Note: The FY 2013 post-sequester numbers in Figure 1 have been corrected from the original version of this paper.
Politico | May 13, 2013
It seems the debt deniers are back.
If recent news reports are any indication, there is a growing sentiment that after enacting the nearly across-the-board “sequestration” spending cuts, Washington has already done enough to reduce the deficit and should avoid further deficit reduction that could disrupt the fragile recovery.
However, this rhetoric is based on the false notion that deficit reduction and economic growth are mutually exclusive. While we definitely should avoid immediate austerity, starting by reversing the austerity now in effect via the sequester, we must replace these less-than-intelligent, across-the-board cuts with a long-term fiscal plan — one that protects the recovery and promotes economic growth.
The austerity we currently face is precisely the result of our inability to deal with long-term deficits. Instead of reforming our Tax Code and entitlement programs, we’ve slashed important investments in the worst possible way.
Supporters of the status quo accuse those of us who want to fix the debt of supporting sharp austerity. Yet the civic leaders, small-business owners, current and former public officials and hundreds of thousands of average Americans who have joined me in supporting the Campaign to Fix the Debt believe exactly the opposite: We believe in ridding ourselves from the austerity already in effect. More important, we believe in growth. The key to unlocking this country’s economic potential isn’t to give up on smart deficit reduction; it is to enact a responsible plan to replace the mindless cuts that are currently the law of the land. Simply put, the only way out of this foolish austerity is to enact comprehensive deficit reduction.
Policymakers may pretend the current situation is sustainable, but in reality everyone loses.
By resisting continuing efforts to reach a responsible deficit-reduction deal that could replace the sequester, those in my party concerned about protecting programs that provide support for low-income people, enhancing public investments and ensuring the economic recovery is the tide that lifts all boats may very well be, unintentionally, thwarting all three goals. Indeed, by taking the view that we’ve done enough to control the debt, they may be condemning us to the sequester’s continued austerity and to the foolish across-the-board cuts they correctly deplore.
Our current situation is the worst of both worlds. Excessive, mindless deficit reduction in the short term when it will harm the economy, and rapidly growing debt over the long term when that debt will start slowing down economic growth. What’s more, the recent political maneuvering in which Congress acted swiftly to eliminate the sequester’s furloughs of air traffic controllers — while efforts to cancel the sequester as a whole went nowhere — underscores the political reality that the mindless cuts may be here to stay. Unless Congress replaces the sequester with a comprehensive deficit-reduction plan, 4 million meals for seniors will be eliminated, 70,000 children will be kicked out of of Head Start, and 125,000 American families will be at immediate risk of losing rental assistance and, along with it, their homes. The only way to avoid allowing a few powerful interest groups to get their own carve-outs from the budget cuts while leaving everyone else in the cold is to come to an agreement on a responsible deficit-reduction plan to replace the sequester.
Fortunately, there is a better way forward. The recent deficit-reduction plan put forward by Erskine Bowles and Alan Simpson, for example, would replace immediate austerity with a comprehensive plan that is smarter, larger and more gradual. Such a plan would help restore this country’s economic credibility. The markets must be reassured that the government is willing to control its debt over the long term. Enacting a plan now allows us to gradually phase in changes , allowing Americans time to adjust. Moreover, gradual changes would help the economy avoid the kind disruptions that are sure to occur if our elected leaders wait until market forces leave them with no choice other than through dramatic, sudden policy changes.
Rep. Chris Van Hollen (D-Md.) made this point at a recent Bloomberg forum when emphasizing the need to “take actions today that kick in over a phased period of time in the long term to address the out-year deficit and debt” in order to avoid a “‘squeezing out’ effect … that will put the brakes on the economy.”
Only by reducing our overly heavy debt burden can we be sure we’re putting our economy in an environment most conducive to sustained growth. Designed properly, a comprehensive deficit-reduction framework can promote short- and long-term economic growth. Such a deal would avoid the effects of the sequestration and reduce uncertainty; improve confidence in future economic growth; promote work, savings and investment over the long term; and reduce the likelihood of a debt-fueled fiscal crisis in the future. Only a comprehensive approach, one that reverses today’s austerity but enacts intelligent deficit reduction over time, will truly fix our debt.
Washington Post | April 29, 2013
In the 2½ years since the National Commission on Fiscal Responsibility and Reform that we co-chaired released its final recommendations on charting a path toward meaningful and bipartisan debt reduction, we have traveled the country, speaking to hundreds of thousands of Americans of all ages, incomes, backgrounds and ideologies about our debt challenge. No matter our audience, those we spoke with shared two things: a thirst for the truth about what it will take to right our fiscal ship and a willingness to be part of the solution so long as everyone is in it together.
Unfortunately, in Washington, the past two years have been defined by fiscal brinksmanship. Policymakers have lurched from crisis to crisis, waiting until the last moment to do the bare minimum to avoid catastrophe without addressing the fundamental drivers of our long-term debt.
To be sure, some progress has been made the past two years. Policymakers have enacted about $2.7 trillion in deficit reduction, primarily through cuts in discretionary spending and higher taxes on wealthy individuals. Yet what we have achieved so far is insufficient. Nothing has been done to make our entitlement programs sustainable for future generations, make our tax code more globally competitive and pro-growth, or put our debt on a downward path. Instead, we have allowed a “sequestration” to mindlessly cut spending across the board — except in those areas that contribute the most to spending growth.
But there are seeds of hope that a bipartisan agreement might be achievable.
In December, the two parties were as close as they’ve ever been on a plan to put our fiscal house in order. Although they did not reach agreement, we continue to believe that broader compromise is possible. In particular, President Obama deserves a lot of credit for his budget, which lays the foundation for constructive bipartisan discussions by incorporating the tough choices and politically difficult compromises contained in the last offer he made during negotiations with House Speaker John Boehner in December.
While the president’s budget represents a significant step forward, it does not go as far as necessary to keep our debt declining as a percent of our economy. There are significant, substantive differences between the parties on key issues. But we hope that instead of retreating to their respective partisan corners, leaders in both parties will work to bridge the divide.
That’s why we released a new plan this month that builds on the most recent negotiations between the president and the speaker. In crafting it, we drew on the conversations we have had with policymakers from both parties in the past two years, and we worked to address concerns raised about the plan we put forward in 2010. This new plan represents what we believe is both necessary and politically possible, highlighting areas where there is bipartisan agreement and outlining ways to bridge differences on other areas.
The plan we propose would achieve $2.5 trillion in deficit reduction through 2023, replacing the immediate, mindless cuts of the sequester with smarter, more gradual deficit reduction that would avoid disrupting a fragile economic recovery while putting the debt on a clear downward path relative to the economy over the next 10 years and beyond. Importantly, the plan would achieve this deficit reduction while respecting the principles and priorities of both parties.
Our proposal contains concrete steps to reduce the growth of entitlement programs and make structural changes to federal health programs, such as reforming the health-care delivery system to move away from the fee-for-service model and gradually increasing the eligibility age for Medicare. At the same time, it would provide important protections and benefit enhancements for low-income and vulnerable Americans, such as an income-related Medicare buy-in for seniors affected by the increase in Medicare’s eligibility age and greater protections against catastrophic health-care costs for low-income seniors.
Our proposal recognizes that additional revenue must be part of a comprehensive deficit-reduction plan for both substantive and political reasons. Our plan raises revenue through comprehensive tax reform that lowers rates, improves fairness and promotes more vibrant economic growth.
These structural reforms are accompanied by spending cuts in all parts of the budgets put forward by both parties, including cuts to defense and non-defense programs. The plan also includes a shift to the chained consumer price index to provide more accurate indexation of provisions throughout the budget, with a portion of the savings devoted to benefit enhancements for low-income populations. Together, these policies would put the debt on a downward trajectory as a share of gross domestic product — and would keep it declining for the long term.
Our proposal is not our ideal plan, and it is certainly not the only plan. It is an effort to show that a deal is possible in which neither side compromises its principles but instead relies on principled compromise. Such a deal would invigorate our economy, demonstrate to the public that Washington can solve problems and leave a better future for our grandchildren.
The Hill | April 26, 2013
Second presidential terms build legacies, and this president’s will be tied solidly to the decisions he makes about the national debt and the budget. He cannot leave the office with the debt approaching $20 trillion and expect history will look kindly upon his fiscal management of the nation.
So how is he doing in the first 100 days on this front? He is off to a good start, and it is certainly a lot better than he did in his last four years.
The budget President Obama offered was more serious than many of his other recent proposals. By including the chained CPI — a technical improvement to how we measure inflation that would help to extend the life of Social Security and increase revenue for the federal government — he sent a real signal that he is willing to discuss the kinds of more serious entitlement reforms that will have to be part of any deal.
And his so-called “charm offensive” seems to be going well. It is nothing short of absurd how little the president has interacted with members of Congress — including those from his own party — on these issues in the past. And the dinner series he initiated seems to be helping to start a real discussion. It’s hard to solve problems when no one is even talking.
But the real question is where this goes in the next 100 days. There isn’t much time; we need to get a deal hammered out before the country hits the debt ceiling late this summer or early fall.
This will take a lot more than raising tax rates on the rich, or even grudgingly dipping his toe in entitlement reform, as the president has talked about so far. While it is laudable that we have reduced the deficit in the past two years from where it otherwise would have been, we have only done the relatively easy policies thus far. Putting in place spending caps where you don’t have to specify what programs will change (and you have to count on Congress to make the promised savings stick — not a great track record here) and raising tax rates on the very well off are a start.
Next up: the tough stuff.
All told, we have achieved about half of the savings we need to reach a minimum target. Now in the next tranche, we have to tackle the much harder parts: entitlement and tax reform. The good news is that the tax committees are making impressive progress on moving forward with tax reform, which would broaden the base; lower rates; simplify the system; make it far more equitable and competitive; and raise revenue for the federal government in a much better way.
Where the president is going to have to really use his leadership is to help make the case for entitlement reform and why we have to make the needed changes to control healthcare costs and adjust the nation’s retirement system for growing life expectancies. He should make the case to Democrats on why they should prefer Social Security and Medicare reform under his presidency, and he needs to make the case to the nation as a whole about why putting a fiscal deal in place is so important and how the economic recovery will not take off without one.
And that will be part of the test. The president’s style has been to put an issue on the agenda and then take a huge step back right out of the room. That’s not going to work on this one.
The specifics are difficult and come with political risks. He will have to own the tough policy choices right along with the Democrats and Republicans in Congress.
And in order to make this work, he will have to use the bully pulpit as only the president can. He must make the case to the country for why a reformed tax code will make us more competitive, why we need to address the problems with entitlements in order to strengthen those programs, why a smart budget deal is part of an economic recovery strategy, why fixing the budget now will help us to preserve a strong safety net, and why we have to make the necessary investments we have been shortchanging for so long.
A few major speeches around the country laying these issues out would make a world of difference.
President Obama made a small down payment on his legacy in his first 100 days. Now he must invest a lot more political capital to make sure it pays off.