budget control act, which is an actual law. it states very clearly that the budget control act shall apply in the senate in the same manner as for a concurrent resolution on the budget. for fiscal years 2012 and 2013. so we have spending limits in place for 2012 and 2013. the budget control act also provided for ten years of spending caps providing $900 billion in savings over that period. and it created a special committee to reform social security and the tax system, and the budget control act said that if the special committee did not succeed there would be an additional $1.2 trillion of spending cuts imposed at the beginning of next year, the so-called sequester. because the special committee

did not reach an agreement, those additional cuts are now in the law. so a total of more than $2 trillion of spending cuts was provided by the budget control act. that is the biggest package of spending cuts that i can find in the history of our country. and all of those cuts are now in law. and a law is much stronger than a budget resolution. as all of us know here, a budget resolution is purely a congressional document. it never goes to the president for his signature. a law, like the budget control act, was passed not only in the house and the senate but was signed by the president. so it is the law. what we do not have -- and the reason why i think it is important that we find a way to negotiate a long-term budget agreement -- is we don't have a long-term budget plan.

that's what we must now work to achieve. the fiscal commission budget plan which i am presenting today provides a comprehensive and balanced deficit reduction framework to build upon. it is not perfect. but it does represent middle ground. it brings the deficit down from what it would otherwise be, and it brings the debt down from what it would otherwise be. and it does so in a responsible, fair and balanced way. it protects the most vulnerable. it phases in changes to avoid harming the economy. and it includes savings from across the budget, including from entitlement reform and from tax reform that raises revenue by lowering rates. i recognize adjustments will have to be made to that plan, because what i am putting before the body is the original bowles/simpson plan.

obviously, things have happened in this two years, for example, the budget control act. so we know adjustments will have to be made. that is going to take time. and those adjustments will have to be negotiated. and those negotiations, i think, are critically important to take place before we get to the end of this year when we will face the expiration of all the bush tax cuts and the imposition of the sequester. i intend to give members of the committee an extended period to evaluate my mark, and as i review this plan, i hope to hear back from members on how they think we can maximize our chances of successfully reaching a bipartisan agreement. there's nothing i'd want more than to reach an agreement on a long-term plan right now. and it could be that outside

events such as a crisis overseas will drive us to come together sooner than we might otherwise. i'd certainly be open to reaching conclusion sooner if that's possible. but i am a realist, and i recognize the chances of that are slim. many have suggested we'll not be able to reach conclusion after the election. it may be that all sides find it difficult to move off their fixed position before a national election. i wish that weren't the case, but it probably is the case. but we are going to have powerful, motivating factors pushing us towards resolution. the expiration, as i've indicated, of all the bush-era tax cuts and the potential imposition of the sequester. let's remember that the original fiscal commission panel was structured to have a vote after the 2010 election. it was structured that way for a

reason. senator gregg and i believed that it was critically important to have the vote and the votes when there was the greatest prospect of actually getting a result. and we concluded the best chance was right after an election. that is what i am hoping to replicate now. by presenting the fiscal commission plan as a budget resolution, i'd hoped we could be ready with a bipartisan plan later this year. it is going to take an enormous amount of work. all those who served on the fiscal commission, all those who served on the special committee, all those who serve on the group of six or what is now the group of eight i think know, these things can not be done in a matter of weeks.

the ground has to be plowed now. we are borrowing almost 40 cents of every dollar we spend. that is the hard reality that we confront as we meet here today. that is not sustainable. gross federal debt is expected to reach 104% of our gross domestic product this year and then continue rising to 119% of gdp by 2022. many economists regard anything above the 90% threshold as the danger zone. and the long-term debt outlook is even more dire. the reality is that we face both a spending and a revenue problem. spending is near its highest share -- its highest level as a share of the economy in more than 60 years, and revenue is at or near a 60-year low as a share of our national income. both sides of the ledger, i believe, are part of the

problem and will have to be part of a solution. we also know the american people support a balanced approach to deficit reduction. in a pew research poll conducted in november, people were asked, what is the best way to reduce the federal budget deficit? 17% supported cutting major programs only. 8% supported increasing taxes only. 62% said we should do a combination of both. the fiscal commission budget plan does just that. it cuts spending and it raises revenue through tax reform. it does exactly what the american people are asking us to do. it is the kind of plan i believe the american people, when fully briefed on it, will support. the guiding principles and values of the plan as they were outlined in the original fiscal commission report were as follows. one, we all have a patriotic

duty to make american better off tomorrow than it is today. that we shouldn't disrupt the fragile economic recovery. that we should cut and invest to promote economic growth and keep america competitive. that we should protect the truly disadvantaged. that we should cut spending we cannot afford, no exceptions. that we should demand productivity and effectiveness from washington. that we should reform and simplify the tax code. that we shouldn't make promises we can't keep. that the problem is real and the solution will be painful. and that we should keep america sound over the long run. here is a brief overview of the fiscal commission budget plan that i am putting before the body today. it includes $5.4 trillion dollars of deficit reduction over ten years, including

savings from last year's budget control act. it lowers the deficit from 7.6% of gdp in 2012 to 2.5% in 2015 and 1.4% in 2022. so, it takes the deficit down well below the 3% of gdp level that is widely viewed as sustainable. it stabilizes gross debt by 2015 and then lowers it to 93% of gdp by 2022, putting debt on a clearly downward trajectory. it reduces overall spending to 21.9% of gdp by 2022, and it reduces discretionary spending to an historic low of 4.8% of gdp by 2022. it builds on health care reform but adds additional savings. and it fully offsets the doc fix preventing a dramatic drop in

medicare payments to physicians who treat medicare patients. it calls for social security reform that ensures the 75-year solvency of social security, and it calls for social security savings to be used only to extend the program's solvency, not for deficit reduction. finally, it includes fundamental tax reform, tax reform that will make the tax code simpler, fairer and more efficient while raising additional revenue. the next chart shows the deficit trajectory under the plan as i noted. it brings the deficit down to 1.4% of gdp by the end of the decade, well below the 3% level that is viewed as sustainable. it stabilizes the debt, as i indicated, by 2015 and begins to bring it down steadily after that. over the ten years of the plan, spending averages 21.8% of gdp, which is actually below the level that we experienced during the reagan administration. the plan brings discretionary

spending, those funds appropriated by congress each year, down from 8.4% of gdp in 2012 to an historic low of 4.8% by 2022. and i think we all acknowledge that health care spending is the 800-pound gorilla. although health care reform law adopted in 2010 made progress in changing health care incentives and bending the cost curve, rising health costs remain the single largest factor contributing to the nation's long-term fiscal imbalance. in 1972, medicare and medicaid and other federal health spending totaled only 1.1% of gdp. by 2050, by 2050, that federal health spending could grow to more than 13% of gdp. and we can see that medicare represents the fastest growing portion of that spending. of course, it is important to

remember that rising health care costs are a problem in the private sector as well. this is not just a medicare or medicaid-related problem. like the original fiscal commission plan, the plan i'm presenting today does not reopen the health care reform debate. instead, it builds on health care reform by providing additional health care savings. it provides an option to phase out the tax exclusion for health care, a step the congressional budget office has said would be one of the most significant steps we could take to bend the cost curve on health care spending. as i noted before, it fully offsets the doc fix. to offset these costs, it includes savings proposals such as medicare beneficiary cost sharing, reforming payments of health care providers, eliminating state gaming of the medicaid tax, and extending the medicaid drug rebate to dual eligibles in medicare part d.

while the fiscal commission budget plan calls for the same social security reforms as the original fiscal commission plan, it does not include in its numbers the savings from those social security proposals. that is because, as everyone in this committee knows, the congressional budget act of 1974, the law that established the budget process, prohibits the inclusion of social security and the deficit totals of a budget resolution. so social security reforms will have to be considered separately. however, the fiscal commission budget plan does include a policy statement that supports the original fiscal commission recommendations regarding social security. it calls for social security reform that reforms social security to make it solvent, not for deficit reduction. all the savings from social security go to extending the solvency of social security,

none for deficit reduction. it restores the 75-year solvency of social security. it strengthens the safety net with an enhanced minimum benefit for low-wage workers. a bump-up in benefits for our oldest seniors and the longtime disabled, and a hardship exemption for those unable to work past 62. all of these were part of the original bowles/simpson proposal and i've carried them through to this proposal.proposal, and i've carried them through to this proposal. it gradually increases the maximum level of wages taxed for social security and raises the retirement age, but only very gradually, reaching age 69 by 2075. with respect to the enhanced minimum benefit provision, i received a commitment during the fiscal commission discussions that it would be better targeted

to protect low-income beneficiaries, and i am committed to seeing that provision improved. the fiscal commission budget plan also includes the kind of fundamental tax reform that was included in bowles/simpson. the need for fundamental tax reform could not be more clear. the state of our tax code is simply indefensible. it's out of date, inefficient, and hurting the competitive position of our country. as everyone who's been filing taxes in recent days knows, the complexity of the tax code imposes a significant burden on those required to file returns. expiring provisions create uncertainty and confusion. the tax code is also hemorrhaging revenue from the tax gap, tax havens, and abuse of tax shelters. we also need to restore fairness to the tax code. the current system is contributing to the growing income inequality in the country.

and finally we need tax reform to help with the long-term fiscal balance. revenue is part of the problem and must be part of the solution. adopting comprehensive tax reform economic growth and allow us to compete better in the global marketplace. how our cbo director, mr. elmendorf, described the economic benefit of tax reform in his testimony before this committee, and i quote him -- i think analysts would widely agree that reform of the tax code that broadened the base and brought down rates would be positive for economic growth, economic development, both in the short term and over the longer period. tax reform can also help address the growing income inequality in the country. in recent years we have seen that gap grow. since 1979, the real after-tax household income for the top 1% has grown about 275%. over the same time period, the income for the middle quintile has grown about 35%.

our tax system, i believe, is contributing to this income inequality. it's not the only factor. there are many others, globalization and so many others, but i think we have to acknowledge the tax system is part of it. tax expenditures, the countless preferences, credits, deductions, exclusions that have been added to the code over the years are disproportionately benefiting those who are at the very top. in 2011, the top 1% of taxpayers received an increase in after tax income of almost $220,000 from tax expenditures, in comparison to the middle quintile received about $3,200 from tax expenditures. by scaling back some tax expenditures -- and by the way, tax expenditures are now more than all the appropriated accounts. by scaling some of them back, we can simplify the code, vastly

improve economy's efficiency and effectiveness and restore fairness. here's how martin feltsteen described the benefit of reducing tax expenditures. expenditures in an op-ed in the "wall street journal." and i quote from martin feldstein. cutting tax expenditures is really the best way to reduce government spending. let me just repeat that. reducing tax expenditures, or cutting them, is really the best way to reduce government spending. eliminating tax expenditures does not increase marginal tax rates or reduce the reward for saving, investment, or risk-taking. it would also increase overall economic efficiency by removing incentives that distort private spending decisions and eliminating or consolidating the large number of overlapping

tax-based subsidies and also greatly simplify tax filing. in short, cutting tax expenditures is not at all like other ways of raising revenue. we also know that we need more revenue. some of my republican colleagues have argued that revenue should not exceed 18% of gdp. the average over the last several decades. but on the five occasions when the budget was in surplus since 1969, revenues have ranged between 19.5% of gdp and 20.6%. and we will likely need a somewhat higher revenue level in the future because the country faces an unprecedented demographic situation with the retirement of the baby boom generation. fiscal commission budget plan includes the kind of fundamental tax reform that i believe needs to be adopted. it eliminates or scales back tax expenditures and lowers tax rates. it promotes economic growth and improves america's global competitiveness. it makes the tax code more progressive.

notably, the commission's report included an illustrative tax reform plan that demonstrates how eliminating or scaling back tax expenditures can simplify the code while lowering rates. instead of six brackets, it includes just three -- 12%, 22% and 28%. the corporate rate would also be reduced from 35% to 28%. capital gains and dividends would be taxed as ordinary income. that is part of the original bowles/simpson plan. although a differential could be maintained if it were bought up with a higher top rate. the mortgage interest and charitable deductions would be reformed, better targeting those tax benefits. the child tax credit and earned income tax credit would be preserved to help working families. and the alternative minimum tax would be revealed. overall, the fiscal commission

plan would increase revenue to 20.5% of gdp by 2022. over the ten years -- i'm almost done. i appreciate your patience. this is, i know, a lengthy presentation, but there's a lot here. over the ten years, revenue under the plan as i indicated would average 19.7%, roughly the same level as during the clinton administration, when we experienced the longest period of uninterrupted economic growth in the nation's history and 24 million jobs were created. in dollar terms, compared to the alternative baseline provided the plan, it includes $2.4 trillion in new revenue over the ten years. compared to a current law baseline, it represents a $1.8 trillion dollar tax cut. so, compared to current policy,

it represents an increase of revenue of $2.4 trillion. compared to current law, it represents a tax cut of $1.8 trillion. like the original fiscal commission proposal, the plan also includes a number of process changes to improve budget procedures and help enforce fiscal discipline. these include discretionary spending caps through 2022 enforced by a 60 vote point of order and sequester. fire calls between security and non-security through 2015. a separate cap for war funding with annual limits proposed by the president. a more rigorous emergency designation procedure and annual budgeting for disasters. let me just say with respect to the more rigorous emergency designation procedure, senator crapo has done an enormous amount of work on trying to close down the emergency

designation loophole that has been so abused in the past. some of those provisions are provided here, all of them that were in bowles/simpson. a fail-safe to pressure congress to maintain a stable gdp ratio starting in 2015. more accurate inflation adjustments for indexed programs. and a process to ensure more reliable and timely extended unemployment benefits. so that's the plan. it's comprehensive. it's balanced. it's fair. it represents i believe the best blueprint we have from which to build a bipartisan agreement. but i recognize it is not perfect, and i recognize adjustments will have to be made before anything like this can hope to be adopted. those adjustments will have to be negotiated, and those negotiations will take time. those of us who are involved in the commission certainly know that. i intend to give members time to

evaluate my chairman's mark, and then i hope to hear back from you on how you think we can best maximize the chance of actually getting a result. how can we best maximize the chance of actually getting a result? we are facing a fiscal train wreck at the end of this year. the expiration of all of the bush era tax cuts. the sequester. i don't think anybody thinks that would be a good place to go. it is time to move off our fixed positions. i understand that's probably unlikely right before an election. but before the end of the year, we're going to have to find a way to come together. this fiscal commission budget plan represents, i believe, a blueprint to begin that conversation. i'll now turn to senator sessions for purpose of his

making any statement he may wish to make. and as i noted earlier, we'll then recognize other members of the committee as the history of this committee in markup. we do that in seniority order, alternating between the sides to the extent it is possible to do. if there are more members on one side than the other, we'll just go right down so that everybody who is here has a chance as quickly as possible to speak. we will not be considering amendments during today's session. so amendments are not in order, but opening statements are in order. and, chairman sessions, or ranking member sessions, thank very much for your courtesies throughout the hearing season, and please proceed with your statement. >> thank you, mr. chairman. and it has been a pleasure to work with you throughout these two years, and i know that you understand the challenges facing

this country. you've articulated them time and time again. you've warned us that we need to take action, that we're on an unsustainable path. the problem is we haven't done it. we haven't made the kind of changes that are necessary in our debt course to put america on the kind of path that we should be on. and it's very discouraging for us. i see four new members of this budget committee that just joined the senate this year. portman and toomey and aodd and johnson. they have fought to get on the committee. they lobbied, and they wanted to be a part of the great debate about the future of america when they won elections just two years ago, a little less than two years ago. and first year we had no budget in this committee. and i appreciate your being frustrated by that, and i know you intended to have a markup this year and move a budget at

least in committee as you did year before last. but i know there were forces aligned against that. i know the leader and others and i guess the entire democratic conference just did not want to be confronted with the challenges inherent in changing the debt course of america. i don't think that's your belief, but that is obviously where we are. so we've got to be -- i have to say how deeply disappointed we are that we're not able to go forward with the kind of budget markup that a markup justifies, that we'll not be able to offer amendments, that we'll not be able to offer countervailing a new budget, a different approach. and actually be able to get down to numbers, because we've had secret meetings and committees and discussions, outlines and frameworks, but when it's late out in real numbers, like congressman ron has done, like senator toomey has done, people then look at it and express their view. they either like it or don't

like it, but it has reality to it and the kind of power to it that just talk does not have. so i have to say, i'm disappointed that we're not being able to have the kind of markup that ought to be basic to the statutory duty of this committee to fulfill its responsibility to produce a budget. a couple of things i would say. there has been -- and i just want to say this because i believe it's important -- a systematic plan for several years on behalf of senator reid, i guess, and the democratic leadership, to avoid votes on budgets, to avoid being accountable for having a real plan for the future. for example, the budget was not brought up, and last year our democratic colleagues voted against the ron budget. voted against the president's

budget, they voted against the toomey budget, voted against the paul budget. they voted against every single one, and there has not been on record yet for one. i thought at least in the committee today we might have the democratic committee members at least stand up and cast a vote for or against this budget, but they're not going to do so. so once again, there will be an abdication of the responsibility of the majority part in my view because you have the power to pass a budget with only 50 votes with the vice president's support. parenthetically, i would note that the budget that you've offered and the plan you've offered i don't think is consistent totally with the -- at least the simpson/bowles plan, at least as i understood it to be. from my examination of this bu,