With the end of September comes the end of the fiscal year, so it's time to look back on the year that was. We've had a whirlwind year of exciting developments in the world of fiscal policy, both good and bad.
This year saw the release of an unprecedented number of fiscal plans, a resolution to the 2001/2003 tax cut debate (an unpaid-for, temporary extension), and numerous showdowns over spending and debt. In terms of deficit reduction, there was some progress, as Congress took steps to rein in discretionary spending during the shutdown and debt ceiling debacles. However, a potential "grand bargain" between President Obama and Speaker Boehner fell apart in July over disagreements of how much revenue to include.
Nonetheless, we welcome FY 2012 with hopes that more progress will come. The Super Committee will be reporting its plan, which we hope will tackle all areas of the budget, including tax reform. This is a big opportunity to force action on a comprehensive deficit reduction plan and CRFB is joining many other voices in calling for the Super Committee to "Go Big."
But, the political bickering that characterized much of this year seems poised to carry over into the next year. November 18 is the date that people will be watching to see what happens with the FY 2012 budget, as the next CR will expire then. With Congress passing none of the appropriations bills for 2012 yet, it looks like we will have another year that provides clear evidence of how broken our budget process is and the need for reform.
Here's to the next fiscal year being the year of the enacted fiscal plan.
For a look at FY 2011 by the numbers, see our release here.
Today, a collection of 155 business organizations representing a wide variety of interests joined the "Go Big" call. In doing so, they have joined 38 Senators and a whole host of other budget experts, former lawmakers, and business leaders who have also urged the Super Committee to exceed its savings mandate of $1.5 trillion.
Signatories of the letter include some of the nation's largest and most influential business groups, including the US Chamber of Commerce, Business Roundtable, and the National Association of Manufacturers.
Here's a selection from the letter:
The undersigned organizations urge you, as a member of the newly appointed Joint Select Committee on Deficit Reduction, to go beyond the legislative mandate of the Balanced Budget Control Act of 2011 to achieve savings of $1.2 to $1.5 trillion to ensure that we stabilize our nation’s debt and put the debt’s share of the economy on a downward path. This is essential for long-term economic growth in our nation.
We believe it is crucial to act expeditiously to rein in spending, reform the tax code, reduce the deficit, and stabilize and ultimately lower America’s level of debt. Economic growth is critical to our nation’s fiscal health, and we believe that these steps will remove the threat of fiscal instability, improve certainty, and create a sustainable foundation for economic and job growth in the years ahead.
Put simply, Congress must reform entitlement programs and comprehensively restructure the U.S. tax code.
We applaud these groups for calling for a comprehensive fiscal plan, and we are thrilled to see that support for the Super Committee to Go Big is growing by the day. Let's hope they're listening to all the voices who are looking for $3 to $4 trillion in deficit reduction.
Click here to read the full letter and see a complete list of signatories.
Click here to see CRFB's "Go Big" resource page.
In what was basically a formality, this morning the House of Representatives approved a super short-term continuing resolution (CR) to keep the government funded through October 4. This should clear the way for approval of a slightly less short-term CR that would fund the government through November 18.
The latter CR would put discretionary spending at the Budget Control Act level of $1.043 trillion. Also, the issue that held up passage of a CR--emergency spending--was resolved after FEMA determined that it would not need any additional emergency money to get through FY 2011 (which ends tomorrow). As a result, the original $3.65 billion in FEMA money that Congress seemed to be willing to pass was reduced to $2.65 billion. Apparently, the issue of offsetting the emergency money was defused because of the lower amount given.
However, many unresolved issues remain. Of course, Congress will have to pass another CR (or omnibus appropriations bills) by November 18, but there will be more to this fight than emergency spending. The allocation of money within the overall $1.043 trillion was not really dealt with, since the CR simply cut spending across the board to get from the FY 2011 to the FY 2012 cap. If Congress is looking to either pass appropriations bills or a full-year CR, it will have to resolve House and Senate differences over the allocation among the spending categories.
Plus, funding for disaster relief may come up again in November. As talked about in a POLITICO article, although Congress passed $2.65 billion in FEMA money, that is only a small amount compared to the amount of disaster relief spending that will be made over the course of the year. According to the article, some estimates have $1.5 billion already being spent by November 18, and FEMA has expected the money to be exhausted by late December. So, it is quite possible that Congress will be fighting over disaster relief again in a month and a half.
Our broken budget process and fragmented political system has made every deadline a scramble. We thought FY 2011 was bad enough, with the budget not being determined until the year was already half-over on the eighth CR. As scary as the thought is, FY 2012 might be even messier.
If you recall, the two Senators released a Medicare plan in June that would save around $500 billion over ten years. The plan included many policies that the Fiscal Commission plan had (not surprising, considering Coburn's membership on the Commission), such as reforming Medicare cost-sharing rules and restricting Medigap first-dollar coverage. In addition, they included big ticket items like raising the retirement age to 67, increasing Part B premiums from 25 percent to 35 percent of costs, and further means-testing those premiums. A small part of these savings was used to pay for a three-year doc fix.
|Provision||2012-2021 Savings (billions)|
|Raise retirement age||$124|
|Reform cost-sharing rules (including Medigap)||$130|
|Further increase cost sharing for high earners||unknown|
|Accelerate home health savings||$9|
|Phase out payments for bad debts||$23|
|Means test Part B and Part D premiums||$15*|
|Increase Part B premiums||$241|
|Enact three-year doc fix||-$38|
|Enact anti-fraud and anti-abuse measures||unknown+|
*Estimated at $10 to $20 billion +Estimated by staff at up to $100 billion
In addition to submitting their proposal, both Senators also offered to testify before the Super Committee on the subject of Medicare reform. It's clear that Sens. Coburn and Lieberman are willing to put their full weight behind the proposal, which they describe as possibly being "the basis for a bipartisan agreement to save our government's finances and preserve Medicare for future generations." We agree, which is why it would be wise for the Super Committee to seriously consider this proposal. Medicare will get hit whether the Committee succeeds or not (provider payments are subject to the trigger); this is the perfect opportunity to get Medicare's finances in order and put overall health spending on a more sustainable path.
The list of submissions to the Super Committee is short but growing. See our full table for all the specific proposals that have been sent so far.
The usual story about the recent historical low in revenue we have seen over the past three years is due to the recession. After all, revenue was at 19 percent of GDP before the recession and is projected to rise back above its 40-year historical average later this decade (even with the 2001/2003 tax cuts extended). But an interesting "Tax Notes" post at Tax Policy Center shows that the down economy is not fully to blame for the low revenues.
Samuel Brown of TPC calculated separately what revenue as a percent of potential GDP would be in the absence of cyclical effects, then what it would be without the tax cuts that passed last December. For this year, revenue is projected to be 14.4 percent of potential GDP. Using CBO's April report on automatic stabilizers, Brown found revenue to equal 16.1 percent when removing the cyclical effects of the down economy, a difference of 1.7 percentage points. On top of that, when removing the 2010 tax cut, revenue climbs to 19.3 percent of potential GDP, a difference of 3.2 percentage points.
By Brown's calculation the effect of the tax cuts is almost twice as large as the cyclical effects.
Based on these numbers, the conclusion is somewhat surprising: the 2010 tax cut actually had much more of an effect on revenues this year than the poor state of the economy. This does not change the fact that revenues will recover back to historical averages when the economy reaches full capacity again. But, it is interesting to see the breakdown of the reasons for our current revenue levels.
Yesterday, we argued that to actually stabilize the debt as a share of the economy, you probably need to propose a plan with even more savings than what would stabilize the debt under current projections. The risks come from both the economic and political uncertainties:
...many other private forecasters, including the IMF, have also revised the economic outlook downward, which can have serious effects on the budget outlook. Even slightly lower growth could put debt as a share of the economy from a stabilized to an upward path as automatic spending rises, revenues shrink, and output grows more slowly. In addition to economic uncertainty, there is always the political uncertainties that policymakers could do less than what's needed to at least stabilize the debt and could go back on previously enacted debt reduction due to political pressures.
A report from Moody's Investors Services, one of the largest credit rating agencies in the U.S., warned that recently slowing economic growth and the threat of lower growth in the near future is making the task of deficit reduction more difficult. With a more fragile and smaller economy, stabilizing and reducing the debt-to-GDP ratio becomes even harder as automatic stabilizers could potentially keep deficits and debt inflated while the denominator in the equation, or GDP, becomes smaller.
The unpredictability of future projections makes the case for "Go Big" all the more pressing. We need to set debt on a downward path that leaves less up to chance.
The chained CPI, a policy option that has been endorsed by experts, organizations, and many others from across the political spectrum and has just received another loud endorsement, this time courtesy of Alan Viard at the American Enterprise Institute. The chained CPI, a more accurate measure of inflation, would reduce our deficit by hundreds of billions over the next ten years if applied throughout the federal budget, slightly reducing the growth in inflation-indexed programs while also raising revenues.
Switching to the chained CPI has already received broad bipartisan support, popping up in recommendations from the Fiscal Commission, the Domenici-Rivlin Debt Reduction Task Force, the Center for American Progress, the Progressive Policy Institute, the Heritage Foundation, AEI, and many others.
While many of these endorsements have relied largely on the technocratic element that if certain spending programs and elements of the tax code are to be indexed to inflation, then we should be measuring inflation as accurately as possible. Alan Viard argues that while the technical case for the chained CPI as a more accurate measure is very strong, it is an incomplete argument and that the case for using chained CPI is based on the budget realities that will require both restraint in entitlement spending and increased revenues.
To briefly recap the accuracy points we made in our policy paper on the chained CPI, it would more precisely measure inflation as compared to the current CPI measures by accounting for something known as upper-level subsititution bias," a fancy way to explain when consumers start buying more products across and not within product categories when prices change. For example, consumers would likely buy more oranges and other fruits if the price of apples went up, which is not accounted for in the current inflation measure. In our analysis of the chained CPI, we also discuss the budgetary merits of moving to a more accurate measure--highlighting how the savings come from across the budget and include both spending and revenue savings.
Viard also strongly endorses the chained CPI, but sees its downward effects on deficits and debt as the primary argument for supporting it. He argues that if it were not for our "dire fiscal outlook" that demands solutions from both the spending and revenue sides of the budget, tax brackets would ideally be indexed to nominal income growth so that the average earner would not face any higher or lower tax brackets over time from real income growth.
As Viard says:
The real case for switching to the chained CPI is grounded in fundamental budget realities. The fiscal imbalance will ultimately have to be addressed by bipartisan agreements that restrain entitlement spending and increase revenue. It will not be possible to address the imbalance on the spending side of the budget alone or on the revenue side alone, nor will it be possible for either major political party to unilaterally tackle the problem in a durable manner. A switch to the chained CPI is attractive because it combines revenue increases and entitlement cuts in a way that has attracted bipartisan support.
We believe that as long as our policy is to index benefit programs and the tax code to keep pace with inlfation, that policy should be implemented using the most accurate meaure of inflation. But we agree with Viard that our fiscal imbalance makes the case for switching to the chained CPI far more compelling than a simple matter of technical accuracy. As we have said before:
Addressing our fiscal challenges will require many tough choices and policy changes - but switching to the chained CPI represents neither. Such a change offers policymakers the rare opportunity to achieve significant savings spread across the entire budget by making a technical improvement to existing policies. As such, across-the-board adoption of the chained CPI should be at the top of the list for any deficit reduction plan or down payment.
Moving to chained CPI is win-win by improving the technical accuracy of how we measure inflation while also helping to bring spending and revenues more in line. With bipartisan support growing for the chained CPI, it is certainly something that the Super Committee should look at for its recommendations, especially one that is part of a “Go Big” aproach.
Yes, it could! Okay, you’re probably itching for a more fleshed out response than “yes”, so let’s walk through the logic.
The “Go Big” campaign is urging the Super Committee to come up with a deal two or three times as large as the savings in their mandate, and large enough to stabilize the debt at a reasonable level. We think going after the big deal could actually increase the chance of success. CRFB president Maya MacGuineas touched on this briefly today in a New York Times article, showing that getting to $1.2 trillion might actually be more difficult than agreeing on a larger plan.
To read more about all the reasons to “Go Big” and those who have been pushing the message, check out our new page here.
The logic of why “Go Big” could improve chances of success
With explicit discretionary caps already in place as a result of the Budget Control Act from this summer, it’s unlikely that further notable reductions to discretionary spending alone should be able to attract bipartisan support. So that means the majority of savings from any deal with have to come from changes to other areas of the budget: entitlement programs and revenues.
Let’s start with entitlement spending. Democrats have indicated that they are not willing to agree to significant entitlement reforms without revenues. Democrats also want to avoid another debt ceiling-like deal that featured spending cuts but no revenues, so any deal, in their minds, will have to have revenues. Maya MacGuineas made these points in a New York Times article today. In fact, the President even made this principle explicit in his submission to the Super Committee, stating that he “will veto any bill that takes one dime from the Medicare benefits seniors rely on without asking the wealthiest Americans and biggest corporations to pay their fair share." While it may be possible to reach an agreement on some of the savings that have already received bipartisan support or consideration, including many of the "other mandatory" policies discussed in the Biden discussions this summer and proposals in other fiscal plans, it’s not possible to achieve significant entitlement savings without savings from health programs. And Democrats have made it clear that they are not going to consider major entitlement health reforms if no revenues are included.
Republicans are far more willing to consider revenues if two conditions are met: 1) they are part of an overhaul of the tax system, or pro-growth tax reform, and 2) they are combined with structural entitlement reforms to ensure that the revenues go to deficit reduction rather than ever-expanding entitlement programs. This would require significantly more in savings than what was proposed by the President in his submission to the Super Committee. (It would should also require reforms to make Social Security solvent for the long-term, though much to our frustration, no one seems to be talking about that.)
This harkens back to the comprehensive fiscal plan, or grand bargain, that President Obama and Speaker Boehner were working on in the lead up to the debt ceiling deal. Ultimately, a final agreement was not reached, but in recent remarks to the Economic Club of Washington, Boehner reaffirmed this point by stating that $800 billion in new revenues were only on the table if the President was “willing to make fundamental changes in our entitlement programs.”
So it seems to us that if we put meaningful entitlement reform and additional revenues as part of tax reform on the table, we could get to a deal, and a really good one. But without one, you lose the other, and then are not left with much at all in terms of the non-gimmicky savings options, even to get to the already not big enough goal of $1.2 trillion.
The Political Case for “Go Big”
One of the lessons from the Fiscal Commission that co-chairs Erskine Bowles and Alan Simpson frequently mention is that by making the package bigger, they were actually able to get more people on board for it. They argue that is true because a big package creates the feeling of shared sacrifice in which various constituencies and interest groups are more willing to accept changes provided that everyone else is sharing in to burden too. The second reason is that, the words of Alan Simpson, “only big ideas have the power to inspire.” A plan sufficient in size and scope to solve our fiscal challenges will stand a better chance against efforts by affected groups to derail it than an approach that fails to solve the problem. A small plan that generates intense opposition from the groups that are affected but doesn’t promote shared sacrifice and doesn’t sufficiently address rising debt is the worst of all worlds.
Sure, there are other mandatory programs in which both parties have called for savings, and significant overlap in proposed changes to Medicare and Medicaid. Just check out our table of overlapping policies to see all the common ground. But assuming that only some of these are agreed to, such as Medicaid reforms and some changes to Medicare payments and cost-sharing given the President’s insistence that his Medicare reforms come only with new revenues in any final plan, the potential overlap likely would fall well short of the $1.2 trillion goal:
|Budget Category||Possible Savings|
|Chained CPI (includes both spending and revenue savings)||$230 billion|
|Possible Health Care Savings||$100 billion|
|Possible "Other Mandatory Savings||$200 - $300 billion|
|Possible Discretionary Savings||$0 - $100 billion (?)|
|Reduce or Eliminate Various Tax Breaks||$0 - $50 (?)|
|Interest||$100 - $150 billion|
|Total||$625 - $900 billion|
*Numbers are very rough possible scenarios and are heavily rounded.
Any additional savings would likely require all mandatory spending and revenues to be on the table.
So, is a small deal possible? Yes. but we think not only is a “Go Big” necessary, it is actually easier to achieve. So we continue to wish the Super Committee well, lend them our support, and urge them to Go Big.
Last week, in our analysis of the President's submission, we noted how the President's submission to the Super Committee nearly stabilizes debt, but not fully, this decade and how much more will be needed to actually put debt on a clear downward path.
We stated that:
"Measured against CBO assumptions, the President’s submission would nearly, but not quite, stabilize the debt as a share of the economy. Under the submission, debt would rise substantially through 2014 – from 67 percent of GDP today to 77 percent by 2014. Between 2014 and 2019, it would decline below 74 percent; however it would rise slightly between 2019 and 2021."
Apparently, CBPP thinks we went a bit too far in our analysis and in recent statements in criticizing the President's submission for not stabilizing the debt. James Horney argues that there are only a couple tenths of a percentage point increases in debt as a share of the economy later in the decade, something that "no economist would say...represents an unsustainable budget."
So let's explain our position a bit further.
The problem is that the debt needs to be stabilized so that it is not growing faster than the economy, and is on a downward path. While the president's submission almost stabilizes the debt this decade, it would then rise as a share of the economy thereafter. The President's plan doesn't go nearly far enough in addressing the drivers of debt, notably health care and retirement costs. Though the plan makes some notable improvements to health care cost-controls this decade and beyond, including Medicare premium and cost-sharing reforms and the strengthening of IPAB, they likely would not be sufficient to control costs over the long-term. In addition, the plan completely ignores Social Security reform when the costs of an aging population will greatly add to the program's costs, further adding to our borrowing needs. The result is then unfortunately that would it would grow, rather than shrink as a share of the economy in future decades, which is a critical test for at least the minimum for fiscal sustainability.
Uncertainty of Projections
It is true that budget and economic projections are highly unpredictable, given fluctuations in the economy and the need to respond to emergencies. CBPP uses this point to argue that 0.1 and 0.3 percent of GDP increases in debt in 2020 and 2021, respectively, are essentially the same level. But the projections don’t take into account the recent worsening economy, before all the market turmoil and economic reports of a slowing recovery this summer. CBO stated that a quick review of the developments pointed toward a "somewhat weaker outlook for the economy in the near-term."
In addition, many other private forecasters, including the IMF, have also revised the economic outlook downward, which can have serious effects on the budget outlook. Even slightly lower growth could put debt as a share of the economy from a stabilized to an upward path as automatic spending rises, revenues shrink, and output grows more slowly. In addition to economic uncertainty, there is always the political uncertainties that policymakers could do less than what's needed to at least stabilize the debt and could go back on previously enacted debt reduction due to political pressures.
Thus, we should be shooting for a clear, downward debt path that leaves less up to chance.
Nearly Stabilized at Too High of a Level
Even if the President's submission were to fully stabilize debt, it would do so at too high a level. Debt stabilized above 70 percent provides too little fiscal space to respond to emergencies that could pop up this decade, whether internal or external, and leaves too little budget flexibility for the next generation.
To have the best chance of actually stabilizing the debt, a plan must put debt on a downward path to account for the risk of conditions worsening and to leave room for other policies. This is particularly true if the debt is being stabilized at a level well above 60 percent.
There are elements of the President's submission that warrant critiquing and other parts that deserve to be praised. It is very encouraging that the President has embraced the need to stabilize the debt and exceed the Super Committee's current mandate, but unfortunately we believe the President's submission would not be enough to stabilize and control debt. Hopefully, the Super Committee will take a hard look at some of the proposals put forward by the President. Ultimately, the members of the Committee will have to go much further to actually stabilize and reduce debt as a share of the economy.
Live Long and Prosper – The Star Trek franchise is celebrating its 45th anniversary this month. The original show and its various progeny have presaged many technological and societal advances, fueled our imagination and provided an optimistic vision of our future. That rosy future seems especially distant now in the midst of a weak economy, non-stop partisanship that is eroding public confidence in our political institutions, and mounting national debt that threatens our future standard of living. The debt threat is proving to be as ferocious as a Klingon, as terrifying as a Borg, and as devious as a Romulan. Will we be able to use Vulcan-like logic to overcome the debt challenge?
Wrath of Cons – Once again, the federal government faces the prospect of a shutdown because Congress has been unable to pass a budget. With none of the twelve annual spending bills slated to be approved before fiscal year 2012 begins on October 1, a stopgap measure will be required to keep the government operating past Friday. However, the first shot at passing a continuing resolution (CR) that would fund the government through November 18 failed last week. House Democrats bristled at $1.5 billion in disaster aid that would be offset by cutting funding from the Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program. But it was conservatives in the Republican caucus that sunk the measure by voting against it because it follows the $1.043 trillion spending level called for in the recent Budget Control Act that avoided a government default last month instead of the lower level set forth by the budget resolution passed by the House earlier this year. After House leaders impressed upon members the need to support the measure and added a $100 million rescission to the program that provided the controversial loan guarantee to solar power firm Solyndra, the resolution passed 219-203 early Friday morning. But the Senate quickly rejected it later that day. Congress is supposed to be in recess this week, but the Senate is expected to vote Monday on an amendment to remove the offsets from the House bill. While neither side says it wants a government shutdown, neither appears willing to budge at this point.
To Go (Big) Where No Man Has Gone Before – As members of the deficit reduction Super Committee begin their unprecedented work, last week CRFB sent a loud and clear message that the group should “Go Big” in its recommendations. At a Wednesday forum on Capitol Hill, prominent experts, as well as current and former policymakers such as former Federal Reserve Chairman Alan Greenspan, former OMB Director David Stockman, White House Fiscal Commission co-chair Erskine Bowles, Sen. Mike Crapo (R-ID), Sen. Mark Warner (D-VA), Honeywell International CEO David Cote, former SEIU President Andy Stern, and Business Roundtable President John Engler, made the case for going big. The event also featured the debut of four new videos from CRFB on why we should go big in addressing deficits and debt. View the full video of the event here.
President’s Plan Not Exactly Warp Speed – President Obama submitted a deficit reduction plan to the Super Committee last week that also included his ideas for boosting the economy. In an analysis of the proposal, CRFB lauds the president for embracing the “Go Big” concept by calling for over $4 trillion in deficit reduction over ten years, but we state that it falls short because those savings include reductions in war spending that have already been put in place. The actual amount of savings relative to current policy is just under $2 trillion.
Pentagon Sets Phasers on “Strategically” Cutting Defense – U.S. Defense Secretary Leon Panetta told the Senate Armed services Committee last week that his department would “strategically” go about implementing $450 billion in savings from the Pentagon budget over the next ten years. He said that beyond overhead and duplication, he would also look at procurement and compensation.
Farm Subsidies: The Final Frontier – Farm subsidies have long been a sacred cow to lawmakers, but a recent article in Politico says it looks increasingly like that cow may be on the chopping block. Agriculture’s biggest supporters in Congress concede that some cuts will occur; the question is how deep the cuts will run.
Budget Reform Materializing? – With all the talk about improving our fiscal situation and changing how Washington works, it is hard to ignore the need to fix the broken budget process. Congress appears ready to energize the push to reform the federal budget process with two hearings on the topic last week and another forthcoming. CRFB board members Alice Rivlin and Rudy Penner offered their insight as former CBO directors in a Wednesday hearing before the House Budget Committee. Both agreed that the budget process needs reform, but they also agreed that improving the process would not replace the need for policymakers to make tough budget decisions. Both also agreed that Washington should take a longer view when crafting budgets. The next day, CRFB board member Jim Nussle, who is a former chair of the House Budget Committee as well as a former OMB director, joined former Senator Phil Gramm and Phil Joyce of the University of Maryland to testify before the same committee on the subject. Nussle recommended long- and short-term fiscal sustainability goals within the annual budget resolution. Also, Nussle and Joyce both noted that the necessary tools are already in lawmakers’ “fiscal toolbox” and it is simply a matter of using them effectively. Check out CRFB’s Fiscal Toolbox for a look at the budget tools that can be used. And Congress isn’t done talking about budget reform. CRFB President Maya MacGuineas will testify at a hearing on the subject before the Senate Budget Committee on October 4 along with several other experts, including CRFB board member William Hoagland. The Peterson-Pew Commission on Budget Reform (a project of CRFB) studied the issue for over two years, culminating in detailed reform recommendations in the report Getting Back in the Black.
Key Upcoming Dates
- The Conference Board releases the Consumer Confidence Index for September.
- U.S. Commerce Department releases the 2nd quarter GDP estimate.
- New fiscal year begins. Legislation fully funding the federal government, or a stopgap measure with temporary financing of government operations, must be enacted by this date.
- Senate Budget Committee hearing on improving the budget process at 9:30 am.
- GOP presidential debate in New Hampshire.
- Congressional committees must submit any recommendations to the Super Committee by this date.
- GOP presidential debate in Nevada.
- The Super Committee is required to vote on a report and legislative language recommending deficit reduction policies by this date.
- The Super Committee report and legislative language must be transmitted to the President and Congressional leaders by this date.
- Any Congressional committee that gets a referral of the Super Committee bill must report the bill out with any recommendation, but no amendments, by this date.
- Congress must vote on the bill recommended by the Super Committee by this date. No amendments are allowed.
At our "Urging the Super Committee to Go Big" event, we showed videos with a number of budget experts and former government officials, talking about our debt problem and the need for the Super Committee to exceed its savings mandate. So, for those who missed it or want to view them again, we have posted them below.
On the debt problem:
On promoting growth along with deficit reduction:
On the political will for a fiscal plan:
On the need to go big:
Earlier this week, the IMF released its latest World Economic Outlook (WEO), with a section devoted to the fiscal situation of the U.S. The IMF aptly reminds us that putting in place measures to gradually stabilize and reduce debt needs to be the "first priority" for U.S. lawmakers.
As the IMF said:
"The first priority for the U.S. authorities is to commit to a credible fiscal policy agenda that places public debt on a sustainable track over the mediumterm, while supporting the near-term recovery. For this, the fiscal consolidation plan should be based on realistic macroeconomic assumptions and should comprise entitlement reform and revenue-raising measures (for example, gradual removal of loopholes and deductions in the tax system and enhanced indirect taxes). This would allow the near-term fiscal policy stance to be more attuned to the cycle...
More fundamentally, delays in accomplishing an adequate medium term debt-reduction plan could suddenly induce an increase in the U.S. risk premium, with major global ramifications. As recently observed, shocks to the U.S. bond and stock markets tend to reverberate through major economies, and U.S. interest rate shocks have a strong bearing on emerging market spreads."
While it may seem like a broken record at this point, the IMF, like many other organizations and individuals note that the longer we wait on passing a long-term debt solution, the more investor, business, and consumer confidence can be drained. In addition, failure by the Super Committee to meet its mandate would trigger $1.2 trillion in budget cuts, which would not inspire any confidence in the political system and would represent a more front-loaded approach to deficit reduction than what many other fiscal plans have called for (who phased in cuts slowly to avoid harming the economy too much).
Overall, the IMF's report once again emphasizes the need for a fiscal plan, and the Super Committee presents a perfect opportunity for getting there.