Deficits and Debt
Maya MacGuineas Testimony Before Senate Budget Committee on Setting and Meeting an Appropriate Target for Fiscal Sustainability
CRFB Reacts to the State of the Union Address
January 27, 2010
The Committee for a Responsible Federal Budget commends President Obama for his focus on deficit reduction in his State of the Union address, and hopes that he will follow through by pressing Congress to enact medium- and long-term deficit reduction policies over the next year. As the President remarked tonight, we find ourselves in a “massive fiscal hole… a challenge that makes all others that much harder to solve.” And he argued, rightly so, that “if we do not take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery.” The President offered three proposals, in particular, which would be promising steps in the right direction: “We are thrilled that President Obama understands the threat of ever-rising debt, and is making some concrete proposals to begin to address it,” said Maya MacGuineas, President of the Committee for a Responsible Budget. “But actions speak louder than words. In the coming weeks and months, we urge the President to bring together members of both parties and begin taking concrete actions to stabilize the debt once the economy recovers.”
The Committee for a Responsible Federal Budget commends President Obama for his focus on deficit reduction in his State of the Union address, and hopes that he will follow through by pressing Congress to enact medium- and long-term deficit reduction policies over the next year.
As the President remarked tonight, we find ourselves in a “massive fiscal hole… a challenge that makes all others that much harder to solve.” And he argued, rightly so, that “if we do not take meaningful steps to rein in our debt, it could damage our markets, increase the cost of borrowing, and jeopardize our recovery.”
The President offered three proposals, in particular, which would be promising steps in the right direction:
“We are thrilled that President Obama understands the threat of ever-rising debt, and is making some concrete proposals to begin to address it,” said Maya MacGuineas, President of the Committee for a Responsible Budget. “But actions speak louder than words. In the coming weeks and months, we urge the President to bring together members of both parties and begin taking concrete actions to stabilize the debt once the economy recovers.”
For press inquiries, please contact Kate Brown at (202) 596-3365 or firstname.lastname@example.org.
CNN | Jan. 27, 2010
When the president unveils his 2011 budget next week, he will propose capping "non-security" discretionary spending at its current level of about $450 billion for three years, saving roughly $250 billion over ten years.
The freeze does not include defense, veterans' affairs, homeland security and some international programs.
Let's start by putting these numbers in context. The Congressional Budget Office's new baseline numbers show that deficits will be $6 trillion over the next decade -- under highly unlikely assumptions that Congress will stay true to current law, where the tax cuts and other popular policies expire -- or more than $12 trillion under more likely assumptions.
So $250 billion, while obviously a large number, is a very small share of the amount Congress is poised to borrow -- and add to the debt -- in the coming decade.
It would be fair, then, to say that this is a baby step -- OK, it's a teeny-weeny tiptoe of a step -- in the right direction. But there have been so many steps in the wrong direction in recent years, such as extending tax cuts, that anything that it can legitimately be argued would help bring down future deficits should be heralded as an important move.
And frankly, it is a courageous one too for this administration; there are going to be an awful lot of members of the president's own party who are none too happy with the plan.
But remember, the president's budget for the fiscal year that begins in October isn't actually a law. It is more like a polite suggestion to Congress. Given that Democrats run the House and Senate, they won't declare the budget dead on arrival, as so often happens when the budget season begins with a president of one party delivering his budget to a Congress run by the other.
But in this highly charged election year, where legislators will talk about being tough on spending but not necessarily back that claim with real spending cuts, it will be extremely difficult to get them to stick to this freeze.
Therefore, the president is going to have to back up his promise with more than words for it to be seen as credible. What it needs is teeth.
First, he should promise to veto any appropriations bills that exceed the limits he has put forward for spending. Otherwise, there's little question that appropriators will find all sorts of ways to bump up spending beyond what he has proposed -- everything from budget gimmicks to simply ignoring his proposal.
If he chooses to look the other way, the spending freeze will prove to be little more than a cynical political talking point at a time when real action is needed. Shepherding the budget from blueprint to law is part of the heavy lifting the president will have to lead on.
Second, he should support statutory spending caps that enforce his limits. This is an idea that is gaining momentum in the Senate and House, and it is the ideal companion piece to his suggested freeze. From Sen. Jeff Sessions, R-Alabama, to Sen. Evan Bayh, D-Indiana, to Sen. John McCain, R-Arizona, he need not look far to find a host of good ideas.
Finally, there is the issue of the rest of the budget. Non-security is only a small sliver of discretionary spending, and discretionary is only a small sliver of total spending. All told, we are talking about less than one-sixth of the budget. It would be more sensible to cap all discretionary spending and force policymakers to make tradeoffs between defense and other security parts of the budget as well, not just within the relatively small non-security category.
And then there are still the big enchiladas -- Social Security, health spending, and taxes -- to be dealt with. When this fight gets going, remember, it will only be working its way down from the tip of the iceberg. Nonetheless, a discretionary freeze is a sensible first step. Let's hope when the rest of the budget is released on Monday, it will take that first tiny sensible step much further.
CRFB Supports Creating a Statutory Commission
January 25, 2010
The Committee for a Responsible Federal Budget (CRFB) supports creating a statutory commission to help deal with the nation’s budgetary challenges.
As part of the discussion on whether to increase the debt ceiling, the Senate is scheduled to vote this week on an amendment offered by Senator Kent Conrad (DND) and Senator Judd Gregg (R-NH) to create a task force that would make specific recommendations for how to address the nation’s fiscal imbalances. President Obama endorsed the commission this weekend.
It has long been the Committee for a Responsible Federal Budget’s preference that Congress directly addresses these urgent budget challenges, but given the seeming unwillingness to do so under regular order, CRFB thinks a commission would be beneficial.
“A commission is certainly not a cure-all,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Our leaders must still make hard tax and spending choices, and sell them to the American people. But a commission can help to jump-start the critical process of crafting a sensible fiscal plan for the country, and make that process just a little bit easier.”
A budget commission offers a number of potential advantages including:
“The country now faces both medium- and long-term budget challenges. A commission will probably need to work toward two goals: stabilizing the debt in the medium term, and then bringing it down to manageable levels over the longer term,” MacGuineas said.
“The most important ingredient for success is that there is bipartisan buy-in. Nothing should be taken off the table in establishing a commission, both to help facilitate broad buy-in and because the problem is so large that all policy options will have to be considered” said MacGuineas.
For press inquiries, please contact Kate Brown at (202) 596-3365 or email@example.com.
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.
Sphere | Dec. 10, 2009
Earlier this week, lawmakers confirmed that they will increase the national debt ceiling by as much as $1.8 trillion – raising it to more than $13 trillion – so the federal government can keep borrowing to cover its huge deficit.
As daunting as those numbers are, Congress has no choice. Fail to raise the debt limit and the government would default on its debt, sparking an immediate financial and economic crisis far worse than the one we just experienced.
But raising the debt ceiling only postpones that crisis. And if lawmakers want to avoid it, they have to get serious about bringing the nation's debt under control.
In the last year alone, the total government debt grew from almost $10 billion to nearly $12 trillion. The total government debt is on course to reach 100% of GDP by the early 2020s. Such high debt levels are likely to slow economic growth, dampen wages and harm jobs. Choosing this path is a sure-fire recipe for lower standards of living in this country.
It is true that much of our recent debt accumulation is either a direct or indirect result of the economic crisis, and acting to cut the debt too soon could damage the precarious economy. But the cost of waiting too long to change course would also be dire.
So, how does the U.S. gets its debt under control? The hard truth is that spending has to be cut and taxes have to go up.
I know, I know, that is exactly the opposite of what politicians like to promise, but there is no getting around it. Here are five ideas we should consider:
1) Raise the retirement age. Over the past 50 years or so, life expectancy has increased from 70 years to 78. Yet the average retirement age has fallen from 65 to 62. Raising the retirement age for Social Security would not only reduce the program's obligations, but would likely encourage people to work longer. And a larger work force means more taxable income and stronger overall economic growth.
2) Cap discretionary spending. Over the past decade or so, discretionary spending has grown far faster than the economy, even excluding defense spending. To ensure that politicians make tough decisions in this area of the budget, we must have strong enforceable spending caps in place. Even just limiting growth rates to levels of inflation could save $1 trillion or more relative to what would otherwise happen.
3) Require well-off seniors to pay more of their share of Medicare. To be affordable, there is no question that Medicare needs a major overhaul. But the chances of us getting there with health care cost control alone are extremely low – some benefits will need to be cut. To protect low-income seniors, we need to boost premiums and cost-sharing for wealthier seniors. That's already started in Medicare Part B, but we have to be more aggressive.
4) Don't extend so many of the Bush tax cuts. By the end of next year, nearly all the tax cuts passed over the past decade will expire. Renewing them all will cost around $2.3 trillion. Renewing them for everyone making less than $250,000 annually – with President Obama proposes – would still cost $1.8 trillion. We should go through the tax cuts one by one to decide which ones are worth keeping and which we simply can't afford.
5) Enact an energy tax. We are unlikely to stabilize our debt with spending cuts alone, and the current tax system is too inefficient to raise all needed revenue. An energy tax can make up some of the difference. By taxing carbon emissions or gasoline, as opposed to work and investment, we can reduce deficits and address climate change without hurting the economy too much.
I recognize that few of these options are easy, and frankly none are popular. Getting our fiscal house in order will be an exercise in hard choices. But our fiscal future depends on it.