The Hill | February 2, 2013
The president says he is going to spend the first few months of his second term traveling the country attacking Republicans.
The Republican members of Congress had said they were going to spend the beginning of the new Congress taking a hostage they could not shoot, the debt ceiling, and thus continue on their now well-worn path of self-immolation. A confrontation on that issue still looms.
All this leads one to ask: Isn’t there a better way? The answer, of course, is yes.
What is causing all this dysfunctionality in Washington? Is there a way forward that does not involve the chaos theory our government is functioning under?
The core problem is that we are trying to learn how to deal with a government that arose in a time of plenty — when our nation had its largest generation in history, the baby boom generation, engaged in the work force. Now, that generation is moving out of the workforce and into the role of the recipient.
We are taking 70 million people who made up the most productive and wealth-generating group in the nation’s history, and moving them from pulling the wagon to being in the wagon. This transfer, coupled with the massive explosion in the possibilities and costs of healthcare, has created an untenable fiscal situation.
The president seems to have concluded that he does not need to come up with substantive policies to address this looming crisis so long as he just creates an atmosphere of class warfare, claims all things can be cured by raising taxes on a small percentage of Americans and blames the Republicans for failing to agree to abdicate to this policy.
The Republicans have responded by claiming that spending is the sole villain causing our fiscal crisis. They seek to force reductions in spending by threatening actions that in the end they cannot take, such as going over the fiscal cliff or defaulting on the nation’s debt obligations. Actually taking such actions would — quite rightly — destroy the party’s credibility in the eyes of most Americans by doing fundamental harm to the future of the country they claim to want to protect.
There is a path forward. It is just not either of the ones that the primary players have identified. It is a path that does not require brinkmanship governance; nor does it require either side to sacrifice its core beliefs.
The president wants to push forward with his signature program on healthcare, and raise revenues to fund it. He also wants to aggressively use government to seek redress for what he and his cadre of Harvard reformers believe to be the inherently unjust nature of many aspects of our nation.
Republicans want to bring down the cost of government and put us on a path to fiscal solvency by restraining spending. They also want government to be much less intrusive in the day-to-day lives of Americans.
The latter goals of the two parties rather aggressively diverge. They can and will continue to be points of great contention. But they are not at the core of our deficit and debt problem.
It is the first part of the goals of the two parties that can be made to overlap. We can get this debt and deficit down through an agreed path that both parties should be able to live with.
In its simplest terms it involves an agreement to adjust entitlements through changes that do not result in near-term impacts of great significance — but which lead to dramatic long-term changes that make them affordable for the country and the next generation which has to pay for them.
Taking this long-view approach would allow the parties to leap over the short-term fights regarding Obamacare and lock in place policies that will ultimately lead to a fundamental correction in course.
The second part of the agreement is an all-out commitment to produce fundamental tax reform. The template for this is already in place, via the Simpson-Bowles Commission. It gives both sides what they need in a dramatic and effective way: Much lower rates for Republicans and progressivity for Democrats. Such an approach would, in all likelihood, also produce a lot more revenue through growth and the elimination of special deductions and exemptions.
Both sides could back this approach. Instead of the president hitting the campaign trail and the Republicans picking procedural battles, the two sides could actually work together and make the country work too.
TaxVox | February 1, 2013
In one of the more dangerous fiscal developments of recent months, some on the left are defining successful deficit reduction as merely stabilizing the federal debt at about 70 percent of Gross Domestic Product by 2022. While there is no magic target, this one is far too modest and threatens to leave future fiscal policy perilously constrained.
Under current assumptions this goal can be achieved with combined reductions in spending growth and/or increases in taxes of $1.4 trillion over the 2014-2022 period, far less than the total deficit reduction provided by the 2011 Budget Control Act (BCA), which resolved the 2011 debt ceiling debate, and the American Taxpayer Relief Act of 2013 (ATRA), which recently avoided the fiscal cliff.
Richard Kogan of the Center on Budget and Policy Priorities, supported by Martin Wolf of the Financial Times makes the case for more modest deficit reduction. The editorial page of the Washington Post shares my concern that their goals are dangerously modest.
Imagine facing the next recession with a debt-GDP ratio already above 70 percent. It is almost certain that we shall have another slump before 2022. If not, it will be the longest period without a decline in the recorded history of U. S. business cycles. Add a modest stimulus to the recession-driven reduction in tax revenues and increases in social spending and the debt-GDP ratio would top 100 percent in the blink of an eye. But it is harder to argue for a stimulus with the debt already soaring, and without one, a future recession would be more severe than necessary.
However, let us say that for some period before or after 2022 the economy is cruising along a full-employment path at a steady rate of growth. The deficit associated with stabilizing the debt-GDP ratio at 70 percent of GDP is more than 10 percent higher than that consistent with a 60 percent ratio – the limit chosen by the drafters of the Maastricht treaty that created the Euro. That is a significant increase in the rate at which we are depleting our nation’s wealth. The damage to the standard of living cumulates over time and that does no favor to our children and grandchildren.
Kogan and Wolf assume that the discretionary spending caps imposed by the BCA through 2021 will be enforced successfully (Kogan assumes that the BCA’s spending sequester will be cancelled.) The caps imply that discretionary spending will fall to the lowest level relative to GDP since World War II. They would also require both defense and nondefense outlays to grow less than the rate of inflation from 2014 to 2021, after already falling considerably from the levels inflated by the stimulus and the recession.
The biggest risk is that it will be impossible to maintain defense at such low levels. Mali shows that the war on terror is far from over. While the Chinese defense budget is now only about one-quarter of ours, it is growing explosively. Is it reasonable to expect ours to continue to decline in real terms, even if theirs approaches ours by 2021?
In nondefense, population growth will be putting upward pressure on spending for programs like education, infrastructure, national parks, etc, etc. Although nothing is irreversible in the budget, true reforms in Social Security, Medicare, and Medicaid have a better chance of lasting than arbitrary caps on discretionary spending that do not specify individual program cuts. The BCA, however, excludes Social Security and Medicaid from cuts and includes only modest reduction in payments to Medicare providers.
I would think the left would back more aggressive deficit reduction, if only to lower the risk of a sovereign debt crisis. It is, after all, the poor who are being most devastated by high unemployment in Ireland, Portugal, Spain and Greece and by arbitrary cuts in public pensions and social programs.
Sovereign debt crises occur at all manner of debt-GDP ratios and are impossible to predict, but it is hard to believe that a higher ratio does not increase the risk to some degree. It is sobering to note that in 2008, just before their crises, the net debt to GDP ratio in Spain was less than 31 percent and in Ireland less than 25 percent.
Patriot News | January 29, 2013
We are in a state of stupor over the federal budget.
No, it’s not we citizens. But, rather, it’s our federal elected officials who are responsible for clear-sighted and resolute leadership on taxes and spending.
Nothing much was achieved by the “successful” juke to avoid the fiscal cliff.
Poor leadership is taking a toll on the businesses and individuals who participate in our economy. Inaction is not an option. And the recent legislation averting the fiscal cliff, while not inaction, was wholly inadequate to address the immediate challenge and associated tasks we face. We long for the bipartisan days of House Speaker Tip O’Neil and President Reagan.
For months leading up to the Jan. 1 deadline, the private sector, particularly small businesses, voiced concerns over economic and political uncertainty; they sidelined investment and delayed plans to hire. Gridlock in Washington prevented any real progress. And the ultimate last-minute deal punted on the tough decisions to rein in the federal debt.
Though Congress and the Obama administration managed to eke out a deal to avert the fiscal cliff, the agreement does little to boost confidence in the short-term. And it does nothing to seriously slow down the unsustainable trajectory of our national debt.
Simply put, the future cost of our entitlement programs far outstrips our tax code’s ability to fund them. And we’ll need major reforms on both sides of the ledger in order to close the yawning gap between revenues and outlays.
If Congressional Democrats and Republicans really want to help economic growth and job generation, they need to stop focusing on outmaneuvering each other and start focusing on bipartisan solutions to our long-term fiscal problems.
Businesses rely on policy and economic certainty, and a comprehensive plan to that bends down the trajectory of our long-term debt and ends the status quo of lurching from one crisis-induced mini-deal to another would help immeasurably.
Such a plan must address the problem from all sides. This includes smarter spending as well as entitlement and tax reform. Additionally, these changes need to be implemented gradually to avoid creating shocks in the economy.
The parties need to return to the negotiating table now and show the courage to work together on a deal that does not simply represent the lowest common denominator, but is big enough to stabilize the debt and put it on a downward path.
They have a chance to demonstrate Washington can still compromise to help restore confidence. Most importantly, it would reassure the country’s businesses, large and small, and help stimulate growth and investment.
We need to let our elected representatives know that we support them in making the hard decisions. But we also expect them to do what’s right. For that reason, more than 2,500 small businesses all over the country – at least 50 in every state – have joined the Campaign to Fix the Debt. The coalition is made up of budget experts, political leaders from both parties and more than 340,000 concerned citizens from every corner of the country. And we are asking lawmakers to work together and do it now.
We have a long way to go to get our fiscal house in order. And it will take time to iron out the specifics of a comprehensive deal. If we stay focused, it will provide the boost that our nation’s small businesses need to put America back to work.
The Government We Deserve | January 23, 2013
“We must act, knowing that our work will be imperfect,” Barack Obama proclaimed in his second inaugural address. Interestingly, the Washington Post blazoned its front page with the first three words without noting the succeeding dependent clause. Yet within this clause, I believe, lies the means by which the president—and Congress—and we—can move past so many of our conflicts and face up to the problems that confront us. The solution lies not in acting, but in recognizing the imperfection of what we do. If our budgets are to be vehicles for change, then we cannot enact so many laws as if the priorities of one time and place must endure forever.
More than ever before, our recent fights carry with them the implication that victory must be complete and total, setting in stone the institutions that will rule over our successors for decades and centuries to come. “We must act,” each political party seems to say, “as if our work will be perfect, else our opponents may someday slow down or even reverse our course.” Permanent monuments must be made to some liberal or conservative agenda, regardless of whether that monument rests upon unstable ground, employs an architecture glued together from incongruous designs, or fails to leave room for the improvements that only future knowledge may reveal.
Today, if we favor Social Security, it must be maintained permanently in its ancient design. For all generations of ever-expanding life expectancies, we must allow beneficiaries to retire as early as 65, or, when feeling temporarily richer, at 62. We must even accept its 1940s stereotype of the two-parent family, with abandoned mothers required to pay taxes to support spousal benefits for which they are ineligible. Similarly, if we favor less government, we can’t just work toward that goal by reducing spending. No, we have to create permanent tax cuts even if that means running economically disastrous deficits.
If we favor helping the poor, then we can never give up support for benefits like SNAP or food stamps. These programs must be etched in the law as superior to any alternative use of those funds, including ones that might provide better opportunities to people in need. If we subsidize an industry, whether oil or alternative fuel or agriculture or manufacturing, then we must enshrine that subsidy in the tax code.
Now, of course, there’s good reason for using legislation to try to provide some certainty or security. With perfect foreknowledge, we can plan for the future. But what if that future remains uncertain? Planning for it then requires creating a way to respond to its surprises, good and bad.
Unfortunately, we’ve gone long past the point where our federal budget could be flexible. A fiscal democracy index I developed with Tim Roeper shows that the combination of entitlement growth and low revenues means that today most revenues are already committed to permanent spending programs. Almost every congressional decision to adjust national priorities has to be paid for out of a deficit, or by overturning some past “permanent” enactment.
Earlier, before entitlements became so prevalent and dominant, spending was largely discretionary. Congress also felt that we should pay our bills on time, so it didn’t finance tax cuts for today’s generations by passing those liabilities onto future generations. Though many programs survived for decades, most still had to receive new votes of support. Even more important, almost none had any built-in growth. That made it easy to let some ideas languish as others came into prominence, leaving room for new choices or reconsideration over time.
Compromise is much easier when one side or the other isn’t forced into reneging on past promises to the public. It’s easier when it’s possible down the road to proceed on the same course, pursue the same objective via a different course, or decide on both a new objective and course. It’s easier when we’re not asking our opponents to keep funding some permanent monument we want erected to ourselves.
“But we have always understood that when times change, so must we; that fidelity to our founding principles requires new responses to new challenges…We understand that outworn programs are inadequate to the needs of our time…Let us answer the call of history, and carry into an uncertain future that precious light of freedom.” (Barack Obama, January 21, 2013; emphasis mine).
New York Times | January 14, 2013
The elbow room the government has given itself on the debt ceiling is quickly approaching, and there are a numbers of ways to deal with it. But only one would be both fiscally and economically responsible.
We can run out the extraordinary measures keeping the nation's credit card working, and once again threaten to default if policy makers can't agree to lift the ceiling to cover the bills we have already racked up. The mere threat is likely to create enough economic uncertainty to do real harm, and actually defaulting would be catastrophic.
Skip the gimmicks and reach an agreement for a long-term solution to the nation's growing debt.
We could use various money-minting gimmicks or legal maneuvers to avoid the ceiling, while avoiding the reality that the ceiling is a reminder that we are borrowing way too much. Rather than heeding all the warning signs, Congress and the president would prefer to find new and creative ways to kick the can down the road. At some point, this punting will cause tremendous damage.
Or, we could own up to the fact that we have to make changes to get our nation's finances under control.
Congress should lift the debt ceiling as quickly as possible - no more 11th hour nail-biters please! -- while putting in place a comprehensive plan to bring the debt back down to manageable level.
The focus of the plan should be reforming the nation's entitlement programs that their own trustees have declared to be unsustainable. The changes should be gradual and protect those who depend on them, but align our promises with our ability to pay. Other parts of the budget from outdated programs (for instance, farm subsidies) to defense should be cut, and there needs to be a major overhaul of the outdated and anti-competitive tax code.
Even with such an agreement, raising the debt ceiling will be necessary as our borrowing will continue for the foreseeable future. In fact we want to make sure we don't cut the deficit too much or too fast while the economy is still weak.
But the responsible way to do so is along with a plan to get the borrowing under control. Any of the other options will come with a serious economic price.
New York Times | November 30, 2012
Washington faces two urgent fiscal challenges in the next few months. Before the end of the year, the lame duck Congress, the most polarized in recent history, must negotiate an agreement with President Obama to protect the still fragile economic recovery from the so-called fiscal cliff — the $600 billion in spending cuts and tax increases scheduled to begin to take effect on Jan. 1. Then, early next year, a newly elected but still divided Congress must approve an increase in the federal debt limit. Failure to do so in a timely way would damage confidence, posing yet another threat to the economy’s continued healing.
These two challenges are manifestations of the long-running fiscal challenge confronting the country: the fact that the federal debt is rising at an unsustainable rate. That’s why a political deal to address the fiscal cliff and the debt limit in the near term should be linked to a credible framework to put fiscal policy on a sustainable path in the long term.
By the end of this year, policy makers need to “go fast” to address the fiscal cliff and debt limit and to “go big” to establish the broad outlines of a significant multiyear deficit-reduction plan.
The economy continues to operate far below its capacity. The unemployment rate is at least two percentage points higher than what most economists consider consistent with a full recovery. Other measures, such as the high rate of long-term unemployment and the low labor-force participation rate, reflect an impaired labor market
According to the Congressional Budget Office, gross domestic product is still about 6 percent, or about $973 billion, below the potential level the economy is capable of producing at full capacity. This is the largest gap between actual and potential output following a recession in modern American history.
The weakness of government spending at the state and local level and more recently at the federal level has been a significant factor behind the slow recovery. The phasing out of earlier federal stimulus measures, the expiration of temporary payroll-tax relief and extended unemployment benefits scheduled at the end of the year, and the tight caps on discretionary federal spending already in force mean more federal fiscal drag on the economy’s growth next year even if the fiscal cliff is averted
Ideally, given the shortfall in aggregate demand that is keeping the economy stuck below potential, a deal on the cliff should include an extension of both payroll tax relief and unemployment benefits, as well as other temporary policies to support job creation, such as the employment tax credit for small business and the increase in infrastructure spending proposed last year by President Obama as part of the American Jobs Act.
Alas, it seems unlikely that a deal will contain these measures. At best, if a deal is reached it will probably be limited to tabling the deep spending cuts automatically scheduled to take effect early next year, extending the 2001-3 tax cuts for the bottom 98 percent of taxpayers and raising taxes on the top 2 percent of taxpayers, especially those with incomes over $1 million, through some combination of higher marginal tax rates and caps on deductions.
To improve the economy’s near-term growth prospects, the deal should also contain a promise that Congress will approve the debt limit when necessary without a destabilizing delay.
So far, negotiations about a go-big framework for deficit reduction have focused on cutting at least $4 trillion from the federal budget over the next decade, with the goal of stabilizing and then reducing the debt-to-G.D.P. ratio. The election and recent Gallup polls settled the debate about whether an increase in revenues will be part of the plan. The answer is yes.
The debate has shifted to how revenues should be increased and who should bear the burden. The proposition that revenues should be raised through tax changes that limit deductions, credits and loopholes, in lieu of or in addition to rate increases, is gaining momentum.
Economists believe that raising revenues for deficit reduction through base-broadening tax reforms is probably better for economic growth than raising marginal tax rates.
Although it may prove politically necessary for a bipartisan deal, however, there is no convincing economic justification for using some of the revenues saved from tax reforms to lower marginal income tax rates for high-income taxpayers. These rates are already at historic lows.
And there is no convincing evidence that real economic activity responds materially to changes in these rates, at least within the range of rates experienced in the United States during the last half-century. The tax code should be reformed to make it simpler, fairer and less distortionary and to raise revenues for deficit reduction, not to reduce tax rates on high-income taxpayers.
Over the last 30 years, income inequality in the United States has increased sharply. During the same period, the federal tax system has become less progressive and has contributed to the trend of rising income inequality and widening opportunity gaps between children born into different income groups.
A more progressive tax code, achieved through some combination of higher tax rates and capping deductions for high-income taxpayers, would be a powerful tool both to counteract these trends and to achieve long-term fiscal sustainability.
On the spending side, “go big” bipartisan proposals for deficit reduction, such as the Simpson-Bowles and Domenici-Rivlin plans, focus on curbing the growth of Medicare, Medicaid and Social Security. This is understandable as these programs already account for about 40 percent of federal spending and that share is projected to rise as a result of the aging of the population and the growth of health care costs.
But lumping Medicare, Medicaid and Social Security together is misleading and, given strong partisan passions on Social Security, could weaken the chances of reaching a bipartisan deal on deficit reduction.
Spending on Social Security is rising primarily because of demographics, not because of growing benefits per eligible person. Indeed, the Social Security Trust Fund has adequate resources to cover benefits until at least 2033, and the program’s revenue shortfall is less than 1 percent of G.D.P. over the next 75 years.
In contrast, the argument for including Medicare and Medicaid in a framework for long-run deficit containment is compelling. The single most important factor behind the projected growth in federal spending is the growth in health care spending, driven primarily by the growth in Medicare spending per beneficiary.
The outlook has already improved as a result of significant changes in the delivery and payment of health care services in the Affordable Care Act. As a result of these changes, growth in Medicare spending per enrollee is projected to slow to 3.1 percent a year during the next decade, about the same as the annual growth of nominal G.D.P. per capita and about two percentage points slower than the annual growth of private insurance premiums per beneficiary.
Speeding up the pace of the Affordable Care Act changes along with others, such as reducing subsidies for high-income beneficiaries and drug benefits and introducing small co-pays on home health-care services, would mean even larger Medicare savings.
A “structural reform” popular among Republican deficit hawks like Representative Paul Ryan of Wisconsin to convert Medicare to a premium-support or voucher system would be counterproductive and would drive up both spending per beneficiary and overall costs in the health care system.
The goal of a “go big” plan for deficit reduction should be to ensure the economy’s long-term growth and competitiveness. Yet the debate over spending in Washington is fixated on cutting entitlement spending. Very little is heard about the need to increase federal spending in education and training, research and development and infrastructure, three areas with proven track records in rate of return, job creation, opportunity and growth.
Spending in these areas accounts for less than 10 percent of the federal budget; this share has been declining for several decades and is slated to fall to dangerous new lows as a result of the caps on nonmilitary discretionary spending already in place.
A pro-growth framework for deficit reduction must reverse these trends. More government investment in the foundations of economic growth should be recognized as a core principle of deficit reduction.
The Hill | November 14, 2012
The election is over, the ballots have been counted and the TV commercials approved by the various candidates are, thankfully, off the air. But there is no time for President Obama and Congress to rest on their laurels. Policymakers need to return to the task of legislating, and nothing is more pressing than putting in place a plan to fix this country’s debt and avoid the year-end “fiscal cliff.”
Lost in the quadrennial tumult of campaign ads and horse-race coverage was any serious discussion of a plan to resolve the upcoming fiscal cliff — that ham-fisted combination of across-the-board spending reductions and tax increases of more than $500 billion next year alone — and, beyond that, the nation’s unsustainable debt. In the immediate future we face the prospect of hurdling into a self-imposed recession, and over the longer term, a fiscal crisis due to our own failure to act. No lawmaker should find either scenario acceptable. Our country is better than that.
With less than two months to go before we reach that cliff, the lame-duck session of Congress will be profoundly consequential. Though going over the cliff would indeed reduce the deficit — something we need to do — it would in fact be too much deficit reduction too quickly, and focus on the wrong parts of the budget. Though I realize that, given our nation’s recent track record of burying our head in the sand on the need to deal with the deficit, it seems a bit silly to worry about too much deficit reduction, this is a tricky balancing act. Ripping the wrong bandage off now and hurtling ourselves into a recession would ultimately make bringing the deficit down much harder.
There’s a big difference between implementing deficit reduction all at once and enacting a gradual plan upfront. A smart deficit-reduction plan should be implemented within the next several months, but be phased in gradually in order to protect the recovery and allow people and businesses time to prepare for changes. And, importantly, it would focus on the major problem areas of the budget, including healthcare and retirement programs, as well as comprehensive, pro-growth tax reform that broadens the base, lowers rates and raises revenues in order to help reduce the deficit.
As we stand on the edge of a fiscal cliff, however, we are also on the precipice of an amazing opportunity. The actions that must be taken to avoid the cliff could prove to be the push our political leaders need to make necessary larger, longer-term changes. Indeed, Moody’s Investors Service months ago declared that if Congress simply waives away the cliff, without making progress on long-term deficit reduction, we could face another downgrade. And without a deal, annual trillion-dollar interest payments will become a reality within the next decade, or sooner, and our publicly held debt will be twice of the size of the economy within 25 years.
With the consequences of inaction so clear and so dire, the moment for a long-term, comprehensive and bipartisan agreement to stabilize our national debt is now.
So what would a comprehensive reform look like? We should cut all wasteful and low-priority spending — but by no means is that the answer alone. We need to control the exploding costs of federal healthcare and retirement programs, reforming them to ensure our entitlement programs are strong for the next generation and protected for those who need them most. We also need to reform the tax code, which hasn’t had a thorough look-over since the 1980s. Given what a mess the tax code is, we in fact have the opportunity to make changes that would simplify the code, make us more competitive and help grow the economy through lower rates, while at the same time raising needed revenues to reduce the deficit — an opportunity that we should not miss.
The lame duck is the opportunity to start this process while avoiding the cliff. In order to extend some or all of the dangerous cliff policies, lawmakers need to put in place the process to secure a larger deal. This will have to be built on compromise. This means that neither party can hold on to its “sacred cows,” and favored constituencies will be offended. Those away from Capitol Hill have already been helping to create the political environment to make such compromise possible by signing the Citizen’s Petition at FixTheDebt.org, letting lawmakers know that it’s this kind of compromise they definitely do want.
Americans want a comprehensive agreement over the national debt. So do businesses, credit-rating agencies and the economy as a whole. It’s time for the president and Congress to shift from campaign mode into work mode and get this done, for the good of the country.
Washington Post | November 8, 2012
The American people spoke on Tuesday, and they voted for a continuation of divided government. With President Obama at the helm for four more years and a strengthened Democratic majority in the Senate, and with the Republicans decidedly in control of the House of Representatives, both sides may now feel emboldened to pursue their party’s preferences. Rarely has it ever been this clear, however, that elected leaders from across the political spectrum need to come together to address our nation’s rising federal debt.
Unlike previous times, when there may have been many months or even years for officials to continue fighting long-standing policy battles, important decisions need to be made in the next two months to address the “fiscal cliff.” In a way we have never seen before, both sides will have to move beyond contentious electoral politics and come together in the spirit of good governance to replace the abrupt and mindless spending cuts and tax increases set to take effect Jan. 1 with a gradual and intelligent deficit reduction plan.
Though there seems to be broad agreement that we should replace the fiscal cliff with something better, many partisans on both sides seem to think they have the upper hand in the negotiation. Democrats see the threat of large defense cuts and massive tax increases as a way to force tax increases for the rich. Republicans see large domestic spending cuts, tax increases on poor and middle-income Americans and the need to increase the debt ceiling as their own leverage points.
There has even been talk of going over the fiscal cliff to potentially strengthen each side’s bargaining position. Going over the cliff, though, would mean betting the country on the hope that the other side will back down before it is too late. That’s a bet we shouldn’t take. The risk is simply too high.
Going over the fiscal cliff would mean allowing a massive and immediate cut to nearly every major government agency and activity, including those vital to our national security or economic growth. It would mean a large and immediate tax increase on nearly all Americans, not just the highest earners. It would mean a double-dip recession at a time when the economy is still very weak and many Americans are struggling to find work.
But simply punting on the fiscal cliff and continuing to add to the debt would be an even bigger mistake. It would show markets we cannot put our financial house in order. Instead of using this moment as leverage to score political points, our elected leaders should seize the opportunity to finally address the long-term imbalance between government spending and revenue, and to prevent a future debt-induced economic crisis.
What does that alternative look like? We already have the blueprints.
It’s the type of bipartisan package toward which the fiscal commission I co-chaired with former senator Alan Simpson, the Domenici-Rivlin group, the Senate’s “Gang of Six” and the Obama-Boehner negotiations all worked. It’s a package large enough to put the debt on a clear downward path, relative to the economy, and designed well enough to promote, rather than disrupt, economic growth. It’s a package that includes real spending cuts and structural entitlement reforms to make Social Security solvent while slowing the growth of federal health spending while protecting vulnerable populations. And it’s a package that institutes fundamental tax reform that simplifies the code and encourages economic growth by cutting spending in the tax code to reduce rates and generate additional revenue for deficit reduction.
Most important, it’s a package that can get bipartisan agreement. I was very encouraged by House Speaker John Boehner’s remarks Wednesday indicating his willingness to support increased revenue from tax reform if it were accompanied by meaningful entitlement reform. Based on my conversations with President Obama, I am confident that he is willing to do his part to put our fiscal house in order and would support a comprehensive plan based on the general framework the fiscal commission put forward. While there will undoubtedly be many honest disagreements about the specific elements of a plan, I believe that both leaders are willing to make the type of principled compromise necessary to reach an agreement.
Though we won’t be able to enact the entire plan in the few legislative weeks before year’s end, policymakers could agree in the lame-duck session on the basic framework of the deal. Congress could enact a “down payment” of savings from spending and revenue policies, along with a process for achieving the remaining savings by July 4, with enforcement mechanisms to ensure that the promised savings are achieved. Designed appropriately, such a package would be credible enough to allow for a temporary delay of the scheduled sequestration policies and extension of expiring tax cuts.
I am confident that the president and Congress can agree to such a plan. Nearly three years’ worth of work has gone into developing the policies and raising awareness on the need for a comprehensive plan. Members of both parties and both houses understand this. So do concerned citizens across the country — 300,000 of whom have signed a petition at FixTheDebt.org, demanding that Washington act.
The only ingredient missing is political will. Betting the country in the hopes of generating that political will is not the answer. Coming together for the greater good is.
Tulsa World | November 8, 2012
For almost a decade and a half, I was honored to serve the great people of northeastern Oklahoma in Congress. Today, a centrist Democrat in Congress may be about as rare as a polar bear in northeastern Oklahoma, but through my experience as a fiscally-conservative Democrat on the Ways and Means and Budget Committees, I was able to see how much agreement there was between the two parties, and how deals can be struck when there's a common interest. Even in today's climate of hyper-polarization, this remains true, and even for this era's most important issue: the national debt.
Having hit $16 trillion with no signs of slowing, the national debt promises to eat away at your favorite government policy, regardless of your party or politics.
Whether you prefer to maintain spending levels on, say, transportation programs or scientific research, or you're more interested in keeping taxes low, your preferred policy is about to be swallowed up by what we need to pay to service our debt. Unless we act now.
And now really is the time to act. With the "fiscal cliff" - the club-footed combination of tax hikes and spending cuts, $500 billion in 2013 alone - looming come Jan. 1, our political leaders have been given a firm deadline to get something done.
Already, mere fear of careening over the cliff has had real-world implications. Worry over paralysis in Washington has caused businesses to put off hiring and investments. And if we do tumble over the edge, our economy will contract by an annualized 3.9 percent in the first quarter of next year.
Clearly, we cannot let that happen. But in addressing the short-term problems with which our out-of-control debt has confronted us, we must also think long-term. We are perilously close to trillion-dollar yearly interest payments, 7 percent yields on 10-year U.S. Treasury bonds, 10 percent home mortgage rates and 13 percent rates on car loans. For the good of the country, the parties must come together and not let this happen.
Clearly then, we need a debt deal that will steer us away from the precipice of the fiscal cliff while addressing our mounting debt over the long-term.
Any deal worth the paper it's printed on must make sure to treat nothing as sacrosanct. Any promise made to keep a constituency's favored spending program or tax break is short-term thinking; unless we put everything on the table, we will never come close to plugging the hole we're in.
For the last several years, the conversation about deficit reduction has begun and ended with "domestic discretionary spending" or "waste, fraud and abuse." Simply put, there's just not enough of either to make much of a dent in our ever-increasing debt. Instead, we need to look at what each party has previously thought of as its "sacred cow" - spending programs, especially entitlements, for the left and favored tax levels and breaks for the right.
Instead, we need pro-growth solutions - a slowing of the growth in entitlement spending and a simpler tax code that removes many of its economy-distorting deductions, breaks and exemptions. It's this kind of plan I'm hoping to hear from the president, and it's this kind of plan that I know members of Congress from both parties can and will be able to agree to.
I've seen much agreement across party lines when it comes to fiscal issues. And I am optimistic that, even in this age of political polarization, that we'll be able to do so again.
But we'll need your help. Think about adding your name to the 280,000-plus who have already signed the petition at FixTheDebt.org, demanding our political leaders deal with the long-term problems our mounting debt promises to bring us. Our challenges are great, but so too is our ability to come together and confront them head-on.