By Erik Wasson - 11/01/11 05:10 PM EDT
The Rivlin-Domenici plan alters Medicare by giving future seniors the choice of private plans in addition to traditional Medicare. Those using the private plans would receive payments to help cover the costs of premiums. The plan differs from the controversial Medicare proposal approved in the House-passed 2012 budget which would end traditional Medicare.
Rivlin will testify that although the federal contribution would be capped at GDP growth plus one percent, “excess costs, if any, would result in an increased premium, but low and moderate income beneficiaries would be protected from these increased payments.”
Last week, Democrats put some cuts to Medicare and Social Security on the table in exchange for $1.3 trillion in new tax revenue. The GOP rejected that offer and proposed larger entitlement cuts with about $40 billion in new tax revenue from a technical change.
So far, the kind of full-scale Medicare overhaul Rivlin and Domenici envision appears unlikely.
Both sides, however, have put the idea of fundamental tax code reform on the table. The main difference in Democratic and GOP offers involves whether to use revenue from closing loopholes only to lower rates or to use some revenue for deficit reduction.
“While growth in spending must be controlled, we do not believe the projected tsunami of retirees can be absorbed by federal programs without
increasing revenues,” Rivlin will say.
Domenici in his testimony acknowledges that so far bond traders have not reacted to America’s fiscal woes by pulling their money out of U.S. treasuries. He said that this kind of pressure will come eventually if the U.S. does not put its house in order.
“Right now, to borrow a phrase, American debt is the best house in a truly terrible neighborhood. Yes, we have rats, holes in the roof, and grass growing window high, but other houses for global investors to store their money are even worse,” he will say. “However, it won’t always be so. The neighbors might fix their houses, or the whole neighborhood might burn. Either way, we will pay for our neglect with slower future growth and a less prosperous country far less able to play a leading role in the world.”