Other CRFB Papers
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).
The Arizona Republic | January 21, 2013
One thing I learned during my 22 years of serving in Congress is this: When the chips are down, Republicans and Democrats can come together. We did it in the first Gulf War to expel Saddam Hussein from Kuwait. We came together with great national unity and resolve after the attacks of Sept. 11, 2001.
But now, a decade later, there is no greater threat facing our country than the mounting national debt.
Simply put, over the long-term, the skyrocketing trajectory of our national debt is unsustainable. At $16 trillion dollars, our debt is roughly equivalent to all the economic output of our nation over an entire year. Our rising debt threatens our standard of living and the resources we will have in the future.
Pick what’s important to you — whether it is federal highways, national defense, education, or just keeping a low tax burden — and then think about how servicing the bloated debt will slowly eat away at whatever you decide is most important. Rising debt will drain resources from the private economy and reduce the amount available for critical programs within the federal budget.
We will be unable to get our debt under control by merely taking pinches out of “domestic discretionary spending” — the budget category that covers everything from food inspectors to housing vouchers to national parks. That represents just 18 percent of our budget but contains the money used for many important programs that aid the least fortunate among us.
Nor can we rely on cutting the holy trinity of “waste, fraud and abuse.” If there was a simple way to eliminate waste, fraud and abuse that would fix our problem, don’t you think politicians would have jumped on that a long time ago and taken credit for it?
Instead, we must focus on reforming the real drivers of our debt — entitlements and our broken tax code.
About 45 percent of government spending goes to three programs — Social Security, Medicare and Medicaid. But, this percentage will keep growing at an ever faster rate as our population ages unless we are willing to rethink how they could work better and more fairly for all generations.
As for the tax code, while our rates are, even in the wake of the recent “fiscal cliff” deal, moderate compared with many other countries, our tax laws are riddled with loopholes, exemptions and deductions, which curb government resources while creating inefficiencies in our economy.
That’s the long-term problem. We have another, more immediate problem. Though our elected leaders in Washington managed to restrain the country from tumbling off the fiscal cliff, one part of the deal they made was to merely delay the nearly across-the-board national security and domestic program “sequestration” spending cuts — cuts that would cost Arizona 50,000 jobs if they are allowed to go into effect as scheduled in March.
Only a program that addresses both sides of the ledger — spending and revenue — is a credible solution to our out-of-control debt. President Obama and members of Congress need to come together to craft such an agreement.
We need to let our political leaders know that now is the time for long-term solution to our growing debt problem. Consider adding yours to the 340,000 names already attached to the Citizen’s Petition at FixTheDebt.org to urge passage of a comprehensive plan that will address our short- and long-term fiscal challenges.
Though it may appear that chances for agreement are bleak, my time in Congress has led me to believe that when Americans know we must act, we can accomplish great things. With the path forward just as clear as the consequences of inaction, I firmly believe that if we reach a bipartisan agreement that brings us to the other side of this crisis, a stronger nation and a brighter future for our children lies ahead.
The Hill | January 18, 2013
There appears to be a certain quality of self-immolation to the way the Republicans in Congress are approaching their legitimate effort to get the country’s — and the president’s — attention on the need to cut spending so we can reduce our massive debt and deficits.
One gets the feeling that many members of the party see political martyrdom as a means to progress on the honorable purpose of seeking fiscal responsibility.
Unfortunately, the course they are considering will lead to little progress, a great number of self-inflicted wounds and a lot of glee on the other side of the aisle.
The “fiscal cliff” experience should have shown the House Republicans that taking a hostage you cannot shoot is not a good tactic.
In the fiscal-cliff drama, it led to the opposite result from what Republicans wanted. They ended up having to pass a bill that did not cut spending and raised taxes.
They ran themselves up a boxed canyon, being chased by the likes of Sen. Charles Schumer (D-N.Y.) and David Axelrod. It was a bad day.
Now the same folks are claiming that as a matter of primal rights they should take the debt ceiling hostage.
There seems to be some belief that this will show their seriousness of purpose, that it will get the people’s and the president’s attention focused on the need to rein in entitlement spending, specifically.
The opposite will occur.
Taking this hostage gives the president and his minions in the press the opportunity to move the debate away from spending and into the arena of claiming Republicans are irresponsible and dysfunctional.
The issue will become defaulting on the nation’s debt and not sending out Social Security checks.
The threat and possible execution of not paying Social Security because the debt ceiling is not extended is the ultimate political weapon, one the Democratic leadership will not hesitate to use.
Republican House members can spend all day going to the well and making one-minute speeches decrying the failure of the president and his party to address spending, and claiming it is they who have endangered Social Security. But they will not be heard.
The president has the bully pulpit.
He has the amplification of a fawning press corps. He will blame House Republicans — and it will stick.
Seniors will be rightly outraged that they might not get their checks, which many need to live on, and the country will be outraged at the ineptness of it all.
It will be ugly.
In the end, which will come rather quickly, Republicans will fold like the Red Sox in September and accept a debt-ceiling increase. Most likely, they will get nothing for it. They will have once again, in the name of purity, chosen a path up a boxed canyon. This time the level of citizen ire, especially among seniors, may be such that it will be a political massacre.
This, of course, is not necessary.
The much better hostage is the sequester.
A battle over whether to allow the sequester to go forward is by definition a battle over restraining spending.
It is exactly what the president and his party do not want to talk about — and exactly what Republicans should be talking about.
Yes, it affects defense. But it affects programs that are extremely important to liberals also, and in a more immediate way.
There is no stomach on the left for a sequester.
It is a big number, $1.2 trillion, and any agreement to abate it is almost certainly going to have to involve serious entitlement reform, which is exactly what needs to be on the table in this next round of brinkmanship over fiscal policy.
Picking the right canyon to ride into will be the test of whether those in the Republican Congress come out of this next round with what could be significant progress on controlling spending, or just another political debacle where no progress is made on getting our fiscal house in order.
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.
The Hill | December 14, 2012
While avoiding the “fiscal cliff” is essential to near-term recovery and job growth, it is just the first step to restoring sustained prosperity in America. It would be catastrophic if negotiations between the president and Congress succeeded in avoiding the cliff but failed to address the fundamental threat of projected debt rising faster than the economy can grow.
We must have fundamental tax reforms that raise revenues and entitlement program reforms that slow the growth of healthcare spending and preserve Medicare and Medicaid for those who need them over the long run.
The “fiscal cliff” is an artificial barrier designed to pressure political leaders to get the nation’s budget on a sustainable path. The worst possible lame-duck deal would be a small one that avoids the cliff and thus removes pressure from policymakers to construct a much larger, multi-year agreement next year. Such a deal would do nothing for long-term fiscal stability.
The disaster in Europe should be teaching us two lessons: Short-run austerity is the wrong prescription for growing weak economies, and countries that allow their debt to rise out of control get into serious trouble. We must avoid the austerity of the cliff but stabilize our long-run debt increase while we still have time to do so in an orderly way. Federal Reserve Chairman Ben Bernanke was crystal clear on these points at his news conference earlier this week. America needs both a short-term deal that avoids the immediate economic damage of going off the fiscal cliff and a long-term deal that restores fiscal sanity.
When asked by the media which was more important, the chairman said “both equally.”
One of the most important elements of the Bipartisan Policy Center’s framework for a lame-duck agreement is a provision that would pressure the 113th Congress through codification of the budget process’ reconciliation mechanism.
The Bipartisan Policy Center’s framework for a major debt agreement has three parts, which could be enacted this month. First, Congress would make a down payment, a set of small, but meaningful, cuts to entitlement spending and reforms that would raise revenue. Second, Congress would establish an accelerated regular-order process that would provide the time necessary to develop major, revenue-raising tax reforms and structural entitlement changes that would slow long-term spending growth, then protect these reforms from procedural dangers like endless amendments and the filibuster. Finally, it would include a backstop, a fallback policy that would go into effect if Congress cannot reach agreement in 2013. A backstop should target the unaddressed drivers of our debt, which include tax expenditures and health entitlement spending.
If, as currently rumored, senior members in the House and Senate in both parties reject this kind of reconciliation mandate, they can doom truly fundamental tax and entitlement reform.
Imagine what a Medicare reform bill or a fundamental tax reform bill would look like after two or three months’ debate on the Senate floor without the time protections of reconciliation or a similar process.
The Bipartisan Policy Center’s Debt Reduction Task Force, which I co-chaired with former Senate Budget Committee Chairman Pete Domenici (R-N.M.), has always emphasized what Bernanke made clear: We must have a short-term down payment that avoids the cliff; a mechanism that compels action by Congress on taxes and entitlements next year; and a long-term plan that stabilizes our national debt as a proportion of our gross domestic product.
A bad short-term deal that allows policymakers to avoid the harder long-term decisions would be a step backward. It might make Wall Street happy for a moment or two, but it will mean serious risk to the prosperity of the American people in the long run.
Politico | December 13, 2012
The fiscal cliff obsession in Washington is missing the whole point of fiscal reform: actually solving our national debt problem. Instead of focusing on an arbitrary target in one area of the budget, fiscal reform should build from a comprehensive goal that stabilizes the debt and provides the certainty and confidence needed to restart the U.S. economy.
We hear many ambiguities like “fiscal sustainability,” “getting our fiscal house in order,” and “living within our means.” Even targets that seem specific, like “$4 trillion of deficit reduction over 10 years” are vulnerable to manipulation – much of the so-called “savings” can be meaningless if it is compared to a fictional baseline, such as one that projects future increases in spending in Afghanistan even though we are already drawing down forces.
Let’s put all of the rhetoric aside and agree on a clear fiscal goal: reducing our public debt to 60 percent of our GDP by 2030. Here’s why this objective makes sense:
Debt as a share of GDP is the best way to measure our actual fiscal progress. The bottom line is how much debt we take on, not how much we reduce deficits compared to worse alternatives. And it’s important to understand our debt in relation to the size of our economy – the bigger a nation’s economy is, the more debt it can handle.
Sixty percent is a sensible target endorsed by many budget experts and economists. It was the maximum allowable level of debt for countries originally seeking to join the Euro – don’t they now wish they had held themselves to that standard! Sixty percent also has broad bipartisan support – five ideologically diverse think tanks recommended stabilizing the debt below that level in fiscal plans they submitted to our foundation.
2030 is a time frame that acknowledges we can’t solve our deficits overnight. Why can’t we do it sooner? Our public debt is already more than 70 percent of GDP, and we are currently running trillion dollar deficits that add to that. Yet cutting deficits too quickly would harm the fragile recovery, and economic growth is critical to any successful deficit reduction plan. In addition, it takes time to tackle the key drivers of our long-term debt: the increasing costs of healthcare and the demographics of tens of millions of boomers retiring and living longer. Nearly all structural entitlement reform proposals exempt those 55 and older to give them time to prepare – changes to these vital programs must be done with fairness and compassion. By definition, this delays any impact on the deficit for 10 years, and 2030 is only seven years after that. But this delay also means that we need to agree on a plan now – as Yogi Berra said, “It gets late early out there.”
Our current fiscal outlook is way off course. On our current path, the Congressional Budget Office projects that we will have an interest tab of about $1 trillion per year in 10 years, and that debt will be 140 percent of GDP in 2030. Borrowing anywhere near that much would significantly harm economic growth, diverting capital and crowding out important public and private investments, not to mention risking a catastrophic fiscal crisis for the U.S.
There’s no shortage of policy options to achieve 60 percent by ‘30. Many plans achieve meaningful deficit reduction within the 10-year budget window, but they must be coupled with structural reforms that ensure that we’re on the right trajectory thereafter.
And, assuming our elected leaders really want to solve the problem, it’s entirely possible to agree by the end of the year on a fiscal framework, combined with an expedited legislative process to enact and enforce legislation in 2013. A credible long-term fiscal plan that is agreed upon now, but implemented gradually, would not only put the nation on sound economic footing for the future, but would build the critically needed confidence that today’s economy so desperately needs.
Pretty soon, the fiscal cliff suspense will be over. This self-inflicted fiscal flashpoint has already hurt our fragile economy due to the uncertainty and fear it has imposed on businesses and consumers. On New Year’s Eve, someone will be toasting a political win. But will it be a victory for the country? That only comes once we have a long-term fiscal plan on target for 60 percent by ’30.
Politico | December 6, 2012
When is a fiscal deal different from a Grand Bargain? When we talk about the solutions to two important and related challenges that we face — the fast approaching fiscal cliff and the even more devastating fiscal abyss that looms ahead due to our projected structural deficits.
The nation’s media and our federal elected officials are currently focused on the fiscal cliff that, unless avoided through a negotiated deal by the end of the year, will trigger dramatic spending cuts and tax increases that could push the nation back into recession. If Congress and the White House send us over the cliff by failing to reach an agreement, it will be a shameful triumph of politics over the public interest for which our elected officials should be held accountable.
But avoiding the cliff must not be our only objective — not when we also face huge structural deficits and mounting debt burdens in coming years that threaten the future of our country and families. What we need to see over the next three weeks is a deal that averts the fiscal cliff and builds a bridge to achieving a fiscal Grand Bargain in 2013 that will help ensure we do not fall into the abyss.
Federal debt now exceeds $16 trillion, and based on full and honest accounting — which includes unfunded Medicare, Social Security and other retirement obligations — puts the overall debt burden at more than $71 trillion, and growing by about $100 billion a week! Put bluntly, we are mortgaging the future of our children and grandchildren at record rates. That is not only irresponsible, it is immoral.
What we need in order to address this fiscal abyss is a Grand Bargain that addresses the two main drivers of our structural deficits: unsustainable social insurance programs, especially health care programs, and a complex, unfair, uncompetitive and inadequate tax system. But a lame duck Congress cannot and should not tackle comprehensive tax and social insurance reforms. It will take dedicated effort in 2013 from the new Congress and its responsible committees, as well as a non-partisan public education initiative sanctioned by the White House, and private discussions with key bipartisan leaders to forge such a bargain.
But what Congress and the White House can do now is solve the cliff dilemma in a way that provides a down payment toward reducing the 2013 deficit on both the spending and tax side, while also paving the way to a Grand Bargain by a date certain next year. And both Republicans and Democrats can achieve all this while saving face if they step away from their rigid partisan and ideological stances. Here are some examples of how it can be done:
The fiscal cliff solution could involve specific spending cuts, including a portion of the automatic defense and other spending cuts now in place. It could allow the payroll tax cut to expire. And it could enact measures to increase the effective tax rates — reflecting the taxes that people actually pay — for those making more than a stated threshold (e.g., $250,000), without boosting marginal income tax rates. For example, Congress could allow an increase in the capital gains rate and tax on dividends to 20-25 percent for anyone whose income exceeds the stated threshold.
Congress could also limit the tax expenditures for those above a certain level of adjusted gross income — say, $500,000 — to include only the two large ones that, due to the Alternative Minimum Tax (AMT), are available to upper middle class taxpayers: the deductions for interest paid on a primary residence and charitable contributions. This approach would save face for Democrats by raising taxes on the wealthy, and for Republicans by avoiding an increase in marginal income tax rates. Other tax rate increases and larger spending reductions would be deferred until a set date in 2013.
If the parties agreed to measures like those above, we would achieve a deficit down payment in 2013, while being able to avoid larger tax increases and spending cuts for enough time to achieve a Grand Bargain. Congress could also increase the debt ceiling limit to a level that would likely expire at or around the same date. As a result of these simultaneous steps, the relevant committees in Congress could be instructed to come up with legislation to form the basis of a Grand Bargain by the applicable date in 2013.
There are two other critical considerations — and that is what the goal should be for a Grand Bargain and what type of fail-safe should be triggered if agreement is not reached by the stated dated. Some see this goal as a certain amount of deficit reduction. But this is a poor criterion because budget baselines are so easily manipulated. Instead, I suggest the goal should be to enact legislation that would reduce debt as a percentage of the economy to 60 percent by 2024, with specified spending reduction and revenue increase targets and appropriate interim milestones. In addition, if a deal is not reached by the stated date, then a predetermined ratio of temporary tax surcharges and spending reductions to both mandatory and discretionary spending could occur to hit the milestone target.
We can avoid the fiscal cliff in 2012 and achieve a Grand Bargain in 2013 if the American people demand leadership as well as constructive and principle-based compromise from our elected officials in both political parties. The stakes are high and the risks very real, and yet the rewards will be great if we are successful. It’s time for results not rhetoric.