We've talked before on The Bottom Line about why lawmakers should not wait to deal with our unsustainable debt. Among the most important reasons for dealing with deficits now is the chance to improve confidence in our nation's finances and avoid a fiscal crisis. A recent National Journal interview with Nikola Swann, S&P's top credit analyst, reveals that the credit agencies are anything but reassured by our fiscal outlook after the experience of the past few years.

We have not seen any strong evidence that the political system as a whole is more effective, more stable, or more predictable than we thought it was in 2011. There does seem to be, especially in recent years, an overall trend in the U.S. to effectively make major policy decisions at the last moment in a crisis setting. We don’t see that as credit-positive.

The negative outlook primarily is about the risks we see that U.S. policymakers may not reach an agreement on how to consolidate fiscally. At the very least, we need an agreement that looks out five years. Also, we would need for that agreement to be large enough to make a difference—something that would keep the debt-to-GDP ratios from continuing to rise as they have been for most of the past 10 years. And, thirdly, we would have to view this plan as credible, meaning we would have to see a reasonable basis for believing that this plan would actually be implemented. The best proof would be if you had, at very least, a substantial share of the lawmakers from both parties agree on this plan, because then you have some reason to think that even after an election, this plan would could keep going.

Swann says that the House's Full Faith and Credit Act, which would allow the Treasury Department to prioritize payments if we were to reach the debt ceiling, would not be able to prevent a credit rating downgrade. But the real focus of credit agencies is on the long-term problem, which as we have shown remains far from solved.

If you are using the legislation, you are necessarily right at the razor edge. You could very well be having significant turbulence in the economy and in financial markets. This does not sound like a very comfortable scenario. So the point is, in a mechanical sense, yes, such legislation could potentially help avoid default, but that doesn’t mean this overall scenario would not get so rocky that we wouldn’t downgrade from AA-plus anyway.

Our primary focus is on the longer-term dynamic. Of course, the debt-ceiling debate of late has provided some incremental information about how the longer-term dynamics are going. I don’t think we would view it as helpful for us to inject an additional deadline into the debate. But it is certainly true that the further the U.S. can get away from making important decisions—especially about public finances—at the last minute, in a crisis, the more that would help the credit rating.

All three credit agencies have the U.S. on a negative outlook, a sign that future downgrades could occur if lawmakers are not able to deliver a deal or continue to rely on brinkmanship and last-minute fixes. With the many benefits of deficit reduction done right, hopefully the positives of a comprehensive agreement will be enough to encourage action rather than waiting until the downsides of doing nothing set in.

In February, we wrote the paper "Our Debt Problems Are Far From Solved," laying out the case for putting debt on a clear downward path as a percent of GDP with $2.4 trillion of additional savings. CBO's improved budget projections have prompted a new round of discussion of what should be the right direction for the budget. With that in mind, we have updated our estimates and written a new paper "Our Debt Problems Are Still Far From Solved." In light of the latest projections, we now find that $2.2 trillion of deficit reduction is necessary to put the debt on a clear downward path. That number declines to $1.6 trillion if the sequester stays in place through 2021 as scheduled.

Some might wonder why the minimum savings path, which was previously $2.4 trillion, only fell a little bit given the $900+ billion improvement in our budget projections through 2023. Essentially, this apparent disparity has to do with the nature of our goal to put debt on a clear downward path. In other words, our primary concern is the trajectory of the debt, whereas recent improvements, a main part of which are short-term improvements, have reduced the level.

Debt under February and May CRFB Realistic and Minimum Savings Path (Percent of GDP)

As the above graph shows clearly, while both debt projections and our minimum path are lower now than in February, their slope and therefore trajectory is quite similar. As a result, the total amount of deficit reduction to ensure a clear downward path would be $2.2 trillion. In Appendix III of our paper, we show that the full $2.2 trillion of deficit reduction is necessary to ensure debt is declining under a most likely scenario, and stands up to certain robustness tests assuming growth is slower, deficit reduction phases in faster, or additional deficit-increasing measures are passed.

By contrast, enacting the $1.5 trillion necessary to hit the old minimum path's 2023 debt level would result in slightly rising debt levels under our base case, and more quickly rising debt levels under the robustness tests. A faster phase-in results in a slightly upward path while the slower growth and fiscal irresponsibility scenarios result in clear upward paths.

Robustness Test of $1.5 Trillion of Savings (Debt as Percent of GDP)

The improvement in the budget projections is a welcome one, but it does not fundamentally change the long-term picture of the budget. Lawmakers cannot rest on their laurels because waiting to make changes may result in more abrupt and less targeted policies in the future. Instead, they should enact changes now that take effect gradually to bring our debt down as a share of the economy in a more intelligent and economically beneficial manner.

Click here to read the new paper.

Today, the Congressional Budget Office has released an update to its budget outlook from February. With little legislative changes since February, the budget outlook after a few technical revisions shows slightly lower debt levels compared to the previous baseline. However, debt remains on a clear, upward trajectory near the end of the decade, similar to the path in February's baseline. While the short-term improvement is a welcomed sign, the new outlook still shows that more work needs to be done to put the budget on a sustainable path. Even assuming sequestration remains in place, more deficit reduction will be required to put debt on a downward path as a share of the economy - the necessary goal for lawmakers.

In all, ten-year deficits are $618 billion less, totaling $6.34 trillion compared to $6.96 trillion in the February estimate. Debt would fall from 71.5 percent of GDP in 2013 to 70.8 percent in 2018 before rising on an upward path to 73.6 percent under current law, while rising to 83 percent under CBO's alternative fiscal scenario (AFS), which represents the continuation of many current policies. The AFS baseline assumes the scheduled sequester for 2014-2021 is repealed, refundable tax credit expansions extended for five years in American Taxpayer Relief Act (ATRA) are extended permanently, a "doc fix" prevents a 25 percent cut to Medicare providers, and other expiring tax extenders are continued permanently without being offset. February's Budget and Economic Outlook projected debt to rise to 77 percent in 2023 under current law and 87 percent under AFS.

With no major budgetary legislation passed by Congress since February, the changes to the baseline are primarily due to technical revisions. CBO's new estimates have increased projected revenues by $95 billion from 2014 to 2023, attributed to larger than expected receipts for 2013 for individual and corporate taxpayers, as well as lower estimated tax subsidies for the health insurance exchanges and other smaller technical changes. CBO has decreased projected spending by $522 billion over ten years, largely due to new data that could suggest a slowdown of spending on Medicare and Medicaid, fewer individuals enrolled in the Social Security Disability Insurance Program, and increased payments from Fannie Mae and Freddie Mac. Overall projected deficits are $618 billion lower over ten years than what was projected in February.

Spending is projected to fall from 21.5 percent of GDP in 2013 to 21.3 percent by 2017 before rising to 22.6 percent by 2023. Revenue will continue to increase, largely due to the economic recovery and tax increases taking effect, from 17.5 percent of GDP in 2013 to 19.3 percent by 2015 and roughly stabilizing around 19 percent of GDP through 2023.

^{Source: CBO}

The short-term improvement is a good sign, but no reason to put the budget on the back burner. The longer we wait to solve our budget problem, the more savings will be needed to put debt on a clear downward path as a share of the economy. Waiting longer will leave beneficiaries and taxpayers will less time to adjust to policy changes, give lawmakers little fiscal flexibility to respond to a crisis, and slow economic growth. Projections are also subject to change -- if economic growth is slower or interest rates are higher than expected, debt as a share of the economy could be much higher than CBO expects. Much of the deficit reduction can be phased in to occur when the economy has had more time to recover, but delaying a comprehensive agreement that would include tax and entitlement reform would be a missed opportunity.

CBO will release its estimates of the President's budget this Friday, which CRFB will cover in a full analysis and an update of our CRFB Realistic Baseline here on The Bottom Line. But the story told by this new budget outlook is largely the same: lawmakers still have further to go to solve our budget problem.

Click here to read the full report from the Congressional Budget Office.

Last week, the House Budget Committee released a package of budget process reforms consisting of seven different pieces of legislation. Four of these pieces of legislation -- on dynamic scoring, credit program accounting, the budget resolution, and how CBO constructs its baseline -- we blogged on last year, which you can see here.

The other three pieces of legislation were also proposed last session. One of them, the Expedited Line-Item Veto and Rescissions Act, is a bipartisan bill co-sponsored by the Committee chair Paul Ryan (R-WI) and Ranking Member Chris Van Hollen (D-MD) which would give the President "expedited rescission authority," a variant of the line-item veto.

Another bill is from Rep. Reid Ribble (R-WI), the Biennial Budgeting and Enhanced Oversight Act, which would (as its name suggests) put the federal budget process on a biennial cycle. The budget resolution would be done during the first session of Congress, while authorizations would be made in the second session, theoretically giving legislators more time for oversight of appropriated spending.

The final bill, the Review Every Dollar Act sponsored by Rep. Jason Chaffetz (R-UT), make a number of different changes to spending rules. It would require periodic reauthorizations or sunsets of all federal programs, require new rules or regulations to be explicitly funded by Congress, require transfers from general revenue to the Highway Trust Fund to be either offset or counted as new spending, and provide mechanisms for legislators to devote savings from a bill to deficit reduction.

The Peterson-Pew Commission's report "Getting Back in the Black" recommended some of these measures. Their recommendations included fully accounting for the cost of government-sponsored enterprises, using fair-value accounting for credit programs, and having expedited rescission authority. While they did not specifically endorse biennial budgeting, they did call for lawmakers to set goals for programs and ramp up oversight to make sure those goals were being met.

Budget process reforms are not a silver bullet for our budget issues, but to the extent that they make the budget process more transparent and results-oriented, they can be helpful.

Conveniently, the same day that House Ways and Means and Senate Finance Committee chairs Rep. Dave Camp (R-MI) and Sen. Max Baucus (D-MT) published a website soliciting public feedback on tax reform, Senate Finance continued its work on tax reform by releasing an options paper on international taxation. The paper lays out issues with the current system plus, as you'd expect, many different paths for reform. It complements a detailed report that CBO put out in January and our corporate tax reform paper, which has some discussion of international issues.

For most foreign-source income, the current system defers taxation of that income until it is repatriated to the US. Passive income, generally financial in nature, is taxed in the year it is earned under the Subpart F regime. When that income is taxed by the US, businesses can claim foreign tax credits for all active and passive income taxed, up to the amount of US tax owed.

This "deferral" system is problematic because it simultaneously encourages businesses to shift income and operations overseas while discouraging them from bringing it back. The two main alternatives to deferral are a worldwide system, where deferral is eliminated and all foreign earnings are taxed as they are earned, and a territorial system, where foreign earnings are generally not taxed, even when they are repatriated. The options paper includes both options, with the territorial system being presented in conjunction with a number of ways to prevent excessive income-shifting abroad. These "anti-base erosion" provisions involve things like taxing low-taxed foreign income in the current year or having a minimum tax for multinational corporations. While the exact designs may vary, these options are in line with what both Chairman Camp and President Obama have proposed (although only Camp proposed a territorial system).

Beyond the broad design, the paper also lays out some options for tightening the taxation of international income. This includes changing Subpart F rules to tax certain income in the year it is earned, such as low-taxed intangible property income or interest and royalties from active businesses. It also includes disallowing or deferring domestic deductions associated with tax-deferred income for affiliates abroad. The paper has many options related to foreign tax credits and other more detailed aspects of the international tax system. There are also a few options for changing the taxation of US citizens abroad, including eliminating the $97,600 foreign income exclusion entirely.

International taxation may be a very technical aspect of tax reform, but it is an important one. Policymakers will need to balance concerns about incentives, competitiveness, and revenue. The Senate Finance Committee's options paper and the House Ways and Means Committee's discussion draft are a good start on this topic.

Two former Chairman of the Council of Economic Advisors, Martin Neil Baily of the Clinton Administration and Glenn Hubbard of the Bush Administration, made a bipartisan case for the chained CPI in yesterday's The Hill. The two economists emphasize the technical case for the chained CPI, and push back against the CPI-E, which some critics have proposed to use instead.

Over the last few days, politically driven critics have called on the president to abandon his support for changing the way the government indexes provisions in the budget to inflation by switching to “chained CPI.” Looking beyond politics, we’re here to say that these critics’ arguments are wrong on their merits.

As economists from opposite ends of the political spectrum, we would strongly urge the president and leaders in Congress to continue to support moving to chained CPI, which represents the most accurate available measure of inflation and cost-of-living increases. Switching to this more accurate measure of inflation represents the right technical, fiscal and retirement policy — and policymakers should not delay any further in making this improvement.

From a technical sense, the current CPI — or consumer price index — that is used to index many parts of the budget and tax code is widely understood to overstate inflation. This is because it fails to account for so-called “substitution bias,” in which consumers reallocate their purchases depending on the relative prices of similar goods. For example, if the price of apples goes up, consumers will buy more oranges. However, this behavior is not accounted for in standard CPI measurements.

The Bureau of Labor Statistics, which calculates the CPI, is very aware of this shortcoming, which is why it has developed and refined the chained CPI for more than a decade. The nonpartisan Congressional Budget Office states that the chained CPI “provides an unbiased estimate of changes in the cost of living from one month to the next.”

Some argue that using the chained CPI to index Social Security benefits is inappropriate because it does not reflect inflation for retirees, which critics suggest is higher than it is for working-age adults because of the elderly’s higher rate of spending on healthcare. However, the CBO has said that based on the available research, it is unclear whether the cost of living actually grows at a faster rate for the elderly than for younger people, and that the CPI-E  —“E” for “experimental” — which was intended to provide a more accurate measure of inflation for seniors, has several methodological flaws that overstate inflation, including underestimating the rate of improvement in healthcare.

The benefit and tax changes may be a difficut side effect of switching to the chained CPI for both parties, but the advantage of using a more accurate measure of inflation should more than justify the switch. Given our fiscal outlook, similar changes will have to be made regardless, and none provide the same benefits as the chained CPI.

The federal government should not knowingly continue to measure inflation inaccurately, especially given the costs to the budget and to the Social Security program. Changes that cut Social Security benefits are a tough sell for Democrats, and changes that increase revenue are a tough sell for Republicans. But if they cannot even agree to a technical correction to those areas of the budget, how will they be able to make the hard choices to control our debt and reform our government over the long term?

Click here to read the full op-ed.

A recent Washington Post article, “As Red Ink Recedes, Pressure Fades for a Budget Deal,” suggests that a fall in the short term deficits may diminish the motivation for a budget deal. But this misses the main concern of our fiscal outlook. While the short-term outlook has improved somewhat, long-term debt projections are still unsustainable. The budget deficit in 2013 will be smaller than previous years, and it is projected to shrink further over the next few years. This is a welcome sign of the economy improving and enacted savings taking effect, but deficits and debt will rise again shortly because we have not come close to solving the problem. It makes little sense to wait to move closer to a solution. As a recent USA Today editorial put it, the White House and Congress have more to do before they break out the champagne.

Even with sequestration, debt is still a problem - while deficits will fall in the next few years, they will begin to rise again at the end of the decade. As we showed in Our Debt Problems Are Far From Solved, lawmakers have made some progress on our fiscal outlook by enacting roughly $2.7 trillion over ten years since FY 2011, when Washington began to focus on the debt problem. But lawmakers still need to find an additional $2.4 trillion in savings to put debt on a clear, downward path as a share for the economy. The projected decline in the deficit is contingent upon the nearly across-the-board “sequestration” spending cuts remaining in effect. Even assuming the blunt and abrupt cuts in sequestration remain in place, the debt would be 79 percent of GDP by 2023 and on an upward path once the economy recovers due to an aging population and health care cost growth.

^{Source: CRFB}

Equally dangerous is the view that the projections of a temporary decline in the deficit allows us to hold off on enacting further deficit reduction for a few years. Preventing the debt from rapidly growing at the end of the decade will require controlling the growth of entitlement programs. If we act now, policymakers can put in place thoughtful reforms that can be phased in gradually. Delaying action will lead to a larger problem and require more drastic entitlement changes or a sharp increase in revenues.

By not pursuing a smart deficit reduction plan, lawmakers are wasting the opportunities that come with a comprehensive approach. Unlike the sequester, thoughtful and phased-in proposals can reduce fiscal drag in the near term and boost the economy, while achieving substantially more deficit reduction over the longer term. Tax reform can raise revenues and reduce the deficit, leading to less crowding out of investment, while boosting growth in its own right by reducing economic distortions and increasing incentives to work and invest.

There is danger with waiting until a debt ceiling fight to work toward a compromise. Tax and entitlement reform can provide real benefits, but this process will take time to work through. Rushing the legislative process is likely to produce less effective policies and budget gimmicks and, like in 2011, increase uncertainty. A better approach would be to agree to a framework now, so lawmakers can work out the details and implementation without having to race against the clock. The last debt ceiling fight led to a downgrade of the U.S. credit rating and a loss of market and household confidence, while leaving us with sequestration, an abrupt and mindless way to reduce the deficit. In fact, a Government Accountability Office report estimated the delaying the debt ceiling may have cost the Treasury Department $1.3 billion in higher borrowing costs. There is a better approach to achieve a bipartisan agreement.

At Tuesday’s Fiscal Summit, Senate Budget Chairman Patty Murray (D-WA) said that the American people were tired of managing by crisis, a sentiment with bipartisan support among many lawmakers in Washington. Senator Rob Portman reminded the audience that we don't lack the ideas, only the political will. Neither side is going to get exactly what it wants in a bipartisan deal, so it might be tempting for some to wait for a crisis to leverage their position. But this is irresponsible and against the wishes of many Americans. The conversation in Washington should be about what is best for the country, not about finding a political win. The budget fights over the last few years are evidence that we need to change our approach.

Lots of Buzz – The Cicadas are coming back. After maturing underground for 17 years, billions of the insects from the Brood II cohort are beginning to emerge throughout the East Coast. Some compare them to the biblical locust swarms. Whether or not they are a portent of doom, their distinctive mating call is definitely attention-grabbing. Loud, relentless calls seem to be the only way to get attention in Washington. With the budget process stalled, lawmakers seem to need constant pestering to get back on track. Meanwhile, buzz is building for tax reform in Washington and against sequestration outside of DC. All this could help bring about a much-needed deal addressing the national debt. When this brood of cicadas last popped up in 1996, the federal budget deficit was $107 billion and declining. Let’s see what this batch of bugs will bring.

Winging It on Sequestration – Congress returns this week from another recess. Just before leaving town, lawmakers hurriedly approved legislation to give the Federal Aviation Administration (FAA) more flexibility in implementing the automatic spending cuts of the sequester in order to prevent furloughs of air traffic controllers. The flight delays caused by the furloughs prompted a backlash among travelers. But incremental fixes won’t solve the problems caused by the abrupt and arbitrary cuts. Even though the size of sequestration has been reduced to $80 billion from $85 billion for this year due to some technical adjustments, cuts to Head Start, national parks and other areas will be felt because policymakers have been unable to work together to come up with a smart approach to the debt. Sequestration should be replaced by a comprehensive, long-term package. 

Calls for a Debt Deal Continue – The call of the Cicada can’t be ignored. It is the same for some policymakers when it comes to addressing the national debt. The White House continues to reach out to members of Congress, including a select group of Republican senators through meetings with senior staff and a golf outing with the President. Sen. Bob Corker (R-TN) sees “a lot of activity” towards a deal this summer. CRFB’s Maya MacGuineas says President Obama made some progress in the first 100 days of his second term, but more needs to be done, like reaching out to the public, not just lawmakers. Just like the Cicadas, the louder the calls for a debt deal, the more likely they will be heard. Join the movement by signing the Citizen’s Petition to Fix the Debt.

Swarming on Tax Reform – If you think 17 years is a long time between events, the last major reform of the tax code occurred 27 years ago in 1986. But there has been significant movement as of late. House Republicans are intent on moving tax reform this year and are floating tying it to an increase in the debt limit. However, Democrats want a clean debt ceiling increase. Meanwhile, the congressional Joint Committee on Taxation (JCT) released a report of more than 550 pages explaining current tax law along with tax reform proposals from various organizations and ideas presented by 11 congressional working groups. Comments from special interest groups interested in protecting the tax breaks that benefit them show that reform won’t be easy, but it is critical to getting our fiscal house in order. The chairs of the two congressional tax-writing committees, Rep. Dave Camp (R-MI) and Sen. Max Baucus (D-MT) continue their coordinated effort to get a reform package through this year.  

Budget Conference Can’t Get Off the Ground – Although both the House and Senate passed budget resolutions for fiscal year 2014, the process of reconciling the two budgets as not yet formally begun. While the chairs of the two budget committees, Sen. Patty Murray (D-WA) and Paul Ryan (R-WI), have had some conversations, a conference committee to negotiate has not been formed. Senate Democrats tried to force the matter this week, but were blocked. Republicans want to set some ground rules before entering the formal negotiations because they argue an open-ended process would lead to certain failure. A functioning budget process is vital to effective governance and the process could help pave the way to a debt deal.

Americans Bugged By Debt – The latest Fiscal Confidence Index from the Peter G. Peterson Foundation indicates that Americans are very concerned about the fiscal condition of the country. Respondents also expressed concern for the financial well-being of Social Security and Medicare and worried that without changes they could place a financial burden on future generations. These concerns and many others were addressed at the 2013 Fiscal Summit in Washington, DC on Tuesday, which featured heavy hitters such as former President Bill Clinton and Microsoft’s Bill Gates discussing the economy, the future and the need to address the long-term fiscal outlook. Read a recap of the conference here. As we point out, deficit reduction doesn’t have to be front-loaded. It can be done in a smart way that protects the recovery in the short term and promotes growth in the long term. The recent Simpson-Bowles plan provides an example of such an approach.

Debt Limit Pops Up Again – A more frequent pest than the Cicadas is the statutory debt ceiling. The debt limit fight two years ago wreaked havoc in Washington and nearly led to a national default. Lawmakers are already girding for the next fight later this year. The House this week will consider legislation that will prioritize payments on the national debt and for Social Security in case the debt limit is reached. House Republicans will meet to discuss debt limit strategy on May 15. Republicans appear intent to push for concessions such as spending cuts and/or tax reform in exchange for a debt ceiling increase and are looking to inoculate themselves from criticism that they are risking default. The White House has already signaled it will veto the prioritization bill and wants a clean increase. The suspension of the debt limit will end on May 18, at which time the Treasury Department can use “extraordinary measures” to avoid a default until as late as October by one estimate. A comprehensive fiscal plan is the only thing that will put an end to the incessant brinkmanship and posturing. Track debt limit developments here.   

Key Upcoming Dates (all times are ET)

May 14

• The CBO releases its updated budget baseline, showing new projections for the next ten years.
• Senate Finance Committee hearing on Medicare physician payemnts at 10 am.
• Senate Agriculture, Nutrition & Forestry Committee mark-up of the farm bill at 10 am.

May 16

• Dept. of Labor's Bureau of Labor Statistics releases April 2013 Consumer Price Index data.

May 17

• The CBO releases its analysis of the President's FY 2014 budget.

May 19

• The debt limit is re-instated at an increased amount to account for debt issued between the signing of the suspension bill and this date. After re-instatement, the Treasury Department will be able to use "extraordinary measures" to put off the date the government hits the debt limit potentially for a few months.

May 22

• Joint Economic Committee hearing on "The Economic Outlook" with Federal Reserve Chair Ben Bernanke at 10 am.

May 30

• Bureau of Economic Analysis releases second estimate of 2013 1st quarter GDP.

June 15

• Deadline for estimated quarterly individual and corporate tax payments.

Today, the Peter G. Peterson Foundation held its third annual Fiscal Summit, assembling a number of prominent current and former lawmakers, experts, and commentators to discuss the current state and future of our economy and the nation's finances. The discussion was kicked off by Juan Enriquez, co-founder of Synthetic Genomics Inc., a biotechnology company. Enriquez described some of the recent technological advances and how the federal budget relates to advancements in technology, suggesting that growing entitlement spending could "crowd out" important investments.

The relationship between our budget and technological progress was further explored by former President Bill Clinton and Microsoft founder Bill Gates. Clinton argued the sequester is a perfect example of the problem of "kicking the can down the road" - in order to prevent FAA delays, we have cut investment in our regional air service. "When we kick the can down road, we favor the present over the future," Clinton said. Gates agreed sequestration didn't reflect the nation's values and argued that the discussion should turn to health care, a long-term driver of the nation's deficits. Clinton agreed that health care needed to be the focus, emphasizing the benefits of switching from a fee-for-service system to one that rewards quality of care and the need to put health care spending in a budget.

Clinton spoke favorably of the new Simpson-Bowles plan, in particular that it would delay much of the deficit reduction until after 2015, giving the economy more time to recover. On fiscal policy, Clinton argued that Paul Krugman was right on the short-term and Pete Peterson was right on the long-term. As we've said before, there are ways to follow both of those approaches.  Clinton also called on policymakers to turn the conversation from politics to the "grimy details." He said: "What matters is if what you do turns your good intentions into good choices."

Next were interviews with key policymakers involved in current budget negotiations, which included Senate Budget Committee Chair Patty Murray (D-WA), House Budget Committee Chair Paul Ryan (R-WI), former OMB director and Senator Rob Portman (R-OH), Director of the National Economic Council Gene Sperling, and House Budget Committee Ranking Member Chris Van Hollen (R-MD). While there were disagreements about how to move the country forward, all believed that both sides had to come together with a compromise after the experience of the last few years. As Murray put it, "The American people are tired of Congress managing by crisis."

Some room for potential common ground could be seen, particularly on tax reform. Both Ryan and Portman emphasized as a possible source of faster economic growth, though there was division on the amount of revenue that should be raised. When asked which entitlement proposal in the President's budget Van Hollen would be able to accept, he said that he would consider greater means-testing in Medicare. Ryan agreed that means-testing was an option that could become part of a bipartisan compromise.

Janet Murguria of La Raza, David Brooks of the New York Times, Chairman of the House Democratic Caucus Xavier Becerra (D-CA), and House Chief Deputy Whip Peter Roskam (R-IL) then discussed the future of Medicare and Social Security.  The panelists disagreed about the nature and severity of the fiscal challenges facing the social safety net, but all four agreed that we must work toward a bipartisan agreement that lets us live within our means and invest in the priorities that will drive future innovation. Brooks suggested that the path to such a balanced compromise would be to have Republicans offer short-term stimulative discretionary spending increases in exchange for long-term structural entitlement reforms from the Democrats.

In the next panel, Susan Dentzer of the Robert Wood Johnson Foundation, Mark McClellan of the Brookings Institution, and Harvey Feinberg of the Institute of Medicine presented on the rising cost of health care. The panelists praised the progress that we have made since the Affordable Care Act in beginning to move away from fee-for-service pay model and spent quite a bit of time talking about the value of getting patients more involved in the decision-making process when it comes to treatment options. Dentzer summed up the consensus of the discussion -- if consumers have to pay more for health care, they demand less of it. If they are involved in the decision making process and are better informed about their health care, they tend to choose to avoid the expensive or unproven services.

The summit's final panel, made up of Admiral Mike Mullen, Governor Martin O'Malley (D-MD), and former California Senate candidate Carly Fiorina, focused on two issues: education and national security.  All three panelists praised Teach for America as an effective model for encouraging the brightest Americans to become teachers, and Governor O’Malley argued for an educational model built around reforms suggested by educators. On national security, Admiral Mullen argued that we can afford to reduce the amount the Pentagon is spending, but we can’t afford to cut spending foolishly with the sequester.

Overall, the 2013 Fiscal Summit highlighted many different perspectives on our economic and budgetary.  Most importantly, it was a reminder that while the budget debate in Washington may seem frustrating at times, there's still a lot of potential for compromise on a long term solution to put our debt on a sustainable path.