The United States faces serious fiscal challenges. Large budget deficits have returned, and shifting demographics along with growing health care costs are putting intense pressure on the long-term federal budget outlook. Over time, sustained deficits will weaken the economy and adversely affect the American standard of living.
The two major political parties' presidential candidates are campaigning on a lengthy list of policy initiatives, most of which would have significant impact on the federal budget. While not all of these proposals will become law, they do reflect the candidates' values and priorities, and the policies each candidate is likely to pursue once in office. In addition to these new initiatives, a number of outstanding tax and budget issues exist that will need to be addressed, such as which of the 2001 and 2003 tax cuts should be made permanent, how to fix the Alternative Minimum Tax, what to do about growing entitlement spending, how to control health care cost growth, and how to pay for the wars in Iraq and Afghanistan. The next president will face difficult fiscal challenges. It is therefore critical that voters understand the potential budgetary impacts of the candidates' plans.
US Budget Watch's report, Promises, Promises: A Fiscal Voter Guide to the 2008 Election--with an updated (10/31) section on the candidateswill help voters find their way through the thicket of policy proposals put forward by the likely Republican candidate for president, Senator John McCain, and the likely Democratic candidate for president, Senator Barack Obama. It presents a capsule summary of the candidates' major policy proposals and includes an estimate of the likely fiscal impact of each proposal. The guide is not intended to express a view for or against either candidate or any specific policy proposal. This report will be followed by other more detailed reports on the candidates' tax and spending proposals.
San Antonio Express-News | October 31, 2008
The new president will face many challenges, but the critical budget problems of our country top the list. The economy is likely to still be in recession. The continually increasing national debt will serve as handcuffs to his promised agenda.
Confronting these challenges will not be easy; ignoring them puts the health of the country at grave risk.
The new president will first have to get the economy under control. This may require further fiscal stimulus, but he should ensure that any package is not filled with fiscal pork. All stimulus measures should be temporary to avoid digging ourselves deeper into debt down the road.
Second, the new president will have to deal with the budget deficit. Ongoing deficits hurt all of us. The continued borrowing by our government crowds out private investment, which in turn causes slower economic growth. Deficits also harm future generations by allowing politicians to initiate new spending programs and provide tax cuts for current workers, while sending the bill to our kids. And deficits leave us vulnerable to our foreign lenders, who are gaining an increasing amount of influence over U.S. policy.
The budget plans of both Senators McCain and Obama would increase rather than decrease future deficits. The Committee for a Responsible Federal Budget analyzed the impact these policies would have at the end of the next president's first term in our Voter Guide, “Promises Promises: A Fiscal Voter Guide to the 2008 Election.”
Our analysis shows that both candidates would increase the deficit by more than $200 billion a year. Given the new debt levels in the United States –– the national debt just broke $10 trillion –– this will not fly.
Both Senators McCain and Obama are realistic men who know we cannot keep up this seemingly insatiable appetite for spending and cutting taxes. Campaigns may not always be the best time for delivering bad news, but the honeymoon period afterward will require straight talk with the American people.
The new president will need to submit a budget plan that phases out the deficit over a reasonable amount of time. That might be five years, it might be 10, but what matters most is that the plan is credible. This will require shelving many of his priorities until the budget is in better shape to accommodate new tax cuts and spending.
The new president will have to work with Congress to get his plan passed. This will require the development of a bipartisan plan that reflects the goals of both parties, so that no single party gains or loses from the making of tough choices.
Lastly, taxes also have to be on the table. Both candidates promised over $350 billion in annual tax cuts. The unfortunate truth is that tax increases are in the future, and the smartest approach to dealing with the inevitable is to consider how to simplify and modernize the tax code in a way that could bring in more revenues without harming the economy.
The work does not stop there. The major fiscal threats of Social Security and healthcare costs were not discussed enough during the campaign. Reforms will have to be made, growth in benefits will have to be slowed, and raising the retirement age should probably be considered.
This is not exactly the job the new president signed up for, but this is the card he was dealt. Ignoring our burgeoning budget problems could lead to the next economic crisis. The first test of real leadership will be whether President McCain or President Obama confronts these challenges head on.
MinnPost | October 27, 2008
With the cost of the "financial system bailout," the budget deficit may well reach an astronomical $1 trillion this coming year. That is more than double the deficit for 2008, which totaled over $400 billion. And the 2008 deficit was more than double the previous year's deficit of $161 billion. This is a very troubling trend!
We need to be alarmed because these deficit projections assume that President Bush's tax cuts will expire and that the alternative minimum tax (AMT) will NOT be fixed. Beyond that, once the baby boom generation is fully retired and drawing their entitlement benefits, matters will only grow worse. For these reasons, even after the expense of the "bailout" is behind us, annual deficits are projected to remain above $400 billion.
Despite these alarming numbers, there is growing talk in Congress and on the campaign trail about the need for yet another fiscal stimulus package to address our faltering economy (this on top of the $150 billion tax rebate delivered earlier this year). Naturally, Democrats want more spending for unemployment, food stamps and infrastructure projects, and Republicans prefer more tax cuts. Both argue that additional near-term deficits are warranted in order to soften the recession. But debt is debt. And debt has long-term consequences that are more costly than any of the near-term gains provided by these proposed stimulus measures.
Result: slower long-term growth
All of this government borrowing crowds out private investment, resulting in slower long-term economic growth. In addition, high levels of public debt mean that more of the federal budget will be devoted to interest payments, thereby crowding out other priorities. Finally, deficits are also inherently unfair to future generations who will be stuck with the bill for today's overspending.
Unfortunately, neither candidate for president has proposed a realistic plan to cut the deficit.
I serve on the board of a respected budget watchdog group, the Committee for a Responsible Federal Budget, which is co-chaired by former Clinton administration budget director Leon Panetta and former ranking Republican on the House Budget Committee Bill Frenzel. Other members of the board include virtually every former director of the Congressional Budget Office (CBO), the Office of Management and Budget (OMB) and the Government Accountability Office (GAO). In all, the board is composed of the most knowledgeable fiscal experts in the nation with near equal representation from Democrats, Republicans and independents.
Recently, the committee produced a report that analyzes the impact of the budget policies proposed by presidential candidates John McCain and Barack Obama. You can find our Voter Guide, "Promises Promises: A Fiscal Voter Guide to the 2008 Election," here. In short — and disappointingly — the report shows that both candidates are advocating policies that would increase the deficit by more than $200 billion a year — above the currently projected level of $400 billion. This is not good news.
Voters are part of the problem
Part of the problem lies with us, the voters, of course. Voters tend to respond positively to promises of tax cuts and new spending programs — even when, deep down, we know the nation's credit card has reached its limit. Sadly, it seems the electorate is not ready for frank talk about shared sacrifice on these fiscal challenges. After all, campaigns are designed to tell us what we want to hear, not necessarily what we need to hear. And we all know that after the election we still have a system dominated by interest groups that have NO interest in fiscal responsibility.
I believe that both Sens. McCain and Obama are realistic men who know we can't keep up this seemingly insatiable appetitive for spending and tax cuts, but they have pollsters whispering in their ears warning them not to say it out loud.
However, I remain optimistic that once the election dust settles, we have in Obama and McCain two reformers who will be less interested in catering to interest groups — and more willing to tell the American public that "there is no free lunch." Recall that Bill Clinton — in the weeks after his 1992 election — cast aside his promise of a middle-class tax cut in favor of a concerted effort to trim the deficit. Let us trust that likewise with Obama and McCain fiscal realities will matter more after the election than on the campaign trail.
Start with economic conference
In the aftermath of this fall's election, an economic conference such as the one held 16 years ago in Little Rock would be a good place to start. In addition, it would be enormously helpful if the winning candidate would reach out to prominent people in the opposing party and from the private sector to join the administration. They should signal a new, more bipartisan way of addressing the nation's fiscal challenges. A few business leaders in the Cabinet might also help identify more cost effective ways of delivering needed government services — not to mention rooting our some of the scandalous waste we've seen recently at the Pentagon, FEMA and Medicare.
Finally, it may be time to resurrect the notion of a bipartisan blue-ribbon panel with membership comprising both congressional and administration appointees to propose entitlement reforms followed by an up-or-down vote.
A test of real leadership will be whether the new president enters office and calls on all of use to roll up our sleeves, put an end to the fiscal party, and fix the budget. It might be wishful thinking, but it would actually be nice to see at least one of the presidential candidates talk about this approach before November.
Tim Penny is a board member of the Committee for a Responsible Federal Budget, and a former member of Congress from Minnesota.
New York Daily News | October 14, 2008
The agreement on the $700 billion bailout package begs the question, "How are we going to pay for all this?"
In the three presidential and vice presidential debates to date, the candidates have done their best to dodge the question. But it is not an issue that can be ignored for long. For anyone who needs to be reminded of the dangers of excessive borrowing, they need not look any further than the crisis we are currently in the midst of.
One of the many lessons from the spectacular financial market implosion is the importance of having a federal budget that is in good enough shape to respond to national crises as they come along. Whether it's a war, a natural disaster or a financial crisis, the government needs to maintain a balance sheet that is strong enough to meet national needs.
Unfortunately, years of deficit spending have led to a weakened position for our government. The wars in Iraq and Afghanistan? We are borrowing to pay for them. New spending for prescription drugs, homeland security, roads, farmers and more? Borrowed funds. New rounds of tax cuts each year? We put them on the tab. As a painful reminder of all this borrowing, the national debt clock just ran out of space as we passed the $10 trillion mark; now we have to pay to add a new zero.
And ironically, because of all this irresponsible borrowing, the very package crafted to save the economy could actually harm it.
Since the government doesn't have $700 billion lying around, a critical question will be whether or not our lenders are willing to front us the hundreds of billions of dollars needed to recapitalize our flailing financial sector. This line of credit will have to come on top of the more than $400 billion we are already borrowing this year alone. And since Americans don't have sufficient savings, we will have to turn to our overseas lenders to help cover those costs.
If they become skittish about sinking more money into the U.S. when they are not yet confident where our economy is headed, we will need to raise interest rates - the amount we pay for borrowed funds - to attract the needed capital. This in turn will increase the cost of private borrowing for everything from homes to cars to small business investments; even credit card rates will go up. Instead of borrowing, we could simply print money (a scenario being discussed in many financial circles), but this would greatly devalue the currency and lead to a reduction in the value of Americans' savings.
Critical in avoiding either of these outcomes will be a credible commitment to strengthening the U.S.' fiscal balance sheet at the same time we attend to the balance sheets of the financial sector.
The United States is in the midst of an economic crisis. Financial institutions are failing, the credit markets are frozen, and global stock markets have experienced large-scale losses. This crisis has also had significant effects on the "real" economy. Home values have tumbled, consumption has dropped, and jobs are disappearing.
Both Senator McCain and Senator Obama have put forth proposals to strengthen the short-term economy, which they argue would complement their long-term economic policies. US Budget Watch's report divides their proposals into one of several categories: fiscal stimulus, targeted stabilization, and economic relief. Many have direct budgetary implications, although some are regulatory. Some of these proposals are meant to be enacted before the next president takes office, while others are meant to be sustained over a longer time period.
US Budget Watch's report, Guide to Stimulus Proposals: The 2008 Presidential Election, will help voters better understand the details and costs of the candidates' plans to mitigate and reverse the current economic slowdown. It is not intended to express a view for or against either candidate or any specific policy proposal.
CBO Report Highlights Dire Fiscal Situation: Yet Candidates Continue to Propose New Spending and Tax Cuts
The United States faces a number of serious fiscal challenges. Budget deficits are back, the economy has weakened, Social Security is unsound, growing health care spending is putting immense pressure on the budget, tax policy is at a major crossroads, and borrowing is projected to reach unsustainable levels. Politicians will have to take concrete steps to confront these challenges, and some level of sacrifice will be required. The sooner decisions are made, the better—both because it will give the public more time to adjust and because it will allow us to spread the sacrifices more broadly.
The presidential campaign can either be helpful in this process, by allowing politicians to develop a mandate for change, or damaging, if politicians merely use the election as an opportunity to promise new tax and spending initiatives that would make the situation worse instead of better. It is not surprising that politicians tend to prefer to propose costly new initiatives given that proposals to increase taxes or cut spending are rarely met with appreciation by voters and are almost always met with attacks from political opponents. But considering our current fiscal situation, it is critical that policymakers be willing to address the country’s budgetary imbalances. It will require real leadership to do so.
To help move the political discussion forward, the Committee for a Responsible Federal Budget has put forth "Twelve Principles for Fiscal Responsibility." These principles will help voters ask the necessary questions and develop a better understanding of important fiscal issues, and they will help politicians speak directly to these looming problems in a manner that will prepare the country for the necessary changes ahead. Unless the next president and Congress take action to put our fiscal house in order, they will put the budget, the economy, and the well-being of future generations at risk.