Today, Comeback America Initiative founder and CEO Dave Walker (former U.S. comptroller general) and Concord Coalition executive director Bob Bixby published an op-ed in POLITICO. They write that the nation has some very difficult fiscal choices ahead, and that the only way policymakers will ever truly be able to put the big ticket items on the table is if there is greater public understanding of the nation's fiscal challenges and the kinds of significant structural reforms we will need to make to solve them.
"Whether you agree with President Barack Obama’s vision of the size and role of the federal government or the alternative put forward by House Republicans, both would require substantial changes in popular programs.
The status quo doesn’t add up. This is not ideology. It’s basic math.
Such sweeping reforms are likely to be politically difficult, so the American people’s active involvement is essential. We need a real national dialogue about the massive fiscal challenge, related risks, possible options and the inescapable trade-offs among those options.
Without greater public understanding, elected officials are unlikely to break away from their comfortable partisan talking points to find sensible solutions."
One initiative CRFB has launched to help foster a national discussion is our budget simulator "Stabilize the Debt," which offers a simple way for everyone to get a sense of how big our problem is, the options we have available to fix it, and the necessary tradeoffs we as a country will have to face.
Click here to read the full op-ed from Bixby and Walker.
The bipartisan, bicameral group of lawmakers hand-picked by congressional leaders had its first meeting today with Vice President Joe Biden to discuss a possible debt reduction agreement. In a statement afterwards, the Vice President said that the meeting was “productive” and that the working group will meet again on Tuesday, May 10.
With public debt quickly heading towards the statutory debt ceiling, coupling a debt limit increase with some form of debt reduction appears quite likely. The Biden group is well positioned to fast track such a debt ceiling agreement, which should happen quickly. As CRFB said in a statement this morning, adopting a debt limit increase along with enforceable debt and savings targets and specific debt reduction policies could be an appropriate compromise.
A budget enforcement mechanism, like a debt target, has emerged as a basis for a possible deal. While budget process can play an essential role in putting the country on a sound fiscal course -- the Peterson-Pew Commission on Budget Reform has put forth recommendations for making targets effective through triggers -- process alone is not enough. Concrete policies must be agreed upon as well. Accompanying targets with a down payment of specific and substantial debt reduction will demonstrate lawmakers’ commitment that the targets are not a cop out.
Debt targets are critical, but they are a means, not an end. Including some tough choices in a down payment will give the public and markets greater confidence that the targets are not just an empty promise of future actions that will never happen.
In the awesome world of budget baselines and budget options, we are graced a few times a year with updated budget projections from CBO. These updated projections give us an opportunity to get a better sense not only of where our country's finances are heading, but also to update estimates on what would happen if certain deficit reducing policies were put in place.
Since the Fiscal Commission's recommended spending, revenue, deficit, and debt paths were based off of an adjusted version of CBO's August budget projections, we can now roughly update these metrics for the Fiscal Commission's plan based on CBO's most recent March projections. CRFB recently ran through all these numbers for our analysis that compared the President's new debt reduction framework, the House Republican budget, the President's February budget, and the Fiscal Commission plan all on a comparable 10-year basis.
Why is it important that there are March budget projections? Well, a lot has changed in the budget world since August -- economic projections have been revised downward, lawmakers signed an $858 billion tax cut deal in December, and Congress and the President reached an agreement on fiscal year 2011 appropriations which included significant cuts in discretionary spending (which not only make spending this year lower, but have also been incorporated into the baseline for future years).
Our updated estimates of the Fiscal Commission's savings (also found in the attached spreadsheet) judge the Fiscal Commission's recommendations from both current law and adjusted baseline projections, which will not be exactly the same as the Fiscal Commission's plausible baseline. We also updated several estimates for specific policies based on some new scores from CBO, and extrapolated savings out to 2021. These updated estimates give us the best reasonable projections of what deficits and debt would look like for the next 10 years under the Commission's recommendations.
We have estimated that the plan would now save slightly under $4.1 trillion over the 2012-2021 period compared to our adjusted baseline. Note that this appears as less savings than what the Fiscal Commission presented ($4.1 trillion through 2020). This is due mainly to the fact that some of the discretionary savings recommended by the Commission have been incorporated into our adjusted baseline either because the recent discretionary spending cuts have lowered the current law baseline (about $300-$400 billion through 2021), economic and technical estimates have changed the discretionary projections (about $100-$200 billion through 2021), or the fact that our baseline does not incorporate the President's FY 2011 discretionary request as the Commission did (about $300-$400 billion through 2021).
The actual levels of deficits, debt, spending, and revenues will also differ from original estimates for other reasons, largely because the 2010 tax cut deal and lower economic growth assumptions have significantly pushed down revenue projections. Under our latest estimates, we project the Fiscal Commission plan would hold spending to below 22% of GDP from 2014 on, and would gradually raise revenue to above 20% by 2020. As a result, deficits would fall from over 9% of GDP in 2011 to 2.6% in 2015 and 1.6% in 2021. Debt would decline from a high of 75% of GDP in 2013, to below 69% by 2021.
|CRFB Updated Fiscal Commission Estimates|
Although debt would be higher than under the original projections -- largely due to the 2010 tax deal and lower economic assumptions -- the Fiscal Commission's recommendations would still save more than $4 trillion over the next decade, and would bring debt down to much more manageable levels. In our view, the Commission's plan still reflects the minimum standard of savings that lawmakers should work toward.
An op-ed in today's New York Times by Harvard economics professor Martin Feldstein says that while reducing our debt will require more revenue, that doesn't necessarily mean higher tax rates. Feldstein proposes the idea of capping the amount that tax expenditures as a whole can save an individual taxpayer to a maximum percentage of their income. This reform would decrease the amount of revenue lost through tax expenditures without having to go through the politically difficult process of singling out specific tax deductions for elimination.
Feldstein developed and studied this reform with CRFB president Maya MacGuineas and Daniel Feenburg of the National Bureau of Economic Research. They published their findings in a paper released last month, Capping Individual Tax Expenditure Benefits, which projects that capping the amount that tax expenditures can reduce each individual's tax burden at 2 percent of their adjusted gross income (AGI) would raise $278 billion in 2011.
Click here to read the full op-ed.
Click here to read the full paper.
Martin S. Feldstein, a professor of economics at Harvard, was the chairman of the Council of Economic Advisers from 1982 to 1984 under President Ronald Reagan.
The excess property map comes as the White House is proposing a BRAC-like (Defense Base Closure and Realignment Commission) commission for federal property. In addition, deputy OMB director Jeff Zients said that the administration would release the full list of surplus property and that they would push for the streamlining of rules that govern agency sales of federal property.
This is not the first time that President Obama and OMB have targeted excess property. Last year, OMB asked agencies to save no less than $3 billion by 2012 on real estate, which included not only getting rid of unneeded property, but also cutting building operating costs and being more energy efficient. The idea for a commission could presumably help that goal if it is passed and implemented quickly. Nonetheless, the BRAC-esque commission and the other proposed changes are a good way to remove some of the political and legal hurdles to selling excess property.
It seems that the Administration will have a lot of support for this proposal. On Capitol Hill, there are some proposals involving the sale of excess property. Rep. Jason Chaffetz (R-UT), a sponsor of one of those measures, says that he supports the idea of a property commission.
In addition to property, there is the broader question of the sale of certain government assets, which we addressed on The Bottom Line last year. Of course, many of these assets would be more controversial to sell. But sales of assets lawmakers deem appropriate and the sale of excess property are good ways for the government to save a little.
Bumping Up on the Debt Ceiling – On Monday, Treasury Secretary Tim Geithner sent a letter to congressional leaders saying that his department this week would begin the “extraordinary measures” necessary to stave off a U.S. default absent an increase in the statutory debt limit, which will be breached around May 16. On Friday, Treasury will suspend the issuance of State and Local Government Series (SLGS) Treasury securities. In the letter Secretary Geithner cautioned that the action “is not without costs; it will deprive state and local governments of an important tool to manage their outstanding debt expenses.” While the letter also said that better-than-expected tax receipts mean that default can be delayed until around August 2, Geithner warned that delay could hamper market confidence in the U.S. and impact the economy. August should not be seen as the deadline for increasing the statutory debt ceiling; an agreement should be reached in a timely manner that increases the limit and includes concrete steps to improve the nation’s fiscal outlook. CRFB co-chairs Bill Frenzel and Charlie Stenholm offered ideas in The Hill for a deal. While a comprehensive, multiyear fiscal plan along the lines of that being negotiated by the Senate Gang of Six would be ideal, there may not be time to enact it, making a “Plan B” consisting of statutory debt and savings targets enforced by triggers as proposed by the Peterson-Pew Commission on Budget Reform the best alternative. See CRFB’s paper on responsible approaches to increasing the debt limit.
Biden Meeting Sets Stage for Debt Limit Negotiations – A Thursday meeting led by Vice President Biden will effectively commence talks over increasing the debt limit. Biden will meet with a bipartisan, bicameral group of lawmakers hand-picked by congressional leaders. Democrats and Republicans agree that budget enforcement mechanisms like budget caps and debt targets will be key to an agreement. Republicans have also dropped demands on overhauling Medicare in order to focus on areas that can achieve bipartisan agreement, like cutting farm subsidies. While these signs are positive, getting to an agreement will still be difficult. The Washington Post’s Steven Pearlstein suggests sending in the Navy SEALs, but there may be a more subtle approach. Perhaps if the VP serves margaritas in observance of Cinco de Mayo, agreement can be reached quickly.
Triggers? Figures – With the increasing focus on budget process as a part of a debt limit compromise, budget enforcement mechanisms like debt triggers are receiving increased scrutiny. A Senate Finance Committee hearing on Wednesday addressed the subject where witnesses generally agreed that mechanisms like triggers can be part of the solution, but that they are no substitute for making the tough policy decisions required to get our fiscal house in order. See the Peterson-Pew Commission recommendations for making triggers work.
No Sense of Cloture – On Wednesday the Senate failed to invoke cloture on small business legislation (S. 493) that has become the vehicle for several fiscal measures, including amendments from Sen. Tom Coburn (R-OK) that would reduce duplication in government and cut other spending. The fate of the legislation is unknown.
Senate Budget to Proceed – Senate Budget Committee Chair Kent Conrad (D-ND) says that he will mark-up a FY 2012 budget resolution next week, perhaps as early as Monday, in his committee. The proposal reportedly will reduce the deficit by some $4 trillion over ten years.
White House Wants to Sell Excess Federal Property Brick-by-BRAC – The Obama Administration on Wednesday proposed that Congress form a BRAC-like commission to oversee the sale of over 12,000 federal properties it has identified as excess, which it estimates could bring in some $15 billion over three years.
Corporate Tax Reform Awaits – The White House is gearing up to promote corporate tax reform, proposing to reduce the top rate to under 30 percent. The plan could be considered alone or be added to the 2012 budget or a long-term debt reduction deal.
Since President Obama put the idea of a debt trigger in the public's mind, it has become a hot topic. Third Way recently put out a piece detailing different types of triggers, including the recommendation from Peterson-Pew Commission on Budget Reform. And this morning, the Senate Finance Committee held a hearing on budget enforcement mechanisms.
At the Finance Committee hearing, Susan Irving of GAO and Paul van de Water of CBPP both were cautious about the effectiveness of triggers or other mechanisms. Specifically, when comparing Gramm-Rudman-Hollings (deficit targets and sequestration) and the Budget Enforcement Act (discretionary spending caps and PAYGO), they came to the conclusion that these mechanisms were better at enforcing an already-made agreement rather than forcing an agreement to be made. Former Sen. Phil Gramm, however, was more optimistic about the possibility of forcing an agreement, and for good reason: he is the Gramm in Gramm-Rudman-Hollings. He had a particularly colorful comment:
Our experience with Gramm‐Rudman showed clearly that if you hoped to deal with the deficit by building a four‐sided fort, pulling up the drawbridge and going back to sleep, you were going to be disappointed. Probably the best that any mechanism can provide is to help force action and tilt the process to encourage hard choices and compromise. At its best it can become a good stone wall to your back in a gunfight.
There was further disagreement on how an enforcement mechanism should be designed. Gramm said that spending sequesters/triggers/caps were the only way to go, because involving tax increases would somehow create perverse incentives for Congress to simply let the trigger be activated. Both Irving and van de Water disagreed with Gramm's view, saying that a spending-only approach ignored the other side of the equation and would be a poor way to budget, instead offering their support for a trigger that hits both spending programs and tax expenditures. However, while Irving supports the idea that the broader the trigger, the better, van de Water would prefer to exempt low-income programs from a trigger, specifically mentioning the Corker-McCaskill spending cap as a poor enforcement mechanism.
Even though the three had some disagreements about enforcement mechanisms, they did agree on one thing: enforcement mechanisms are useful budgetary tools, but they are not substitutes for the real policy decisions necessary to get our fiscal house back in order.
CRFB has long supported debt targets and triggers. In a paper we released last week, we explained the key considerations to make when designing a new debt trigger, including whether it should be a "forcing" or "enforcing" trigger and what should be hit versus what should be exempted if the trigger is pulled. CRFB believes the best course is to enact a forcing trigger as soon as possible, perhaps as part of a debt ceiling increase, to spur action on a budget deal, followed by enactment of an enforcing trigger with any subsequent budget deal to keep the plan on track. CRFB also supports a trigger that is as broad as possible, making adjustments to every category of spending and revenues, including tax expenditures.
In an op-ed in The Hill today, CRFB co-chairs Bill Frenzel and Charlie Stenholm propose a fiscally responsible approach to raising the debt ceiling. They recommend including a comprehensive fiscal reform plan along the lines of the Fiscal Commission's proposal as part of a debt ceiling increase.
The authors note, however, that it may be unrealistic to expect such a plan to pass before action on the debt limit is needed. Frenzel and Stenholm recognize that we may need a Plan B to start getting control of future deficits while also responsibly increasing the debt limit:
So, we need a Plan B to buy some time. Over the past two years, we have worked on the Peterson-Pew Commission on Budget Reform with a team of colleagues who have headed the Office of Management and Budget, the Congressional Budget Committee and the Fed, developing a plan for statutory debt and savings targets. These targets would commit policymakers to bringing down our deficits and debt as a precursor to agreeing on the specifics of a deal. Attaching these enforceable targets to the debt ceiling would allow us to take the first step to moving the budget in the right direction immediately.
Click here to read the full op-ed.
"My Views" are works published by members of the Committee for a Responsible Federal Budget, but they do not necessarily reflect the views of all members of the Committee.
From the President's recent deficit-reduction framework to policy forums on Capitol Hill, budget process reform has recently become an increasingly popular issue in the world of politics. A recent release from the Concord Coalition offers insight into this issue and analyzes the strengths and weaknesses of several budget process proposals.
Among the proposals examined in the release is Red Ink Rising, a report released in December 2009 by the Peterson-Pew Commission on Budget Reform that lays out a plan to stabilize the debt at 60 percent of GDP. The proposal establishes specific deficit targets enforced by a trigger that would require automatic spending cuts if the targets were missed. The Commission continued its work on budget process reform with a second report released in November 2010 -- Getting Back in the Black -- that built upon the Commission's earlier work by detailing a specific framework to meet those fiscal targets.
Other proposals considered by the Concord Coalition are:
- McCaskill-Corker CAP Act: Starting in 2013, this bill would gradually cap spending over a 10 year period until it reached 20.6 percent of GDP, the historical average.
- Paul Ryan's Proposal: House Budget Committee Chairman Paul Ryan's budget proposal called for a binding cap on total spending as a percentage of the economy. The House budget resolution, which was based on Chairman Ryan's proposal, would reduce spending over 10 years to 20.5 percent of GDP and then to 19.9 percent of GDP by 2021.
- President Obama's Debt Failsafe Trigger: The "debt failsafe" proposed in the President's deficit-reduction framework would require automatic spending cuts if projections of the deficit-to-GDP ratio averaged more than 2.8 percent during the second half of the decade. Social Security, Medicare, and low-income programs would be exempted from the spending cuts.
- Bipartisan Policy Center's SAVEGO Proposal: This proposal calls on Congress to set annual savings targets to reach a specific deficit reduction goal. SAVEGO would require separate annual savings targets from each of three portions of the budget -- savings from a cap on discretionary spending, savings from health care programs, and savings from other mandatory spending, reductions in tax expenditures, and other increases in revenue.
The report goes on to further explore the "mixed track record" of budget process reforms, specifically noting the importance of putting everything on the table, setting realistic and bipartisan targets, and the danger of including exemptions and loopholes. It also states that the proposals from the Peterson-Pew Commission and the Bipartisan Policy Center "represent the most complete and thoughtful alternatives with the greatest chance for success."
Emphasized throughout the report, however, is the underlying theme that process reforms cannot replace tough policy decisions.
"To be effective, a process proposal must still be accompanied by an honest discussion of the policy changes that will be necessary to comply with the targets. Budget process reform is a useful starting point, but it is no substitute for these difficult choices. Whether it is the existing budget process or a new process, deficit reduction requires elected officials to lead by saying which programs will be cut and which taxes will be raised."
Click here to read the full release.
Wedding Vows and Vows Kept – Last week the royal wedding in England between William and Kate garnered a great deal of attention on this side of the pond. Meanwhile another union seemed to blossom in this country – the pairing of a debt limit increase with some type of trigger mechanism. Now, the word that Osama Bin Laden has been killed and buried at sea puts an end to the quest for the man most responsible for the 9/11 attacks and finally fulfills a promise to bring him to justice that spanned two administrations. The news comes amid a trend where the primary focus for Americans is shifting from foreign entanglements to domestic economic concerns and confronting what the chairman of the Joint Chiefs of Staff and others have called the greatest security threat to the U.S. – the national debt. Will the new avenue for compromise and foreign policy success spawn bipartisan collaboration to address the debt?
An Arranged Marriage – The debt ceiling (read the CRFB debt limit primer) has been looking for a suitable partner for some time. Failure to increase the statutory debt limit is not an option as it would have catastrophic consequences for the economy, yet many lawmakers want to take advantage of the opportunity to address the unsustainable fiscal policies that have brought us to this point by taking concrete steps to reduce mounting federal budget deficits and national debt. [Read the CRFB paper on responsible approaches to raising the debt limit.] With a wide divide among party leaders over how to reduce the debt and with time growing short before action on the limit is required (the Department of Treasury says it can stave off a national default no later than early August), coupling a debt ceiling increase with a budget enforcement process designed to ensure that the debt is brought under control has become the prime candidate for a compromise solution. Leaders in both the House and Senate support pairing a debt limit increase with a trigger mechanism, although there is no agreement yet on exactly what the trigger would look like. The growing interest in the concept was evident in a Capitol Hill briefing on triggers convened on Thursday by the Peterson-Pew Commission on Budget Reform that attracted a packed room of congressional staffers and many others. The commission (a project of CRFB) last week released a paper answering the types of questions that policymakers are now asking about how to make a trigger work and offering recommendations on how to create an effective trigger. Furthermore, CRFB President Maya MacGuineas wrote about the subject in a Washington Post op-ed. A trigger is a worthy suitor for the debt limit increase and this is one arranged union that could work.
Ganging Up on the Debt – The hats at the royal wedding sure were…interesting. Hopefully, we soon will be able to say ‘hats off’ to the bipartisan “Gang of Six” senators who have been busy working on a comprehensive debt reduction plan. Members of the group say they are close to a deal and it could be unveiled as early as this week. The group is eying a mix of spending cuts and revenue increases. Word is the group is also discussing a trigger mechanism to accompany the plan to ensure it stays on track once enacted. Once an agreement is reached, the focus will turn to the “Gang of 64” senators who signed a letter in March calling for leadership and bipartisanship on a comprehensive deficit reduction solution. These will be the senators most likely to support the plan. Another bipartisan group of lawmakers will meet at the White House on Thursday to begin talks led by Vice President Joseph Biden aimed at finding common ground. A plan from the Gang of Six could inform those talks.
No Honeymoon for Congress – Congress is back in session this week after a spring recess that featured scores of town hall meetings where the budget received more attention than Kate’s wedding gown. Senate Majority Leader Harry Reid (D-NV) has promised to put the FY 2012 budget that the House passed just before the break to a vote on the Senate floor, where it very likely will fail. Republicans want to have a vote on the President’s budget as well, to show that it also cannot pass. Committee hearings on the budget continue and the House hopes to begin mark-ups in the Appropriations Committee on spending bills this month. House leaders are keen to have an orderly appropriations process this year that produces all 12 spending bills, in order to contrast with the recent budget failures under a Democratic House. The Senate, however, is not likely to move quickly or go along with anything the House passes. Senate Budget Committee Chair Kent Conrad (D-ND) has been waiting on the Gang of Six, of which he is a member, to produce a plan before he marks up his budget resolution.
Panetta to Pentagon – Last week the White House officially announced that CIA Director Leon Panetta will be nominated to replace Defense Secretary Robert Gates when he steps down later this year. In addition to directing U.S. military strategy in a post-Osama world he will also manage the effort to streamline the Pentagon and find significant savings in the massive Defense budget. In addition to his experience at the CIA, as a former House Budget Committee chair and OMB director (and former CRFB co-chair for that matter) Panetta is uniquely qualified to administer organizational changes in the department’s bureaucracy and budget and increase efficiency without damaging the military's missions.
Can Oil Subsidies Grease the Skids for Tax Reform? – Much was made of comments last week from House Speaker John Boehner (R-OH), even though they were walked back some soon afterwards, that he would consider eliminating some of the tax breaks for the oil and gas industry. Other prominent conservatives like House Majority Leader Eric Cantor (R-VA) and House Budget Committee Chair Paul Ryan (R-WI) have also expressed a willingness to eliminate tax subsidies like those for oil and gas in the context of a larger reform of the tax code. This is part of the growing momentum on both sides of the political aisle to eliminate and reduce tax expenditures as a part of fundamental tax reform and a comprehensive debt reduction plan. Read the CRFB paper on tax expenditures here and see more ideas for tax expenditure reform here and here.
Key Upcoming Dates
- Senate Finance Committee hearing on Budget Enforcement Mechanisms at 10 am.
- First meeting at the White House of the bipartisan talks led by Vice President Biden to seek consensus on reducing the deficit.
- Senate Homeland Security and Governmental Affairs Committee hearing on duplication in the federal government at 2:30 pm.
- April unemployment data from U.S. Department of Labor, Bureau of Labor Statistics.
- Treasury Secretary Tim Geithner says the statutory debt limit will be reached no later than May 16.
- Treasury Secretary Geithner says that the U.S. will default on its obligations by around August 2 if the statutory debt ceiling is not increased before then (revised).
The Chairmen of the Joint Chiefs of Staff, Admiral Mike Mullen, made some important statements recently regarding our national debt and defense spending (hattip to Gordon Adams over at Capital Gains and Games).
There are four main budgetary points he brings up:
- Our national debt is the largest national security threat our nation faces because we would have fewer available recourses for defense spending
- Defense needs to be on the table for fiscal readjustment, with defense health care costs exploding in recent years, eating up a larger and larger portion of the defense budget
- Defense spending has not been subject to significant scrutiny over the past several years
- We have reduced defense spending in the past
Admiral Mullen is completely correct on all of these points. Our fiscal situation requires us to act to prevent a fiscal crisis, one that would negatively effect our economy and standard of living, but would also decrease our ability to protect ourselves. We need to include defense in any fiscal plan and make sure that the defense budget we have is one that we need and can afford.
ADM. MULLEN: "...[T]he reason I talk about the debt as the single biggest threat to our national security is – it’s basically not very complex math. I mean, I think the worst situation that we are in as a country fiscally, the likelihood of the resources made available for national security requirements continue to go down is very high. This is the third time I’ve been through this. We did this in the ’70s. We did it in the ’90s. And, actually, if you look at the data going back to the ’30s, our defense budget goes up and down, and it does so on a fairly regular basis. So certainly this is not unexpected, from my point of view. What I’ve seen, though – and I’ve been in the Pentagon most of the last decade – with the increasing defense budget, which is almost double, it hasn’t forced us to make the hard trades. It hasn’t forced us to prioritize. It hasn’t forced us to do the analysis.
And it hasn’t forced us to limit ourselves and get to a point in a very turbulent world of what we’re going to do and what we’re not going to do. And so I see that on the horizon, and we need to be paying an awful lot of attention to that. I have said the defense needs to be on the table, and I’m comfortable with that. That said, I’m required to articulate our national security requirements and certainly advise the president and others, but particularly the president, about how we best can achieve them with the force that we have. And we find ourselves at a particularly difficult time for, let’s say, our modernization in our Air Force. I mean, we are running out of life in those assets that we bought in the ’80s under the Reagan administration, at a time where – I don’t have to tell you or this audience – where our national security requirements continue to challenge us."