CRFB Welcomes New Budget Proposals
January 27, 2010
The Committee for a Responsible Federal Budget is encouraged by recent proposals to address the nation’s large budget imbalances. Constructive plans from the Blue Dog Democrats in the House, Senators John McCain and Evan Bayh, and Congressman Paul Ryan—in addition to President Obama’s expected budget proposals in tonight’s State of the Union address—are all helpful in jumpstarting a much-needed national discussion about our fiscal future.
“It is no longer sufficient for policymakers to acknowledge that we have a problem” said Maya MacGuineas, President of the Committee for a Responsible Federal Budget. “You’d have to be blind not to know that. Now is the time to start proposing real solutions—and it is gratifying to see that a number of policymakers are taking that responsibility seriously.”
The “Blue Dog Blueprint for Fiscal Reform” unveiled yesterday puts forward the goal of stabilizing the debt level at 60 percent of GDP—a key recommendation of the Peterson-Pew Commission on Budget Reform. In order to achieve that goal, the plan lays out 15 steps including: restoring paygo rules, capping discretionary spending, instituting a “budget reconciliation trigger” to enforce budget discipline, and establishing a fiscal commission to recommend to Congress spending and revenue changes to ensure long-term fiscal sustainability.
The Bayh-McCain “Fiscal Freeze Act” would limit non-security discretionary spending growth to inflation, place a moratorium on earmarks, and implement a number of other reforms to stay in place until the federal budget is balanced. It also calls for long-term spending and deficit reduction targets, along with mechanisms to enforce those targets.
Congressman Ryan’s detailed “A Roadmap for America’s Future 2.0” announced today includes a comprehensive set of reforms for healthcare, Medicare, Medicaid, Social Security, the budget process and the tax system. The debt would still reach 100 percent of GDP by mid-century—a level we worry is far too high, but it is nonetheless a significant improvement compared to current policy, and a far more detailed offering than we have seen from any other politician.
President Obama will reportedly announce a three year freeze on “non-security” discretionary spending, as well as a presidential fiscal commission, in his State of the Union address tonight.
CRFB does not support every element of each proposal, but we commend those offering them for exhibiting leadership and political courage in putting forward a plan. We hope others will follow their leads.
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From CBO's January 2010 Budget and Economic Outlook, baseline estimates now show that public debt will increase from 53 percent of GDP in 2009 to 67 percent in 2020. Yet as troubling as this scenario is, it is almost certainly optimistic. If we assumed current policies were to continue as they have in the past, the debt would reach nearly 100 percent of GDP in 2020.
Over the past decade, discretionary spending has grown faster than mandatory. Between 1999 and 2008 discretionary spending grew annually, on average, by 7.5 percent – from less than $570 billion to over $1.1 trillion. Although the CBO baseline makes it appear as if discretionary spending will grow only modestly, more realistic assumptions tell a different story. Just holding discretionary spending growth to inflation would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses.
In Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt, The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize the national debt through a six-step plan. Crafted over the past year by former heads of the CBO, OMB, GAO, and the congressional budget committees, the plan reflects a bipartisan approach to avoiding the tremendous global risks of America's expanding debt, without destabilizing the economic recovery. Red Ink Rising is the first of two major reports to be released by the commission.
In Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt, The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize debt held by the public at 60 percent of GDP. Given our current fiscal path, reaching this debt goal will not be easy. While the Peterson-Pew Commission does not endorse specific tax and spending policies to meet this goal, Budget Blueprint: Paths to 60% aims to demonstrate the types and magnitude of necessary policy changes.
This paper examines the Obama administration budget reform proposals and evaluates how (and if) they would improve the budget process and restore fiscal responsibility. In particular, the paper examines the administration’s proposed changes to the calculation of the budget baseline and its reintroduction of a statutory pay-as-you-go (PAYGO) framework.
The CBO recently projected a ten-year deficit of $7.1 trillion using a "current law" baseline. But these numbers may prove to be optimistic. CRFB argues that four major assumptions in the baseline are unlikely to materialize, leading to a ten-year deficit of $12.6 trillion. This paper discusses US Budget Watch's own "current policy" baseline, which assumes particular policies do not conform to current law.