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Report: Our Debt Problems Are Far From Solved

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Note: Paper has been updated from original posting to account for new estimate of previously enacted savings.

Op-Ed: No Budget, No Pay - No Deal, No Break

Politico | February 5, 2013

Believe it or not, Democrats and Republicans sometimes come together and do something positive in Washington, and that has happened with the No Budget, No Pay proposal that won bipartisan congressional support and White House backing as part of the debt ceiling bill. This effort to compel both the House and the Senate to pass a budget this year (something the Senate hasn’t done in four years) or else lose some pay has been a signature initiative of No Labels — a coalition of concerned citizens across the political spectrum demanding progress, not partisanship from our elected officials. As a national co-founder of No Labels, I am gratified that No Budget, No Pay has been embraced on Capitol Hill. It’s a positive first step but an even stronger No Budget, No Pay proposal should be enacted to be effective in the next Congress.

However, these steps are not enough — not by a long shot. We need a fiscal grand bargain in 2013, and we have several critical deadlines facing us over the next several months that must be addressed: automatic spending cuts (sequestration) that kick in March 1; an expiration of the funding for fiscal 2013 and possible government shutdown on March 27 (if continuing resolutions aren’t passed); budgets that must be approved by April 15; and the deferred debt ceiling confronting us again on May 19. Elected officials should use these upcoming deadlines as an incentive to move toward that ultimate grand bargain, and this deal must effectively address the huge structural deficits that pose a serious threat to our collective future.

Clearly our elected officials have very little time to achieve a lot of things. They have even less time than you’d think for a reason you may find hard to believe: Congress plans to be adjourned and outside of Washington for a full month during this critical period!

Yes, you heard right. Starting with last week, the week of Jan. 28, the House of Representatives has breaks scheduled that include Feb. 18-22, March 25-April 5 and April 29-May 3, and the Senate plans to take several weeks off as well. And this is not unusual. For example, according to the House calendar, it only plans to be in session during 2013 for 49.5 percent of weekdays. Compare that with a person who typically gets 20 days off a year (10 vacation days and 10 holidays) — they work 92.3 percent of weekdays.

It’s outrageous that at a time when our nation’s finances are in such disarray, and the clock is ticking on our potential debt bomb, our elected officials are taking “spring breaks” and a week off for every federal holiday instead of focusing full time on the task at hand. For this reason, my organization along with other groups is launching a new campaign we are calling No Deal, No Break. The premise is simple: Stay in Washington, do your job and strike a meaningful fiscal deal that can restore fiscal sanity. And until that happens, don’t recess.

We understand that our representatives want to come home to meet with constituents, attend to matters in their districts and spend time with their families. Our reply is this: Given the gravity of our fiscal situation, we consider staying in Washington during the week and working full time on these and other serious problems facing our nation to be more important than anything you could be doing back home, and we think most constituents would agree.

Now, of course, members can come home on the weekends, and we appreciate that individual members may have to return to their districts for special circumstances periodically. But the point is that Congress as a whole should remain open for business and on the job. No more recesses until a grand bargain deal is enacted into law. Show America you are serious about fixing this problem by at least showing up for work full time!

Our campaign will rally ordinary Americans around this message to Congress of No Deal, No Break. We are beginning with a simple Facebook petition that will be a growing tally of citizens demanding that their representatives remain in Washington to make the tough choices our nation needs. Using Facebook has the added benefit of engaging a younger, tech-savvy demographic — the very people who will pay the price and bear the burden of Washington’s fiscal irresponsibility. You can find our petition at www.NoDealNoBreak.net, and in the weeks ahead, we will lay out more ways to directly engage our representatives on Capitol Hill and insist that they do their jobs with the same steady commitment that we all do ours.

In his inaugural address, President Barack Obama said that “as citizens, (we) have the obligation to shape the debates of our time.” He is absolutely right, and this campaign will provide every American with the opportunity to do just that. Every one of us, whatever we do for a living, knows that when faced with pressing problems, we buckle down and work harder. And day after day, we get the job done. It’s time we demand that the politicians in Washington do the same.

Op-Ed: A Compromise For the Nation

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.

Op-Ed: The Risks of Dumbing Down Fiscal Goals

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.

Op-Ed: Bipartisan Compromise Needed to Get America's Fiscal House in Order

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.

Op-Ed: Our Imperfect 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).

Op-Ed: Let's Reform the Real Cause of National Debt

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.

Op-Ed: Dont Hold the Debt Ceiling Hostage

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.

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