The United States is not the first nation to face tough fiscal challenges. Other countries have faced similar fiscal challenges – and gotten out of them.

In a new paper ("Fiscal Turnarounds: International Success Stories"), CRFB’s Fiscal Roadmap Project looks at successful fiscal turnarounds around the world and possible lessons for the U.S.

What are the lessons?

- Large, multiyear adjustments have been more successful.

- An emphasis on spending cuts often - although not always - had the best results. To explain what worked and what didn't, it is important to look at the starting point. Many of the countries started with extremely high spending levels, so lower spending most certainly had positive effects by “crowding in” private demand. Many of the countries also had extremely high tax levels, so raising taxes even more would probably have been counterproductive. In countries where the initial conditions are not as tax and spending heavy, there is more room to raise revenue. (In the end, however, the design of the tax system is always critical.)

- It is also important to adopt other economic policies supporting the fiscal turnaround at the same time. Among the most important policies are: having credible fiscal rules and fiscal goals in place to help maintain discipline and stimulate an active public conversation; allowing the central bank to follow a strong anti-inflation policy; pursuing an appropriate exchange rate policy; and maintaining open trade and capital markets. These economic policies reinforce and are reinforced by the turnaround. 

- A public dialogue is critical in building support for a fiscal turnaround. Particularly in Canada and Sweden, the government took great care to educate the public about why large fiscal adjustments were in both their interest and the national interest – and why there was no realistic alternative.

The experiences discussed offer a cautionary tale to U.S. policymakers of the risks of not taking timely, appropriate action. Countries with severe fiscal and macroeconomic imbalances which have tried to muddle through circumstances similar to those now facing the United States were, in the end, forced to make dramatic fiscal adjustments by a crisis or by the threat of a crisis. It is always better for policymakers to take action on their own terms.

Yesterday, the White House released its version of a health care reform bill to restart the debate on how to reform the country's health care system. The CBO has announced that it will not be able to provide a detailed cost estimate of the proposal this week, citing additional needed information and the complexity of the issues involved.

In the table below, CRFB has expanded on a table put together by Think Progress' Wonk Room, comparing select components of the President's proposal to the House and Senate bills.

 Check back later for more details.

Commission Commencement – President Obama signed Thursday the Executive Order officially creating the National Commission on Fiscal Responsibility and Reform. He also named former Clinton White House Chief of Staff Erksine Bowles and former Republican Senator Alan Simpson as the bipartisan co-chairs of the panel. The group is tasked with “identifying policies to improve the fiscal situation in the medium term and to achieve fiscal sustainability over the long run.” It will report on its recommendations by December 1. After originally being non-committal, Republican leaders last week promised to appoint members to the commission. CRFB joined the Concord Coalition and the Committee for Economic Development last week in praising the choices of Bowles and Simpson and offering recommendations for making the commission successful.

A Healthy Debate? – The White House today posted its health care reform proposal in advance of the White House health care summit this Thursday. President Obama has challenged Republicans to bring their own proposal to the gathering, which will be televised live. Although they expressed initial reluctance to participate due to concerns that the event would just be a photo op, Republicans say they will attend. It’s looking more likely that Democrats in Congress will consider a health care overhaul using the budget reconciliation process so that passage will require a simple majority instead of 60 votes.

Fed Up with Debt – A key Fed bank president last week strongly stated that America’s rising debt must be addressed. In remarks before a Peterson-Pew Commission on Budget Reform conference on “Avoiding a Government Debt Crisis” Thomas Hoenig, President of the Federal Reserve Bank of Kansas City and a voting member of the Federal Open Market Committee this year, said that monetizing the debt as some suggest or continuing the status quo would likely lead to an inflation-induced economic crisis. The Fed last week raised the short-term discount rate a quarter point to 0.75 percent, indicating that it may begin reducing its balance sheet and unwind the enormous liquidity it pumped into the financial sector.

Congress Gets Back to Work – Congress reconvenes this week after the Presidents Day recess to a full plate of hearings and other business. Various committees will hold hearings on the President’s budget and Federal Reserve Chairman Ben Bernanke will present his semiannual monetary report to the House and Senate banking committees.

Getting the Job Done? – The Senate plans to vote on a jobs bill crafted by Majority Leader Harry Reid today. The bill is expected to cost about $15 billion, about one-tenth of the cost of the bill passed by the House. The Senate is still considering how to move extensions of expiring provisions, including emergency unemployment benefits and a federal COBRA subsidy for laid-off workers, which were included in the original Senate bill but were carved out by Reid. Those provisions expire on February 28 along with the “doc fix” preventing a 21 percent cut in Medicare payments to doctors.

A Taxing Effort – Senators Ron Wyden (D-OR) and Judd Gregg (R-NH) plan to unveil comprehensive tax reform legislation this week. A joint statement from the duo says the bill “will make the federal tax code simpler and fairer for all Americans and businesses of every size.”

Update: The Wonk Room has put together a short table comparing the President's plan to the House and Senate bills. Check it out below.

Here it is. At first glance, it seems much closer to the Senate plan than the House plan, although with some key differences. We'll be writing more about this soon.

From the Wonk Room:

A month ago, we called on those who oppose tax increases to take the spending challenge, showing us how to stabilize the debt only through spending cuts, and those who oppose spending cuts to show us how to stabilize the debt through tax increases. We think it will be quite difficult to get our fiscal house in order without addressing both sides of the budget. But the truth is, we also think it is time to start getting specific on policy ideas -- and are willing to listen to whatever idea anyone has to help the dismal fiscal situation.

A frequent commenter of ours (Big Bureaucracy), for example, proposed a 10-15 percent cut in government bureaucracy. After that, we received another suggestion:

Privatize General Motors. Stop the spending on the recovery act (stimulus package) - whatever is left. Funds from repaid TARP should go back to closing the deficit, not spent on something else.

Let’s see how much these would save…

Privatize GM: After the government converted about $40 billion in GM stock into a 60.8 percent ownership stake in the company, GM now owes the government a total of $5.7 billion. But privatizing the 60.8 percent ownership stake now, when GM still faces weak finances and an uncertain future, would actually increase costs to the government -- given that an ownership sale now would only recoup a fraction of the billions originally invested. And since the CBO calculates everything on a risk-adjusted net present value basis, baseline forecasts already assume the present value of owning GM and that the government will not hold onto the company indefinitely. So unfortunately, this is probably not a money saver.

Stop spending Recovery Act (ARRA) funds: Wednesday was the one-year anniversary of the ARRA, a large package of tax cuts and spending increases expected to cost $862 billion over 10-years. So far, based on our tracking at Stimulus.org, a bit over $300 billion has gone out. Back of the envelope math suggests that stopping stimulus spending tomorrow would save about $550 billion (although the actual number would vary for a number of reasons). A more realistic policy would be to cancel all stimulus spending which has not yet been obligated; we estimate this would save about $230 billion. If you were to also repeal the tax credits made available for 2010 -- including what has already been issued -- this might save another $75 billion or so.

These estimates exclude interest savings, but the also do not account for the drop in demand and output which might occur is stimulus is withdrawn too early.

Don’t spend any more TARP funds: TARP was originally given $700 billion in budget authority – meaning that the Treasury had the ability to spend up to $700 billion if it as deemed necessary given financial market conditions. Currently, about $400 billion remains available.

However, stopping all of TARP’s equity purchases, transfers, and investments doesn’t equate 1-for-1 with savings and deficit reduction (as we’ve noted here and here).

When TARP was created, it was scored on what we refer to as a risk-adjusted present value basis. The calculation itself is quite complicated (see here for a more detailed explanation), but it essentially aims to estimate the net cost of any TARP spending to the deficit, based on the likelihood the loans and investments will be paid/bought back.

In the January baseline, the CBO estimated a roughly 25 percent subsidy rate for all investments made so far. So that means the $300 billion disbursed so far have increased the deficit by around $75 billion. Now compared to spending all of the remaining $400 billion in funds, not spending any would save about $100 billion -- assuming CBO's 25 percent subsidy rate. However, in its baseline, CBO already assumes that $350 billion of that will never be spent. In other words, current deficit measures assume that only $50 billion more in TARP will go out, total. So technically, the budgetary savings of rescinding that would be $25 billion.

In the face of $14 trillion of deficits over the next decade (according to our “current policy” baseline), ending stimulus spending would make only a small dent. There also is a legitimate concern that withdrawing stimulus too quickly could send the economy into a "double-dip" recession.

That said, while these do not come close to solving the problem, they provide significant savings.

We continue to applaud our contestants for doing what to many policymakers are unwilling to do: come up with specific spending cuts and tax increases to begin bringing the debt under control.

As always, we welcome all additional suggestions; and will try to provide estimated budgetary savings for them, if we can.

Feel free to offer your own in the comment queue below.