealing the Democrat's health care bill, reforming entitlements like Medicare and Medicaid and making cuts to defense that were endorsed by Defense Secretary Robert Gates. It also imposes hard spending caps on domestic spending.

The reforms and cuts already have Democrats accusing Republicans of trying to balance the budget on the backs of the poor and will surely be a hot topic for GOP presidential contenders in 2012.

The House Budget Committee will begin amending the plan tomorrow. The House budget with spending targets could be on the floor as early as next week, but could be delayed by the ongoing fight over this year's budget. Once the House passes a budget resolution, it is up to the regular committees to decide how to implement the Ryan plan and what specifically to cut to reach his targets.

Paul Ryan lauded for putting forth plan - but many in GOP silent on the specifics

Here are some of the most controversial elements of the House GOP's 2012 budget titled "The Path to Prosperity:"

Health Care:

The GOP budget would fulfill a 2010 campaign promise to repeal President Obama's most significant accomplishment, the Affordable Care Act. A significant chunk of the GOP's cuts come from overturning this provision. They save $725 billion by repealing the subsidies that customers would have received to help buy health insurance.

Medicare Reform:

Medicare would drastically change as part of the Republican budget. Instead of the government reimbursing doctors and hospitals for certain medical services, seniors would purchase a private health care plan among numerous options on an exchange. The government would then pay the private insurer in the form of a subsidy up to a specified amount.

This provision, which is based on a proposal the budget chairman crafted with former OMB Director Alice Rivlin, would increase help for the sick and poor while shifting more cost to wealthy seniors. Republican proponents say this will bring down the price of health insurance because of increased competition and shifting of resources to those who really need it. Democrats claim that Republicans are cutting benefits for the elderly.

Changes to Medicare in the plan would not affect those currently age 55 and over.

Medicaid:

House Republicans would overhaul Medicaid by changing the way the federal government finances the program. Today, it is a matching program which means if a state adds more Medicaid recipients to the rolls in the case of a recession, the federal government helps with that cost by matching a certain percentage.

The GOP plan would change the program by block granting it - which means giving a set number of funds to the states. Proponents of this plan say it will give governors the flexibility to administer the Medicaid program as they see fit while giving the federal government some control over the cost.

Tax Reform:

Details are still murky -- The "Path to Prosperity" does outline a plan to lower the highest individual and corporate tax rates from 35 percent to 25 percent and to make up for that revenue by closing tax loopholes, eliminating special carve outs and tax credits. They also argue that allowing individuals and businesses to keep more money will help grow the economy at a faster rate. But the report does not get into specific tax credits and carve outs that would be eliminated other than making clear some energy and agricultural subsidies would be eliminated.

Social Security:

"In the event that the Social Security Program is not sustainable" the GOP budget plan would require the president and the House and Senate to all come up with ideas to ensure the program's solvency. But Ryan does not offer his own plan on how to ensure Social Security's long-term viability.

Energy Subsidies:

Ryan accuses the president of "picking winners and losers" in the energy field. The House GOP budget would count on revenues from lifting drilling moratoriums both on and offshore.

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Blowing up the tax code

By Jeanne Sahadi, senior writerNovember 12, 2010: 7:57 AM ET

NEW YORK () -- So much to love. So much to hate.

That's what everyone will find in the tax reform proposals laid out this week by the co-chairmen of President Obama's fiscal commission.

And that may also be the best indication that Erskine Bowles and Alan Simpson got something right.

The truth is, there's no escaping the need to make serious tradeoffs on taxes if the goal is to create a tax code that supports economic growth, provides enough revenue to fund everything Americans want their government to do, and achieves real deficit reduction when paired with spending cuts. (10 biggest cuts the co-chairmen recommend)

Of course, politicians aren't yet willing to acknowledge those tradeoffs. Most Republicans still cleave publicly to the idea that taxes are the devil's spawn and must be beaten back. And most Democrats think that only the wealthiest should ever have to pay more in taxes.

That doesn't mean there isn't something for them to like in the Bowles-Simpson proposal.

For one thing, the co-chairmen propose simplifying the tax code, while lowering rates. They would also eliminate the Alternative Minimum Tax (a.k.a. the crazy-making-calculate-your-taxes-twice-to-see-if-you-owe-more tax).

Think you're smart about the deficit? Try this

In exchange, their proposal calls for a reduction -- or the complete elimination -- of the hundreds of tax deductions, credits and exemptions in the code.

Tax breaks reduce the amount of revenue the government takes in by more than $1 trillion a year, much of which comes from just a few of the biggest and most popular ones like the mortgage interest deduction.

Many experts regard tax breaks as a stealth form of spending. That's because the lost revenue doesn't appear anywhere on the federal budget. And once a break is passed into law, it's rare that anybody reviews its effectiveness.

"They're unsustainable. They have no oversight. And they really cost this country a bundle," Simpson told CNN.

Still, as the co-chairmen know all too well, removing them will elicit all sorts of "shrieking," as the ever-tart-tongued Simpson has put it many times. Tax breaks are enjoyed by many powerful special interests -- to say nothing of many Americans.

Fewer breaks = lower rates

Bowles and Simpson offer two options that slash tax breaks. And by doing so, they can lower income tax rates.

In their "zero plan" option, breaks are eliminated altogether. Under that scenario, individual income tax rates -- which they reduce from six brackets to three -- can fall substantially.

For instance, the lowest two rates (10% and 15%) could fall to 8%. The middle two rates (25% and 28%) could drop to 14%. And the top two rates (33% and 35%) could drop to 23%.

The corporate rate, meanwhile, could drop to 26% from 35%, to make it more attractive for companies to invest in the United States.

On the other hand, of course, lawmakers could choose to retain tax breaks. But the fewer they prune, the less rates can be lowered.

The second option from Simpson and Bowles, building on a bipartisan proposal in Congress, would reduce the mortgage interest deduction. The tax break would apply only to the first $500,000 of a loan on one's primary residence, about half of what counts today.

The second option would also repeal the state and local tax deduction and various other itemized deductions.

Individual tax rates under that plan would be 15%, 25% and 35%.

Another big proposed change under both reform plans would affect investment income. Capital gains and dividends, which are currently taxed at 15%, would be taxed as ordinary income -- that is, at higher rates.

More revenue on tap

The Simpson-Bowles tax reform options would raise an estimated $80 billion in additional revenue in 2015 and $160 billion by 2020. Their plan overall would cap federal revenue at 21% of GDP.

Who exactly will be paying in all that extra revenue? A specific break-out by income groups is still in the works.

It is likely that more people would end up with higher -- rather than lower -- tax bills, a commission staffer said. But he also noted that the revised tax code would probably be more progressive.

No one will like paying more, of course. But the staffer said the comparison shouldn't be to what someone is paying today but rather to what that person is likely to pay in the future if no changes to the tax code or to the federal balance sheet are made.

Translation: Taxes are going up one way or the other. The question is will those higher taxes be levied in a system that is widely considered to be outdated, overly complex and highly inefficient, or in a system that is simpler and smarter? [pic]

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The controversy over Medicare reform

By Tami Luhby @CNNMoney December 4, 2012: 10:39 AM ET

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Medicare reform is essential for deficit reduction.

NEW YORK (CNNMoney) -- As President Obama and House Republicans tussle over a debt reduction deal, Medicare reform is back in the spotlight.

The health insurance program for seniors is among the largest drivers of deficit growth, experts say. Medicare spending, which totaled $492 billion in 2012, is expected to hit $895 billion in 2022, according to the Congressional Budget Office.

Only 37% of Medicare spending is covered by payroll taxes, which goes to cover hospital coverage. By 2024, this portion of Medicare will not be able to meet all its bills. But doctors' visits and prescriptions are funded from the government's overall tax revenue and premiums that seniors pay. The federal government picks up 42% of total Medicare spending, while seniors' premiums cover 13%.

While there's little chance that comprehensive Medicare reform will take place by year's end since neither Republicans nor Democrats are laying out any firm plans, experts say there are measures lawmakers can take to start reducing costs.

Raise premiums for the wealthy: There's at least one place where conservatives think the wealthy should pay more: their Medicare premiums.

Rich seniors already shell out more for Medicare. The vast majority of seniors pay $99.90 a month, or 25% of the cost of their Part B medical insurance, with the federal government picking up the rest.

But those with incomes above $85,000, and couples making double that, pay between 35% and 80% of the expense. Single seniors with modified adjusted gross incomes greater than $214,000 paid the most at $319.70 a month. Wealthier seniors also pay more for their Part D drug coverage.

One way to do boost premiums further has been advanced by the Heritage Foundation. The conservative group proposes requiring single seniors who earn more than $55,000 and couples who earn more than $110,000 to cover even a greater share of their premiums. The 3% of Medicare beneficiaries who earn $110,000 if single, and $165,000 if married, would pay the full amount. This plan would save roughly $204 billion over five years.

In an interview with CNN's Candy Crowley Sunday, Treasury Secretary Timothy Geithner mentioned a premium increase as part of the administration's $350 billion in health-related spending cuts. The proposal includes "raising premiums modestly for higher income Medicare beneficiaries," he said.

Related: Medicare patients at risk without doctors' fiscal cliff fix

Raise eligibility age: Also under discussion is raising the eligibility age for Medicare, as lawmakers have done with Social Security.

Seniors can enroll in Medicare at 65, but cannot collect their full Social Security benefit until they hit 66. (Those born in or after 1960 must wait until 67 to collect full benefits.)

Just how far to raise the Medicare eligibility age remains part of the debate. Bumping it up to 68 would save nearly $53 billion, according to Heritage.

Cost cutting: The Obama administration believes billions can be saved by making Medicare more efficient. Its Affordable Care Act contains $716 billion in cuts to insurance companies participating in the Medicare Advantage program, hospitals, skilled nursing facilities and other providers. The president's health care reform law also created an independent board charged with keeping costs under control if they exceed a preset cap.

"We propose to get the government much smarter in how it purchases medicine," Geithner said Sunday.

Some experts say even more can be done to shave costs. Cutting the amount of Medicare waste in half could save roughly $400 billion over a decade, said David Kendall, senior fellow for health and fiscal policy at Third Way, a centrist group.

"We should exhaust all possibility of eliminating waste before we cut benefits," he said.

How can this be done? Third Way promotes moving away from traditional fee-for-service and rewarding doctors for monitoring patients' health and preventing hospitalizations. This would include giving patients better access to their doctors through email or telephone to avoid needless office visits or emergency room trips.

Also, doctors' care should come with a 30-day warranty, designed to prevent mistakes and re-admittance to hospitals or nursing homes. Bundling payments to specialists treating a patient's illness would also lead to more coordination among doctors and hospitals and save money.

Third Way also supports giving doctors the opportunity to talk to patients about end-of-life care, a controversial idea in Obama's original health reform proposal that Republicans called "death panels." These discussions could also provide savings by making sure all those treating the patients know their wishes.

Another way to save money is to allow the federal government to negotiate drug costs. That could save less than $30 billion, said Josh Bivens of the Economic Policy Institute, a left-leaning organization. [pic]

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Farm subsidies targeted in fiscal cliff talks

By Steve Hargreaves @CNNMoney December 4, 2012: 1:14 PM ET

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Some farm subsidies may fall victim to the fiscal cliff talks, but critics say the cuts don't go far enough.

NEW YORK (CNNMoney) -- Republicans and Democrats are still largely at an impasse over a deficit reduction plan to help avert the fiscal cliff. Could farm subsidies be part of the solution?

Both House and Senate versions of the new farm bill already call for the elimination of one type of farm subsidy -- direct payments to farmers, a program with a ten-year price tag of about $46 billion.

Treasury Secretary Timothy Geithner is proposing eliminating these direct payments as part of a deficit reduction plan put forth by the White House.

"We've proposed to reform and limit farm subsidies which can save a significant amount of money," Geithner told Candy Crowley on State of the Union Sunday.

Direct payments to farmers stem out of Depression-era programs that attempted to keep hard up rural Americans from migrating to big cities, where conditions were often not much better.

They cover only a handful of crops like corn, soy and wheat. Vegetables were excluded, as transport and refrigeration technology of the time forced most people to eat vegetables grown in smaller, local gardens.

Related: Independent farms rake in millions

Direct payments are based on historical output of the farm, not current production. That means some are made to farms no longer growing, which has led to "paying farmers not to farm" criticism.

Representing about a third of the money spent on farm subsidies, these direct payments have long been accused of running counter to the country's free trade agreements, encouraging environmentally destructive mono cropping, and wasting taxpayer money, especially in a time of high commodity prices when many farmers are doing quite well.

"The future for direct payments does not look good, thankfully," said Craig Cox, agricultural director for the Environmental Working Group. "They have no relationship to what's going on on the farm today."

Yet even if the payments are eliminated, taxpayers won't see all of the $46 billion in savings.

To maintain a social safety net for farmers, both the House and Senate versions of the farm bill increase support for other types of farm subsidies, such as government sponsored crop insurance.

Though some industry experts criticize boosting crop insurance for allowing farmers to continue practices that damage the environment, it has helped win the support of the farm industry itself.

"Both versions are something we could accept," said Dale Moore, deputy director of public policy at the Farm Bureau.

Once the additional support is factored in, the Congressional Budget Office estimates the Senate version of the new farm bill will save about $23 billion over 10 years, while the House would save $35 billion. The White House budget sees about $32 billion in savings.

Related: One fiscal cliff fix: Raise the gas tax

While cutting direct payment farm subsidies would make a small dent in the deficit, it doesn't address the largest driver of proposed farm bill spending -- food stamps.

The food stamp program is the real lion in the farm bill -- making up nearly 80% of its ten-year cost of nearly $1 trillion. Both the Senate and House bills call for modest cuts to food stamps.

Some Republicans in the House are calling for even steeper cuts, which is thought to be holding up the bill in that chamber. They also want the White House to give some ground as part of the fiscal cliff discussion.

"It doesn't address the biggest source of farm bill spending," one GOP congressional aid said of the White House proposal. "$32 billion is not a substantial amount of money." [pic]

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How to raise taxes on the rich

By Jeanne Sahadi @CNNMoney December 4, 2012: 1:48 PM ET

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President Obama and House Speaker John Boehner will have to finesse an agreement over taxes on the rich if they're going to successfully avert the fiscal cliff.

NEW YORK (CNNMoney) -- The line in the sand in the fiscal cliff talks is clear: Democrats will only agree to a deal that raises the tax burden on high-income households.

Democrats want to accomplish that goal largely through higher tax rates. Republicans hate that idea and say any new revenue should be raised by curbing tax breaks.

Where a final deal ends up is anyone's guess.

President Obama, in his most recent budget, has put forth tax proposals that would raise about $1.6 trillion over a decade. But in a press conference earlier this month, he talked about the need to raise about $1 trillion.

Whatever revenue target the parties agree to, there are many paths to achieve it. And any of them can be dialed up or down to address fairness and economic concerns.

RAISE RATES

Let Bush tax cuts expire on income over $250,000: Obama and Democrats want to let the Bush tax cuts expire on income over $250,000 ($200,000 for singles). They would raise the top two income tax rates, increase high-income households' capital gains and dividend rates, and re-impose limits on their personal exemptions and itemized deductions. It would also increase the estate tax rate.

All told, that proposal could raise close to $1 trillion over 10 years.

Let Bush tax cuts expire on income over $500,000: Allowing the Bush tax cuts to expire on income over $500,000 ($400,000 for singles) could raise at least $315 billion over a decade, according to Tax Policy Center data.

Let Bush tax cuts expire on income over $1,000,000: If they expire on income over $1 million, at least $242 billion could be raised.

Impose higher tax rate on fund managers: The president has called for taxing "carried interest" as ordinary income, raising an additional $13.5 billion over a decade.

Managers of private equity, venture capital and hedge funds are only taxed 15% on the portion of their compensation known as carried interest, which is derived from a fund's profits when an investment is sold.

If carried interest were taxed as ordinary income, those managers would pay more than double the rate they do now.

ADD A MILLIONAIRE MINIMUM TAX

Impose a "Buffett Rule": Billionaire investor Warren Buffett has been very vocal about calling for higher taxes on the rich.

Obama has proposed a "guiding principle" for tax reform: Those making $1 million or more should have to pay at least 30% of their income in federal income taxes.

Senate Democrats proposed a bill last spring that would have imposed a 30% minimum effective federal tax rate on adjusted gross income above $1 million, although it would phase in between $1 million and $2 million.

The bill was estimated by the Joint Committee on Taxation to raise an estimated $47 billion over a decade if all the Bush tax cuts expire. By contrast, the measure would raise $162 billion relative to a scenario in which all the Bush tax cuts are extended.

CURB TAX BREAKS

Cap itemized deductions by a dollar amount: The highest-income households enjoy more than 40% of the benefits of all tax breaks taken every year.

If no one could claim more than $50,000 in itemized deductions, that could raise roughly $749 billion over a decade, the Tax Policy Center estimates. And nearly 90% of that revenue would come from households making more than $200,000.

If lawmakers wanted to exclude charitable contributions from that cap, that still could raise $490 billion over 10 years.

Cap rate used to calculate tax savings: Obama has proposed limiting the value of deductions and exclusions for high-income households.

Normally one multiplies one's top tax rate by the amount of a deduction to calculate the taxes saved. But Obama would cap that rate at 28%, which is below the top two income tax rates. So someone in the 35% bracket today would save $35 on a $100 deduction. Under Obama's proposal, she would save $28.

The proposal is estimated to raise $523 billion over 10 years, assuming the Bush tax cuts expire on income over $250,000.

Limit the after-tax value of certain tax breaks: Lawmakers could enact an after-tax cap that applies to itemized deductions, plus the child tax credit and the tax-free benefit workers receive when their employer helps pay for their health insurance.

A cap set at 2% of one's adjusted gross income or $10,000, whichever is less, applied only to households making more than $200,000, could raise more than $860 billion over 10 years, according to the Committee for a Responsible Federal Budget. [pic]

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