Other CRFB Papers

Op-Ed: Could the U.S. End Up Like Greece?

CNN | May 20, 2010

 

Over the past month, we've watched from distant shores as Greece has plunged into a debt crisis. Mounting pressure from global financial markets forced Greece to begin a drastic austerity program.

With a fiscal deficit of 8.1 percent of GDP and government debt of 115 percent of GDP expected this year, Greece has promised to turn itself around by 2013.

To do this, the government has adopted an ambitious fiscal consolidation program that would reduce the annual deficit by 7 percent of GDP this year, 4 percent next year, and 2 percent in 2012 and 2013. The European Union and the International Monetary Fund have announced an extraordinary $1 trillion package to support the plan, and the European Central Bank has announced its own extraordinary measures.

Are there lessons the United States can or should draw from the Greek situation?

First, we are not Greece. The United States is by far the world's largest single economy. Our economy is competitive, diversified and rich in human capital and natural resources. While the rest of the world is important for our growth, our domestic market is vast, which means that, unlike Greece, we can usually rely on domestic demand to drive the economy.

At their best, our financial markets are dynamic, have deep pockets and provide the liquidity for our innovative economy. We issue the world's reserve currency, which minimizes our currency market risk. And unlike Greece, because we have currency flexibility, we can adjust the value of the dollar to improve our underlying economic performance, if necessary.

But we are facing very serious fiscal challenges, too -- and for many of the same reasons as Greece.

Like Greece, our fiscal path is unsustainable for as far as the eye can see. Our debt has surged far above what we have normally been able to manage. And unless fiscal policy changes, it is projected to continue heading up indefinitely.

Our debt-to-GDP ratio is projected to exceed 60 percent this year, well above our average for the past 40 years (around 40 percent) and close to a peacetime high. And it's projected to keep on rising.

Like Greece (and all advanced industrial countries), we can expect our fiscal situation to get worse in about 10 years, as the baby boomers' retirement accelerates. In a generation, the debt is expected to be well over 150 percent of GDP. By 2050, it's projected to be over 300 percent and still heading upward. We cannot sustain this much debt without a crisis.

While the United States may have more fiscal running room than Greece, we won't be able to outrun our creditors if they think we can't manage our fiscal affairs. The impasse in Washington is giving rise to jitters that we can't politically solve our problems, no matter how wealthy our economy. And as the past few weeks illustrate, if we lose credibility with creditors, they may downgrade our debt, demand higher interest rates, and in the worst case refuse to hold our debt because of fear of default.

Maintaining the confidence of our creditors is critical for the United States: We depend on capital inflows to close our fiscal gap because our savings rate is so low. It is harder to rebuild confidence than to lose it.

Finally, as Greece so vividly illustrates, it is better act on your own timetable and according to your own priorities, rather than have actions forced upon you by financial markets. If the United States can make fiscal changes sooner rather than later, once the economy is on a stronger footing, adjustment can be more gradual and less costly. Then our citizens will be able to manage change more easily.

What will it take for the United States to get its fiscal house in order? We need a plan. As we've seen in Athens -- and even on Wall Street over the past week -- uncertainty sows fear, panic and unrest. But our fiscal future does not have to look like this. There is a way forward.

America's first fiscal challenge is political will, not ability to pay. In partnership with the American people, U.S. policymakers need to settle on a reasonable and sensible fiscal recovery plan soon that is credible to both the markets and the ultimate financier: the U.S. taxpayer.

It should be multiyear to reassure creditors and taxpayers that we can indeed manage our affairs over time and that it will not force draconian austerity, if done correctly. We need to know where we want to go and how we can get there.

A clear road map for fiscal change will allow everyone to plan and manage, in contrast to the cold shower the Greeks are being forced to take.

In broad economic terms, the answer is simpler than most people realize. As most experts agree, we need to put the budget on track for stabilizing the debt at no more than 60 percent of GDP when we can realistically manage change. (The 60 percent threshold still has credibility for advanced industrial countries in the global marketplace.)

Although our debt is below that now, commitments already in place will put us on a higher path, even before the baby boomers start to retire. But we need to start phasing in policy changes soon to shift to a more sustainable debt path.

Much like a household budget, a fiscal recovery package also needs to be fair to succeed. Any plan needs to reflect shared sacrifice. Our fiscal problems are so big, everything has to be on the table. Just cutting spending will savage government and prevent it from delivering the things we all rely upon to live our lives and to make them better. Just raising taxes will take money from the poorest and the middle class and rob the country of needed incentives for the investments that boost higher growth.

But within budget limits, we also must make sure that any fiscal package promotes our key values and needs: protecting the weakest among us and raising living standards through increasing human capital (including education), promoting innovation and providing basic infrastructure.

Ultimately, getting our fiscal house in order is about shared sacrifice -- and shared hope. Putting a fiscal recovery plan in place will hasten the recovery and make living standards higher than they would otherwise be. We don't have to look like Greece does now.

Copyright 2010, CNN

Congress May Not Produce a Budget, But You Can

CHAIRMAN
Bill Frenzel
Tim Penny
Charlie Stenholm

 
PRESIDENT
Maya MacGuineas
­­­
 
DIRECTORS
Barry Anderson
Roy Ash
Charles Bowsher
Steve Coll
Dan Crippen
Vic Fazio
Willis Gradison
William Gray, III
William Hoagland
Douglas Holtz-Eakin
Jim Jones
Lou Kerr
Jim Kolbe
James Lynn
James McIntrye, Jr.
David Minge
Jim Nussle
Marne Obernauer, Jr.
June O'Neill
Paul O'Neill
Rudolph Penner
Peter Peterson
Robert Reischauer
Alice Rivlin
Charles Robb
Martin Sabo
Gene Steuerle
David Stockman
Laura Tyson
Paul Volcker
Carol Cox Wait
David M. Walker
Joseph Wright, Jr.
 

SENIOR ADVISORS
Elmer Staats
Robert Strauss


Congress May Not Produce a Budget, But You Can
May 19, 2010



The Committee for a Responsible Federal Budget today is launching its new “Stabilize the Debt” budget simulator to allow the public to get a better understanding of the steps necessary to close the budget gap and stem the rising federal debt.

The simulator allows anyone—from members of Congress to interested citizens — to try their hand at stabilizing the federal debt at a manageable level of 60 percent of GDP.

“Congress will not likely adopt a budget resolution this year, but this new budget simulator puts power in the hands of the public to show their preferences for tackling the mounting debt,” said Maya MacGuineas, CRFB president. “Policymakers and voters need to understand the types of policy changes that will be necessary; the simulator both shows them the types of policies that will ultimately have to be part of a plan and gives them the opportunity to make their preferences known.”

The online budget simulator (http://crfb.org/stabilizethedebt) presents users with a variety of budget options from all parts of the budget in an accessible format that allows them to track how their choices affect the medium-term debt picture. Social media capabilities will allow users to share their experience virally with friends and discuss their choices online. CRFB will keep track of the results and share them with policymakers and the public.

 


Click here for a pdf version of this release.

For press inquiries, please contact Kate Brown at (202) 596-3365 or brown@newamerica.net.

 

 

 

 

 

No Budget, No Plan, No Accountability...No More

CHAIRMAN
Bill Frenzel
Tim Penny
Charlie Stenholm

 
PRESIDENT
Maya MacGuineas
­­­
 
DIRECTORS
Barry Anderson
Roy Ash
Charles Bowsher
Steve Coll
Dan Crippen
Vic Fazio
Willis Gradison
William Gray, III
William Hoagland
Douglas Holtz-Eakin
Jim Jones
Lou Kerr
Jim Kolbe
James Lynn
James McIntrye, Jr.
David Minge
Jim Nussle
Marne Obernauer, Jr.
June O'Neill
Rudolph Penner
Peter Peterson
Robert Reischauer
Alice Rivlin
Martin Sabo
Gene Steuerle
David Stockman
Paul Volcker
Carol Cox Wait
David M. Walker
Joseph Wright, Jr.
 

SENIOR ADVISORS
Elmer Staats
Robert Strauss

 
 
 
 


No Budget, No Plan, No Accountability...No More
May 18, 2010



Well past the April 15 deadline, Congress still has yet to adopt a budget resolution for FY2011. Meanwhile, policymakers are looking to add hundreds of billions of dollars to the debt for additional government spending and tax cuts. And the House and the Senate are eyeing ways to weaken their already weak budget process restraints. The result is an already dangerous fiscal situation, growing ever-more dangerous each day.

Instead of disregarding fiscal discipline and pushing forward major initiatives that are not paid for, Congress must consider the long-term fiscal and economic impact of the decisions they are making today. Legislators must think beyond the next election and develop a plan now for the longer term. Here is where we stand:

Chances for budget resolution fading. Each passing day without a decision on a budget resolution makes it less likely that Congress will adopt a basic budget blueprint. Many politicians would rather not have a budget debate that will highlight mounting deficits and debt in an election year and either the hard choices involved in getting the debt under control, or their failure to make those choices. The very reasonable push to reduce some discretionary spending has left the House unable to agree on a plan.

“That so many members of Congress are unwilling to consider even relatively small spending reductions does not bode well for the type of budget discussions we should be having,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Large structural changes to the budget will have to be considered—the types of changes currently being suggested are merely the opening act for what is to come.”

Lack of a budget is no excuse for adding to the debt and avoiding the fiscal problems. According to its rules, the House may now begin considering appropriations bills without a resolution in place. Spending decisions should not be made without firm limits. There is growing talk that Congress may simply “deem” a discretionary spending figure for appropriators to divide up this year and attach such a deeming resolution to other must-pass legislation. That process would deny members the opportunity to hold a separate debate on this year’s overall spending levels.


“Having no budget is no reason to add further to the debt,” added MacGuineas. “If a deeming resolution is used, it must emphasize fiscal restraint. Failing to pass a budget should not be an excuse to open the spending floodgates.”

PAYGO must be strengthened, not weakened. There are also reports that such a deeming resolution may be billed by Democrats as a “budget enforcement resolution” and include provisions reaffirming the commitment of congressional leaders to bring the recommendations of the White House deficit commission to a vote and bringing pay-as-you-go rules in line with statutory PAYGO requirements. However, the PAYGO law passed by Congress earlier this year contains several major exemptions totaling upwards of $2 trillion, including for the Medicare “doc fix” and extensions of the 2001/2003 tax cuts for the middle class.

“The new statutory version of PAYGO has loopholes so absurdly large, you could drive a tanker through them. The rules in the House and Senate are far more responsible and consistent with previous iterations of pay-as-you-go budgeting. Instead of trying to bypass the basic principle that we need to pay for what we spend and the sensible PAYGO rules, lawmakers should be figuring out how to comply with them,” said MacGuineas.

“Extenders” bill should not extend the debt. Congress wants to enact legislation that would extend until the end of the year popular tax breaks such as the research and development tax credit and social programs like expanded unemployment benefits and COBRA subsidies for the jobless. Democrats will likely unveil a bill that contains offsets for the tax cuts, but not the social spending. The proposal may also include a five-year extension of the “doc fix” that isn’t paid for. And Congress may also attempt to enact a permanent extension of the estate tax at levels that would violate even the weak statutory PAYGO currently in place.

“Congress cannot continue to act as though there are no consequences to adding to the debt,” said MacGuineas. “What are we doing—looking at Greece and saying ‘oh that looks like fun, let’s give that a try’? As the federal debt continues to soar, investors are watching lawmakers and as problems abroad clearly demonstrate, investor confidence is crucial. We should stop considering every bill as an ‘emergency’ in order to bypass PAYGO and pay for stimulus measures over the longer term so that they do not add to the long-term debt.”

Deficit reducing measures should actually reduce the deficit. Finally, the House is said to be looking into ways to ensure that savings from the President’s Fiscal Commission are preserved for deficit reduction. This is an excellent idea. The last thing we need is to see this money used to finance new spending or tax cuts. For that matter, savings from the health reform bill, which are currently on the PAYGO scorecard, should not be used to offset the costs of other borrowing either.  

 


Click here for a pdf version of this release.

For press inquiries, please contact Kate Brown at (202) 596-3365 or brown@newamerica.net.

 

 

Op-Ed: From a Fiscal Standpoint, Alarm About Health Care Reform

Pioneer Press | May 15, 2010

 

As co-chair of the Committee for a Responsible Federal Budget (yes, I know it sounds like an oxymoron), I helped organize a Washington conference this month titled 'What would a fiscal crisis look like in the United States?'

The event was attended by budget and economic experts, including former directors of the Congressional Budget Office (CBO), the White House Office of Management and Budget (OMB), and the Government Accountability Office (GAO). Participants were in agreement on one basic point: The current fiscal path of the U.S. government is unsustainable. Our current debt-to-GDP ratio is over 60 percent - higher than at any time since World War II - and based on unfunded obligations to Social Security, Medicare and Medicaid this ratio will soon reach 100 percent. It appears that without some serious restraint, and soon, we are on course to become another Greece.

That is why, from a fiscal standpoint, the more I look at the recently passed health reform law, the more alarmed I become. My concern relates primarily to the many phony financing mechanisms included in this new program - which offers health coverage for 30 million uninsured Americans (either by adding them to the Medicaid program or by offering them government subsidies to buy insurance).

  • First, there appears to be a double count of some of the savings achieved in the federal student loan program. The budget savings are accomplished by eliminating banks from offering student loans, thereby saving the cash subsidy paid to banks. The resulting cost savings — perhaps $70 billion over 10 years — are primarily used to help offset the costs of expanding Pell grants to needy students. But it appears that some of these dollars — maybe $20 billion — may be double-counted to help finance the new health law. In any event, the student loan provision just didn't belong in the health bill, but that is the way Congress works.
  • Second, the health reform law creates a new long-term care insurance program. Like Social Security and Medicare's payroll tax, a dedicated tax is created to collect and set aside money to pay these long-term care benefits in the future. But these dollars will be spent as fast as they are collected to pay for other health programs. This is the same budget approach now plaguing the Social Security Trust Fund, which was raided to pay for non-Social Security programs over the years. In the least, it is deceptive accounting to pretend that we are pre-funding the long-term care program when this money is not being honestly saved for that purpose.
  • Third, the health reform law also raises new Medicare tax revenue and uses these dollars for new health programs — while at the same time crediting these dollars to the Medicare Trust Fund. Again, like the long-term-care tax, you cannot simultaneously spend these dollars now and save them for Medicare later.
  • Fourth, extra taxes are anticipated in coming years due to additional income that will be subjected to the Social Security payroll tax. Not surprisingly, these new revenues are also double-counted to cover new health program costs while at the same time being credited to the Social Security Trust Fund. Once again, you cannot spend these same dollars twice.
  • Fifth, about 40 percent of the new costs associated with health reform are covered by anticipated savings in the Medicare program. It is an unavoidable fact, however, that Medicare is already becoming a drain on the general fund budget — a problem that will only grow worse as baby boomers retire. Trimming Medicare costs and then spending those savings on a new program does not help us get out of our fiscal hole.
  • Sixth, it bears noting that Congress is now pursuing — with separate legislation — a Medicare "doctor fix." This legislation — which is almost certain to pass — is designed to restore physician payment levels under the Medicare program. This "fix" is projected to cost about $280 billion over the next 10 years - which alone exceeds (and therefore wipes out) the projected $138 billion surplus over 10 years that CBO scored for the health law.
  • Finally, just a few days ago CBO released a new report estimating the bureaucratic cost to implement the new health programs. These expenses are unavoidable - but were not included in earlier estimates of the law. These expenses add at least another $115 billion over 10 years to the price tag for health reform.

When you add it all up, the federal government's long-term fiscal imbalance will very likely grow worse as a result of the health law. Before health reform, we were looking down the road at a fiscal cliff. Instead of hitting the brake, we have stepped on the accelerator.

So, what would a fiscal crisis look like in the United States? We may soon find out.

Copyright 2010, Pioneer Press

 

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