In recent weeks, we've heard a lot about what each side is willing to do to avoid the fiscal cliff, but not nearly enough about how lawmakers intend to put our budget back on a sustainable path in the long term. The immediate and blunt nature of deficit reduction under the fiscal cliff would have a devastating impact on the economy, but we also cannot avoid addressing our medium- and long-term debt problem. Kicking the can down the road yet again would be a clear signal to markets and the public that we are not serious about putting our debt on a sustainable, downard path as a share of the economy.
To this end, CRFB released a report on what we hope to see from the ongoing negotiations. In the report, we urge lawmakers to:
- Agree to a framework for a fiscal plan with sizeable savings;
- Put in place a credible process to achieve the framework;
- Address the fiscal cliff; and
- Enact a downpayment.
Ideally, a budget framework would follow the advice we gave to the supercommittee last year which asked lawmakers to "go big, go smart, and go long" in deficit reduction. Negotiations should look to how we can reform our tax code and mandatory spending programs, while phasing in policies to protect our fragile economy. How a framework is enforced -- with specific deadlines, targets, and enforcement mechanisms -- is also critical to ensuring that Congress follows through with the deal. Additionally, a solution should avoid using budget gimmicks to achieve savings for it to be credible.
Finally, we need to repeal the fiscal cliff while providing a downpayment. We cannot allow the country to go off the fiscal cliff; however, some kind of downpayment with specific savings would represent a credible commitment to deficit reduction. This would include a combination of revenue increases and spending cuts, using many of the ideas that have been fully fleshed out in previous negotiations and debt reduction plans.
The report provides very useful information in its appendices. The first appendix shows the amount of additional savings needed to get to different debt levels a decade from now from a number of different baselines. It is especially helpful considering all the confusion in budget talks that can result when people have different ideas of what counts as savings and what the starting point should be. The second appendix shows our table of overlapping policies from major budget plans, showing areas where lawmakers can look to for savings for a downpayment.
The resolution to the cliff over the coming months will be very important for the country going forward. As we say in our paper:
The fiscal cliff represents a serious economic threat, but also offers an incredible opportunity to enact pro-growth reforms to both spending programs and the tax code to ultimately put debt on a clear but gradual downward path as a share of the economy. By agreeing to a framework and a process for responsibly addressing the fiscal cliff as well as rising debt, elected leaders in Washington can reassure the public about the country’s finances and reduce the uncertainty surrounding the United States’ budget.
Click here to read the full paper.