Time ‘Fore’ Action – Golf, that favorite pastime of power players, was even more popular than usual in Washington last week. Not only did the U.S. Open bring the best professional golfers in the world to the D.C. area, but a powerful foursome also hit the links, perhaps linking fiscal policy matters to their conversation as they played their round. Yet, while the Congressional Country Club in Bethesda, Maryland saw a dominating U.S. Open performance by Rory McIlroy and a record score, the congressional club on Capitol Hill is well over par when it comes to addressing the nation’s fiscal challenges. Unlike golf, where the goal is to get the ball in the hole, legislators must get out of the fiscal hole we are in. Its time that lawmakers picked up their legislative game and lowered the federal budget deficit score.
Of Golf and Gulfs – The much anticipated ‘Golf Summit’ between President Obama and House Speaker Boehner occurred Saturday. They paired up to beat Vice President Biden and Ohio Governor John Kasich, a former House Budget Committee chairman. While it was no Ryder Cup, a lot is riding on the ability of Obama and Boehner to work together in brokering a deal that increases the statutory debt limit and achieves significant deficit reduction. Time is running out to bridge the wide gulf between the two parties on how to reduce the national debt. While it is not clear how much time was spent on the golf course discussing how to get our fiscal situation back on course, perhaps the victory by Obama and Boehner that netted each two bucks is a good sign that the two will team up for a victory in a contest with a lot more money on the line.
Bernanke Tees Off on Debt – Federal Reserve Chairman Ben Bernanke offered his strongest remarks yet on U.S. fiscal policy at the CRFB Annual Conference on Tuesday (read highlights of his speech here). He warned that mounting national debt threatens the economy and that the current trajectory cannot be maintained. While he cautioned that the debt limit should be raised quickly and not used to force deficit reduction, he also made clear that a long-term, comprehensive fiscal plan should be devised now, and that putting a credible plan in place would benefit the economy in the shorter term as well as the long run. He also gave some guidance on what an effective plan would look like – possibly including triggers (see the recommendations from the Peterson-Pew Commission for making a debt trigger work here); stabilizing the debt at a certain ratio of GDP in the shorter term and reducing it further in the longer term (Peterson-Pew recommended a goal of a 60 percent debt/GDP ratio by the end of the decade); and simultaneously finding specific savings over 10 years while addressing the long-term sustainability of entitlement programs (see CRFB’s ideas for reforming Social Security and health care programs).
CRFB Unveils Tool to Compare Plans – Just like choosing the right club is a crucial part of golf, choosing the right plan will be imperative to making sure U.S. budget policy makes the cut in meeting our fiscal challenges. On the heels of Chairman Bernanke’s remarks on the need for a comprehensive fiscal plan and what an effective one could look like, CRFB unveiled a new interactive online tool that makes it easier to compare the plans that are out there and see how they stack up. The Deficit Reduction Plan Comparison Tool allows the user to easily compare the 30 plans that have been offered so far and will be updated as more plans emerge. Many plans share common elements but also diverge in important aspects. The new tool lets the user compare specific plans side-by-side to easily flesh out similarities and differences. It joins our “Stabilize the Debt” budget simulator as a useful educational resource.
Biden Group Drives Hard – The bipartisan, bicameral group of lawmakers negotiating a deal to raise the debt limit and reduce the deficit is playing through as it seeks a speedy resolution. The group met three times last week. The Tuesday meeting focused on discretionary spending. The group then discussed budget process mechanisms on Wednesday; Democrats wants a debt trigger while Republicans prefer a spending cap. The new Fiscal Toolbox from CRFB summarizes and compares the various budget tools available to help reduce the debt and the Peterson-Pew Commission recently provided recommendations for making a debt trigger work. At the meeting, Rep. Chris Van Hollen (D-MD) also provided a list of corporate tax subsidies to reduce or eliminate in order to achieve budget savings. CRFB has also provided tax expenditure reform ideas to reduce the deficit. The Thursday meeting looked at areas such as military compensation and farm subsidies. The group will meet at least three times this week, possibly more, and have longer meetings in an attempt to have a deal by July 1. CRFB has identified over $1 trillion in common-ground savings that the group could agree on as a down payment towards achieving the goal of $4 trillion in deficit reduction over the next decade.
Working on the Long Game – Some fear that the Biden group will not reach the $4 trillion target and instead settle for a shorter-term measure with less savings. In that case, there will be alternatives that go the distance. The Gang of Six, now five, says it is close to agreement on a plan that would reduce the deficit by around $4.5 trillion with a ration of spending cuts (including lower interest payments on the debt) to revenue increases of 3:1. Meanwhile, Senator Kent Conrad (D-ND), chairman of the Senate Budget Committee and a member of the Gang of Six, says he is close to a budget resolution that could pass his committee with Democratic votes that generates about $4 trillion in deficit savings through an even mix of spending reductions (including lower interest payments on the debt) and increased revenue. Both plans would rely on reducing or eliminating tax expenditures to raise revenue.
Taking Aim at Defense Spending – While Defense spending has usually received a mulligan in past budget cutting episodes, many are taking whacks at it now. Although the FY 2012 Defense appropriations bill passed by the House Appropriations Committee last week and due for House floor consideration this week includes a spending increase over last year, even the Pentagon is preparing for significant cuts. Outgoing Defense Secretary Robert Gates and Joint Chiefs of Staff Chairman Adm. Mike Mullen testified before the Senate Appropriations Committee on Wednesday on DoD’s 2012 budget and both discussed the new fiscal reality. Mullen reiterated his view that public debt is the greatest threat to national security. "If we as a country do not address our fiscal imbalances in the near-term, our national power will erode. Our ability to respond to crises and to maintain and sustain our influence around the world will diminish." He admitted that the military in the past was not "disciplined" in its fiscal choices, but now "cost will be a critical element of nearly every decision we face." Secretary Gates discussed his efforts "to replace a culture of endless money with one of savings and restraint" and listed some of the cost-cutting and efficiency measures he has instituted. Gates will be stepping down at the end of the month. His designated successor, CIA Director Leon Panetta, was approved last week by the Senate Armed Services Committee and is on track for confirmation by the full Senate this week. Panetta, who is a former OMB director, House Budget Committee chairman, and CRFB co-chair, will be tasked with meeting President Obama’s goal of finding $400 billion in savings in the Pentagon budget.
Entitlements in the Spotlight – Policymakers usually avoid entitlements like sand traps on the golf course. Yet, there has been recent movement on the entitlement reform front. Sen. Joseph Lieberman (ID-CT) recently wrote an op-ed calling for a balanced approach to making Medicare more fiscally sustainable that involves both revenue increases and changes to benefits, including gradually raising the eligibility age to 67. He says he is drafting legislation to that effect. A new report from the Medicare Payment Advisory Commission (MedPAC), an independent agency tasked with advising Congress on Medicare issues, echoes some of the ideas Lieberman mentioned, such as capping out-of-pocket expenses, requiring fixed-dollar copayments for services, and changes to supplemental coverage to reduce costs. The report also warns about the sustainability of the program. In addition, most Senate Republicans wrote to President Obama asking him to put forward a plan to reform Medicare in light of the recent Medicare trustees report detailing its long-term financial issues (see here for some ideas on health care reform, including Medicare). Meanwhile, Sen. Kay Bailey Hutchison (R-TX) introduced legislation to reform Social Security that includes raising the Normal Retirement Age over time to 69 and the Early Eligibility Age to 64 and reducing the annual cost-of-living adjustment (COLA) by one percent. A recent news report says that the powerful seniors lobby, AARP, is softening its opposition to Social Security benefits changes (which CRFB praised). The group's former CEO, Bill Novelli, urged action now to strengthen the program’s finances for future generations through a mix of revenue increases and benefit changes, and stated that increasing the retirement age should be on the table. CRFB offered ideas for reforming Social Security here, and explained why raising the retirement age is a good idea in blog posts here and here.
Clearing the Way for More Transparency – Initiatives to enhance transparency in the budget process and cut waste are becoming more prevalent than birdies at this year’s U.S. Open. Last week the White House announced a new ‘Campaign to Cut Waste’ that will target inefficiency in the government. Vice President Biden will chair a new oversight and accountability board to improve transparency by publicly tracking where federal dollars go. A first priority will be consolidating the nearly 2,000 government websites to make it easier to follow spending. Rep. Darrell Issa (R-CA), chairman of the House Oversight and Government Reform Committee, has gone even further, introducing legislation creating a statutory commission similar to the group that Biden will chair and creating a single online platform to track all government spending. The idea has bipartisan support; Sen. Mark Warner (D-VA) sponsored the Senate version of the bill, the Digital Transparency and Accountability Act (DATA). Rep. Issa held a hearing on the topic in his committee on Tuesday. The Peterson-Pew Commission on Budget Reform provided recommendations to improve the budget process to promote transparency and accountability in the report Getting Back in the Black. On a related note, the Advisory Committee on Transparency convened a forum examining tax expenditures, which account for about a quarter of the federal budget (just over $1 trillion) but are subject to little scrutiny and are difficult to trace. The event explored ways to make them more a more visible part of the budget process. Getting Back in the Black also offered proposals for integrating tax expenditures into the budget process. Finally, our New America Foundation colleagues at the Federal Education Budget Project launched an improved website last week that tracks K-12 and higher education funding as well as data on educational outcomes.
CRFB Holds Annual Conference and Dinner – On Tuesday CRFB convened its annual conference and dinner, which drew more heavy hitters than the Congressional clubhouse. In addition to Chairman Bernanke’s remarks described above, the conference also featured House Budget Committee Chairman Paul Ryan (R-WI), White House National Economic Council Director Gene Sperling, and many others. It was moderated by CNBC Correspondent Steve Liesman. The reception afterwards included remarks from OMB Director Jacob Lew and the dinner was highlighted by Fiscal Commission Co-Chairs Alan Simpson and Erskine Bowles talking to PBS NewsHour Senior Correspondent Judy Woodruff. Highlights of the event can be found here and more information is available here. Video of the conference can be viewed here and video of the dinner discussion can be viewed here.
Key Upcoming Dates
- Joint Economic Committee of Congress hearing on "Spend Less, Owe Less, and Grow the Economy" at 2 pm.
- CBO releases its Long-term Budget Outlook on its website at 10 am.
- House Ways and Means Committee Health Subcommittee hearing on the Medicare Trustee’s 2011 report on Medicare’s finances at 9:30 am.
- The House Budget Committee holds a hearing on CBO's Long Term Budget Outlook with CBO Director Douglas Elmendorf at 10 am.
- Senate Finance Committee hearing on "Health Care Entitlements: The Road Forward" at 10 am.
- House Ways and Means Committee Social Security Subcommittee hearing on Social Security's finances at 1:30 pm.
- First quarter GDP revision from the Department of Commerce.
- Deadline set by Biden group to come up with debt limit deal.
- Treasury Secretary Geithner says that the U.S. will default on its obligations by around August 2 if the statutory debt ceiling is not increased before then.