If there's anything people can agree on in Washington, it is that the current budget process is broken. Congress has not passed a budget resolution since 2009, and even when they use the process, they are often late in doing so.
Now it appears that both chambers may end up forgoing budget resolutions again, although for very different reasons. The Senate seems to be unwilling to pass a budget, saying that the BCA numbers suffice for a budget. Meanwhile, the House majority is having trouble finding enough votes for a budget resolution because many want lower discretionary spending numbers than those specified in the Budget Control Act.
The House fight involves varying desired levels of discretionary spending. The BCA cap level is $1.047 trillion for 2013, a level supported by some Republicans. However, many conservatives want to see a level about $20 billion lower, consistent with last year's budget resolution in the House. However, there is also the sequester that is set to go off on January 1, 2013, which would cut discretionary spending down to about $950 billion, so some members of the House also recommend cutting $20 billion off that number to $930 billion.
Some Republicans would like to avoid going lower than the BCA levels because it would complicate the appropriations process by making the Committees abide by a lower discretionary spending number than what is likely to be agreed to in both chambers. Thus, they would have to essentially do the process twice, once with the lower number and once with the agreed-upon number (likely the BCA level). They already had to do this last year.
Given disagreements among the Republican House Majority, none of the above levels of spending seem likely to pass the House without at least some Democratic support. Of course, if the budget resolution includes the same entitlement measures from last year, it is unlikely to get Democratic support, so the budget process is in limbo right now.
One of the wonkier discussions that arise inside the Washington beltway from time to time is what accounting method to use for federal credit programs. In a new issue brief, CBO weighs in on the argument for and against using "fair value" accounting versus the current method. We provide a brief overview here, but be sure to check out the full report for more details.
Background on Federal Credit Programs
The federal government supports a number of private sector activities through a combination of direct loans to individuals and businesses and loan guarantees to private lending firms, the largest of which are loans and guarantees for residential properties and postsecondary education. The way that the federal costs, or subsidies, stemming from federal credit programs have been reflected in the budget has changed over time, and may continue to do so.
Prior to 1990, only the cash outlays and receipts for federal loans and guarantees were recorded in the budget. After lawmakers enacted the 1990 Federal Credit Reform Act (FCRA), however, this "cash accounting" system changed to an "accrual accounting" system to reflect the budgetary costs of a new loan or guarantee upfront. Cash accounting hides the true costs of new commitments: a $100 million loan made in a certain year doesn't reflect expected repayments in future years or the estimated total impact on the federal budget (see the table below). The system was changed to an accrual basis in order to reflect the expected future costs of loans, eliminating the incentive to favor loan guarantees (which receive premiums upfront and don't incur costs until later) under cash accounting over direct loans.
The 1990 reforms required credit programs to discount the future expected cash flows to a present value estimate, a process which requires an interest rate. Under those reforms, federal programs would use the interest rate on U.S. Treasuries.
Understanding the Current Debate
In recent years, some organizations and experts (including the Congressional Budget Office and our colleague Jason Delisle at the New America Foundation's Federal Education Budget Project) have argued that the rules under FCRA are not a comprehensive measure of the cost the government incurs when it enters into loans and loan guarantees. They argue that using the Treasury discount rate does not fully account for the market risk the government is taking on and does not accurately portray the costs to policymakers.
A "fair-value" approach to estimating the costs of federal credit programs would assign a "market risk premium" to bridge the gap between Treasury interest rates and the discount rate that private lending institutions would assign when assessing the costs of a loan. Some federal programs already incorporate fair-value accounting, including payments to the IMF and the financial and auto industry assistance under TARP, but it is not widespread practice.
The table below from the CBO report shows how the cost of credit programs would differ under both methods.
|Budgetary Treatment of $100 Million Loan under the Three Approaches|
|Year 1||$100 million||-$1.6 million||$1.3 million|
|10-Year Period||-$3 million||-$1.6 million||$1.3 million|
Note: See CBO's detailed version of this example in the report.
But those arguing on the other side point out that these loans are funded through the issuance of Treasury debt, which means there is very little or no market risk, so it is appropriate to use the FCRA rules. They also argue that the additional cost that fair-value accounting records does not actually occur and that using this method would apply inconsistent budgetary treatment to credit programs versus other programs.
CBO dives into the details of what a switch to fair-value accounting would mean in practice, touching on the additional resources and time spent training staff on the new method, the judgment calls about what discount rates to use when there are no similar examples in the private sector, and the need to better communicate program costs under a more complicated estimating approach.
But CBO’s view is best expressed in a section on the cost of market risks to the government and taxpayers, concluding with this passage,
Thus, none of the differences between the federal government and private investors changes the fact that investments with returns that are correlated with the performance of the economy as a whole are risky in a way that other investments are not. Federal credit programs expose taxpayers to that market risk.
The valuation of federal credit programs can be a pretty arcane topic. But at the same time policymakers need to decide what is the best way to reflect the costs, or profits, of the operations of the federal government. Given that the total amount of such loans outstanding in 2011 stands at $2.7 trillion, it's an important debate to be having.
To continue and enlighten the debate, e21 will be holding an event in DC on March 19 about the optimal way to account for the cost of loan programs. To learn more than you ever wanted to know about accounting rules in the federal budget, register for the event here.
In an op-ed in the Washington Post, Sen. Bob Corker (R-TN) disapproves of the current debate on the transportation bill that is being considered. He feels that Congress must at the very least be fiscally responsible in dealing with the transportation bill, seeing it as a critical test of lawmakers' ability to budget and tackle our larger fiscal issues.
The Highway Trust Fund in the past has been financed through revenues from fuel excise taxes, but in recent years outlays have exceeded revenues. Congress has transferred $34.5 billion of general revenue to the trust fund three times since 2008. With the current authorization for surface transportation expiring March 31, both chambers have looked to put in place a longer-term authorization.
Corker criticizes the Senate bill for not solving the trust fund's structural financing issues. Specifically, he said:
The bill before the Senate spends more than we can afford by financing two years’ worth of costs over as many as 10 years. In two years, the trust fund will still be insolvent, requiring us to fill the gap with billions more to support even current funding levels. And as the years go by, that gap will continue to grow, digging the hole even deeper.
Corker identifies two fiscally responsible solutions that could be implemented in the reauthorization bill. First, Congress could reduce the amount of spending in the transportation bill to the levels that the Highway Trust Fund receives in taxes. Second, Congress could offset the shortfalls in the transportation budget--and the subsequent general revenue transfers to cover the shortfall--through reductions in other programs. Incidentally, Corker has offered both of these suggestions as amendments to the Senate bill.
In addition to Corker’s solutions, there is a third option: finding additional sources of revenue for the Highway Trust Fund in addition to the fuel taxes, or raising existing taxes (and possibly indexing their rates to inflation). Any of these three would solve the trust fund's financing issues without resorting to covering a few years of costs with ten years of offsets. Also, patching up the Highway Trust Fund would demonstrate at least a small commitment to fiscal responsibility at a time when a lot of it must be counted on. As he concludes:
If we fail this small test, how will we ever pass a sweeping agreement to cut the deficit and avoid what Erskine Bowles called “the most predictable economic crisis in history”?
Deficit Secondary in Primary – The presidential primary campaign hits a key point this week as "Super Tuesday" contests in several states may go a long ways in determining who will face off against President Obama in November. Although voters constantly rank the economy and federal budget deficit as the top two issues, they seem to have taken a back seat to social issues in the campaign right now. However, CRFB’s U.S. Budget Watch project seeks to elevate fiscal policy in the election. It started with "The 12 Principles of Fiscal Policy for the 2012 Campaign" and recently featured the release of "Primary Numbers: The GOP Candidates and the National Debt" – which examined how the candidates' policy positions would affect the budget.
"Fiscal Cliff" Hanger Ending to the Year – Whether candidates want to discuss fiscal policy or not on the campaign trail, events seem destined to put the issue to the fore just after the election. The statutory debt ceiling will likely be reached soon after the election, the 2001/2003/2010 tax cuts will expire at the end of the calendar year, and the sequester cutting over $1 trillion in spending triggered by the failure of the Super Committee is scheduled to kick in at the beginning of next year. Federal Reserve Chair Ben Bernanke described the confluence of the tax cuts expiring and the sequester beginning as a "massive fiscal cliff" in congressional testimony last week. Bernanke said he hopes lawmakers will find a way to achieve long-term deficit reduction without such a shock to the system. CRFB has also called for a "Go Big" and a "Go Smart" approach.
Sticking a Thumb in the IPAB – It may sound like the latest tech gadget, but IPAB (short for Independent Payment Advisory Board) is actually a mechanism in the Affordable Care Act to control Medicare spending, which is projected to grow substantially if left unchecked. While IPAB’s operations will not begin until 2014 and it will have a rather limited mandate, it has become a target for some lawmakers. A subcommittee of the House Energy and Commerce Committee approved of legislation last week to repeal the body and the full committee will mark up the bill starting Monday. The House Ways and Means Committee will conduct a hearing on IPAB Tuesday. Lawmakers complain that the body will infringe on their authority because it will be able to make cost-cutting recommendations that will automatically go into effect unless Congress acts, but legislators can override the recommendations. One may be inclined to suggest that a compromise would be to have the panel simply make recommendations to Congress to act on. Well, that is exactly the system we have in place now. The Medicare Payment Advisory Commission (MedPAC) routinely makes recommendations to Congress that are consistently ignored. Indeed, we pointed out that Congress has been much more active in opposing IPAB than it has been in seeking solutions to bend down the health care cost curve. IPAB represents one of the few serious attempts to control Medicare spending, which is essential as federal health care spending will be the main driver of the national debt moving forward.
GAO Highlights Government Duplication; GAO Highlights Government Duplication – Last week the Government Accountability Office (GAO) issued its second annual report to Congress identifying duplicative efforts within the federal government, along with recommendations for savings. A few examples of recommendations include better information-sharing among various agencies involved with health research and consolidation of Pentagon unmanned aircraft acquisition programs.
Tax Reform Storm Brewing – Limiting tax expenditures received lots of attention at a Thursday Senate hearing on tax reform that promotes growth, fairness and deficit reduction. Sen. Pat Toomey (R-PA) mentioned the proposal to cap individual tax expenditures put forth by Martin Feldstein, Daniel Feenberg, and CRFB’s Maya MacGuineas. The Simpson-Bowles tax reform proposal that involves eliminating most tax expenditures was also held up as a good model to follow. Meanwhile, Treasury Secretary Tim Geithner last week met with leaders of the tax-writing congressional committees on the subject of tax reform.
EU Agrees on Fiscal Pact...Now Comes Hard Part – On Friday, 25 European Union leaders signed a new fiscal pact that will give the EU more power to enforce budget discipline among member countries. Among other things, the compact sets deficit targets for countries to follow and provides punishments for non-compliance. National legislatures must still ratify the agreement, but doubts already are surfacing regarding the arrangement that is intended to prevent further crises like the debt crisis that has been dogging the continent. Countries such as Spain and Hungary are projected to fail to meet their deficit targets, which will test the enforcement mechanisms of the treaty and the will of EU leaders to carry it out. See our budget reform resources for more on ideas like fiscal rules and targets.
Mobilizing a Sound Strategy to Confront the Debt – In congressional testimony last week, Defense Secretary Leon Panetta testified that a smart approach can reduce the deficit significantly without hurting national defense. He said everything had to be on the table, including discretionary spending, mandatory spending and revenues. He also said that "the leaders of both the legislative and executive branches of government have a duty to protect both our national and fiscal security." Panetta speaks from a unique perspective as not only the Pentagon chief, but also as a former OMB director (and former CRFB co-chair).
Key Upcoming Dates (all times ET)
- Wyoming Caucus
- Super Tuesday - presidential contests in Alaska, Georgia, Idaho, Massachusetts, North Dakota, Ohio, Oklahoma, Tennessee, Vermont and Virginia.
- House Appropriations hearing on the FY 2013 budget request for the US Agency for International Development at 9 am.
- House Appropriations hearing on the FY 2013 budget request for the Bureau of Land Management at 9:30 am.
- House Energy & Commerce Committee continues markup of legislation to repeal the Independent Payment Advisory Board (IPAB) at 10 am.
- House Ways and Means Committee hearing on the Independent Payment Advisory Board (IPAB) at 10 am.
- Senate Budget Committee hearing on perspectives on the FY 2013 Defense budget request at 10 am.
- Senate Finance Committee hearing on "Tax Reform Options: Incentives for Capital Investment and Manufacturing" at 10 am.
- Senate Energy & Natural Resources Committee hearing on the FY 2013 budget request for the Forest Service at 10 am.
- House Appropriations hearing on the FY 2013 budget request for the Air Force at 10 am.
- House Appropriations hearing on the FY 2013 budget request for the Securities and Exchange Commission at 10 am.
- House Appropriations hearing on the FY 2013 budget request for the National Science Foundation at 10 am.
- House Appropriations hearing on the FY 2013 budget request for the Dept. of Health and Human Services with HHS Secretary Kathleen Sebelius at 2:30 pm.
- Senate Foreign Relations Committee hearing on international development priorities in the FY 2013 budget at 2:30 pm.
- House Appropriations hearing on the FY 2013 budget request for the FBI at 9 am.
- Senate Appropriations hearing on the FY 2013 budget request for the Dept. of Health and Human Services with HHS Secretary Kathleen Sebelius at 10 am.
- House Appropriations hearing on the FY 2013 budget request for the US Army at 10 am.
- House Appropriations hearing on the FY 2013 budget request for the Federal Emergency Management Agency at 10 am.
- Senate Appropriations hearing on the FY 2013 budget request for the Dept. of Navy at 10:30 am.
- House Appropriations hearing on the FY 2013 budget request for the US Army Corps of Engineers at 2 pm.
- Senate Commerce, Science & Transportation Committee hearing on the FY 2013 budget request for the Coast Guard and the National Oceanic and Atmospheric Administration at 2:30 pm.
- House Appropriations hearing on the FY 2013 budget request for the Dept. of Transportation with Transportation Secretary Ray LaHood at 9:30 am.
- House Appropriations hearing on the FY 2013 budget request for the National Park Service at 9:30 am.
- House Appropriations hearing on the FY 2013 budget request for the Defense Health Program at 10 am.
- Senate Appropriations hearing on the FY 2013 budget request for the Dept. of Justice with Attorney General Eric Holder at 10 am.
- Senate Appropriations hearing on the FY 2013 budget request for the Dept. of Homeland Security with Homeland Security Secretary Janet Napolitano at 10 am.
- House Appropriations hearing on the FY 2013 budget request for Immigration and Customs Enforcement at 1 pm.
- Senate Indian Affairs Committee hearing on the FY 2013 budget request for native programs at 2:15 pm.
- Dept. of Labor's Bureau of Labor Statistics releases February 2012 employment data.
- Presidential contests in Kansas and the Virgin Islands
- Presidential contests in Alabama, Mississippi, and Hawaii
- Dept. of Labor's Bureau of Labor Statistics releases February 2012 Consumer Price Index (CPI) data.
- Missouri Caucus
- Puerto Rico Primary
- Oregon GOP Debate sponsored by PBS at 9 pm.
- Illinois Primary
- House Appropriations hearing on the budget, Military Construction, Veterans Affairs and Related Agencies, with Eric Shinseki, Secretary of Veterans Affairs.
- Louisiana Primary
- US Dept. of Commerce's Bureau of Economic Analysis releases its third and final estimate of 2011 fourth quarter GDP.
- Presidential contests in DC, Maryland, Wisconsin, and Texas
- Dept. of Labor's Bureau of Labor Statistics releases March 2012 employment data.
- Dept. of Labor's Bureau of Labor Statistics releases March 2012 Consumer Price Index (CPI) data.
- Tax Day! Federal income tax returns are due.
For those of you who have had trouble keeping track of the many premium support proposals that have come out over the past year, the Kaiser Family Foundation has a handy comparison chart of the most prominent ones.
The chart includes four plans: House Budget Committee chairman Paul Ryan's (R-WI) plan from the April House Budget Resolution, the Ryan-Wyden proposal from last December, the Domenici-Rivlin plan, and the Coburn-Burr "Seniors' Choice Act." The chart compares many aspects of each plan, including limits on spending growth, the role of traditional Medicare, cost-sharing, the benefits package, payment adjustments for health status and income, and many others. Obviously, the fundamental mechanism of premium support is constant in each plan--having health plans compete for the ability to offer coverage while seniors received a fixed payment to purchase health insurance--but details vary widely. Also, the chart compares all of these plans to current Medicare including the changes in the Affordable Care Act.
So if you need a reminder of which plans (for example) keep traditional Medicare, explicitly limit spending growth, or change traditional Medicare cost-sharing, be sure to check out Kaiser's chart in order to clear up confusion among the premium support plans.
The Tax Reform Act of 1986 is often hailed as a major bipartisan achievement, a reform that simplified the tax code and lowered marginal tax rates. Of course, more holes were opened up, more tax brackets were added, and significant complexity was introduced to the tax code thereafter.
Third Way's recent paper on tax reform shows some of the changes made to the code in the 1986 reform and what has been added on since. The carveouts they mention that were eliminated or limited in the reform are:
- Elimination of the deduction for credit card and other loan interest
- Elimination of the second earner deduction
- Elimination of income averaging
- Elimination of the unemployment benefits exclusion
- Elimination of the state and local sales tax deduction
- Limiting of the business meals and entertainment deduction to 80 percent (now at 50 percent)
- Elimination of the investment tax credit
Notably, many of these tax expenditures have returned in some form or another. The second earner deduction's purpose was to reduce marriage penalties, which is now done through other parts of the tax code. Income averaging, which allows people with volatile income levels to smooth out their tax burden over a period of time, returned permanently in 2004 for farmers and fishermen only. The unemployment benefits exclusion returned for 2009, although it has now expired. The state and local sales tax deduction returned in 2004 legislation as a temporary "tax extender" (although it can only be used in lieu of the companion income tax deduction). The investment tax credit returned in 2005 legislation for renewable energy companies as a tax extender as well.
In addition to reinstating some of the pre-1986 loopholes that were closed, many new tax expenditures have been created as well. Third Way cites the following as some examples:
- Exclusion of small business capital gains
- Preferential rates for gains from self-created musical works
- Health Savings Accounts
- Tax credit for maintaining railroad tracks
- Deduction for film and TV production costs
- Tax credit for taxes paid on inventoried distilled spirits
- Tax credit for securing agricultural chemicals
As Ezra Klein notes, tax expenditures are much less transparent than government programs and are, as a whole, regressive. Their costs are less tangible to citizens who must pay for these subsidies with either higher tax rates or reduced spending elsewhere in government. While there may be a case for running some benefits through the tax code (like the EITC) since the IRS may better track income data than other agencies, the sheer size and number of tax expenditures makes for poor tax policy. And their presence has exploded over the last 25 years.
Further deterioration of the tax code since 1986 comes from the fact that much of it is now temporary, a trend that has dramatically accelerated in the past decade. The paper notes that the number of temporary tax provisions increased from 25 in 1985 to over 140 in 2010. This number includes not only the tax extenders, which have grown significantly in number and size (especially in the past decade), but also central features of the tax code, like the income tax rate schedules, the estate tax parameters, and the expansions of the Earned Income and Child Tax Credits.
Third Way's paper concludes what many already know: our tax code needs fixing. With so many provisions expiring at the end of this year and so many provisions that expired last year that Congress will look to extend retroactively, we hope that lawmakers will find it more pleasant to re-write the code rather than patch another temporary one together for the next few years. The Modified Zero plan from the Fiscal Commission is certainly a good place to start to comprehensively re-work the tax system.
Tax Policy Center has a new paper out showing what tax rates would have to be in order to stabilize the debt at 60 percent of GDP in 2020, 2025, and 2035. The paper is similar to one they did two years ago, although that one had different fiscal targets.
TPC does these calculations relative to the two different baselines, current law and current policy. Current law takes official CBO projections, while current policy assumes that the 2001/2003 tax cuts are extended, the AMT is patched annually, and the many "tax extenders" are made permanent. With these two baselines, they also examine three different options for raising tax rates:
- Option 1 increases all income tax and capital gains and dividends rates
- Option 2 increases only the top three income tax brackets without changing capital gains and dividends rates
- Option 3 increases only the top two rates, again without changing capital gains and dividends rates
The table below shows what income tax rates would need to rise to in order to stabilize the debt at 60 percent of GDP in 2025.
|Individual Income Tax Rates, 2025|
|Current Law||Current Policy|
||Option 1||Option 2||Option 3||Current Rates
||Option 1||Option 2||Option 3|
*TPC finds that they are unable to achieve the target in this option. 96.2% represents the maximum income tax rate possible (when combined with the 3.8% HI tax).
In addition to the income tax rate changes above:
- Option 1 for current law would increase the top capital gains rate from 20 to around 26 percent (dividends are taxed as ordinary income under current law so they remain unchanged)
- Option 1 for current policy would increase the top capital gains and dividends rates from 15 to around 28 percent
The conclusions from this paper are pretty clear: putting our debt on a sustainable path solely by raising tax rates on high earners is extremely difficult, especially if lawmakers extend current policies and do not pay for them. In current law, tax rates must rise by about ten percent to reach the target, but tax rates must nearly triple to do so in Option 2 of current policy. In Option 3 of current policy, it literally becomes impossible to get debt down to 60 percent of GDP. Overall, though, even if revenue did get high enough to hit the target in one of those years, debt would assuredly grow after that because health care spending would grow much faster than revenue.
This is not to say that high earners should not pay more in taxes as part of a deficit reduction effort. The Fiscal Commission's Modified Zero plan provided a great example of a plan that can greatly improve the tax code, raise revenue, and make the system more progressive (see here and here for TPC distributional analyses of the plan).
Update: CBO has estimated that the IPAB repeal bill (HR 452) would increase spending and deficits by $3 billion from 2013-2022.
On Wednesday, the Energy and Commerce Health Subcommittee voted by a wide margin to repeal the Independent Payment Advisory Board (IPAB), the 15-member panel tasked by the Affordable Care Act with making recommendations starting in 2014 to hold down Medicare spending when it grows faster than GDP per capita plus 1 percent. H.R. 452 was approved by the panel by a 17-5 vote with some bipartisan support.
The biggest knock against IPAB from lawmakers is that it usurps Congressional authority over Medicare and puts decisions involving the program in the hands of an unaccountable panel instead of with elected representatives. However, a closer examination of how IPAB would function suggests that these concerns are overblown. For example, Congress has the ability to override IPAB recommendations with a majority vote if they are replacing them with equal savings or with a three-fifths vote if they are simply preventing them from going into effect. If Congress does not act at all, the recommendations go into effect automatically. Furthermore, IPAB has a rather limited mandate -- it cannot make changes to benefits, cost-sharing, or eligibility.
The most disconcerting thing about this vote, and about broader efforts in general to dismantle or repeal IPAB, is that while the IPAB repeal bill has bipartisan support, there is no bipartisan Congressional plan for controlling Medicare costs. Medicare spending will be the single largest contributor to rising debt in the future, and the reason IPAB was viewed as necessary in the first place is because Congress has been unable to take steps to rein in Medicare costs. CBO's estimate of repealing of the Affordable Care Act last year estimated IPAB's effect on spending through 2021 would be $14 billion, although the magnitude of the cuts could grow substantially over the long-term depending on Medicare cost growth.
IPAB is intended to be action-forcing because the politics of Medicare have been toxic and there has been no agreement on a plan that goes beyond provider and physician payment reductions. Ironically, the vote to repeal IPAB without any passable plan to replace it shows the need for it in the first place.
IPAB may also be necessary because of the board's ability to make smarter changes than blunt reductions in physician and provider payments. We know that scheduled reductions to Medicare payments to physicians are unlikely to take place given that "doc fixes" have routinely passed, but the status of provider payment reductions from the health care reform legislation -- specifically, the productivity adjustments that lower payments by about 1.1 percent annually -- is more uncertain. If those reductions prove to be too blunt a tool over the long-term, IPAB could be utilized to make smarter reductions in payments -- areas where, say, the Medicare Payment Advisory Commission believes that reimbursements are too high -- as we have argued in the past. Additionally, to address the concern of leaning too heavily on providers, IPAB's mandate could be broadened to make other changes to Medicare.
Controlling the growth of health care spending will be one of the most important tasks in putting our long-term debt on a sustainable path. There are plans out there, such as Ryan-Wyden or Lieberman-Coburn (or our ideas), which could control costs or at least take a big step in the right direction. IPAB has to remain in place, at least as a backstop, until we know that lawmakers have accomplished that goal.
Note: This op-ed was originally published in The Hill.
After a year in which the country was on the verge of declaring bankruptcy and the federal deficit surpassed the $1 trillion mark for the third straight year, you would think that the number-one priority for the president and Congress would be to put America’s fiscal house in order. But instead, both sides seem content to sit on their hands -- at least until the election is over -- while the Treasury issues more and more IOUs.
That’s unfortunate, because the most important issue facing our nation is our worsening debt situation, and we are rapidly running out of time in which we can restore fiscal sanity on our terms, rather than allowing an economic fiscal crisis to occur.
Federal deficits and the national debt threaten not only our economic security. As former Chairman of the Joint Chiefs retired Admiral Mike Mullen has stated, “The most significant threat to our national security is our debt.” Whether you prioritize cutting the number of people on welfare or cutting individual tax rates, expanding access to health care or expanding the size of our military, protecting the environment or protecting our borders, fixing the debt crisis must be job one.
What do we need to do? For starters, bring deficits down to a manageable level of less than 2.5 percent of GDP. At the same time we need to set a course to bring the debt back down to a sustainable level where it is no longer growing faster than the economy. To achieve this we must reform the most problematic parts of the budget including health and retirement programs, and the tax system. All told, this will require savings of $4 - $6 trillion over a decade, depending on your starting point.
In order to set this country on a path towards strong economic growth and to ensure our future security, we must address our debt crisis in a way that eschews the gimmickry and incrementalism that Washington is known for. Voters around the country are serious about America’s debt crisis and they deserve real actions, not half-measures or budgetary sleight-of-hand.
So far, none of the candidates for President have put forth a detailed plan for how they would bring the debt down to sustainable levels over the next decade, let alone over the next presidential term. At the Committee for a Responsible Federal Budget, we run U.S. Budget Watch, to keep an eye on the costs of the candidates’ fiscal promises. Last week we released our first analysis of the four Republican candidates’ fiscal plans. A similar analysis of President Obama’s proposals will follow.
The goal of USBW is to put the issue of how to cut the deficit at the forefront of this year’s election. That way, we might actually come out of the election with a mandate. Otherwise, as we have seen in too many elections past, we are likely to come away with promises of what not to do—don’t cut Medicare, don’t touch Social Security, and don’t raise revenues. Well guess what, it is pretty close to impossible to fix the problems without doing all of those.
The USBW project challenges candidates to put forth the specifics they favor to get our debt back on a sustainable path. Moreover, we hope to encourage the contenders not only to lay out their favorite plan but to talk about where and how they would be willing to compromise. Because in the end, any debt deal will have to be done with bipartisan support, and nobody is likely to get their first choice.
The country is at a crossroads. The ideas that are presented in this election will lay the foundation for either action to prevent an otherwise inevitable fiscal crisis, or more of the same -- delay, finger-pointing and partisan gridlock. That is why we need to “watch” and listen carefully to what our presidential candidates are saying.
Tim Penny is a former Minnesota Congressman and one of the co-chairs of the Committee for a Responsible Federal Budget.
"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.