Other CRFB Papers
From CBO's January 2010 Budget and Economic Outlook, baseline estimates now show that public debt will increase from 53 percent of GDP in 2009 to 67 percent in 2020. Yet as troubling as this scenario is, it is almost certainly optimistic. If we assumed current policies were to continue as they have in the past, the debt would reach nearly 100 percent of GDP in 2020.
CRFB Supports Creating a Statutory Commission
January 25, 2010
The Committee for a Responsible Federal Budget (CRFB) supports creating a statutory commission to help deal with the nation’s budgetary challenges.
As part of the discussion on whether to increase the debt ceiling, the Senate is scheduled to vote this week on an amendment offered by Senator Kent Conrad (DND) and Senator Judd Gregg (R-NH) to create a task force that would make specific recommendations for how to address the nation’s fiscal imbalances. President Obama endorsed the commission this weekend.
It has long been the Committee for a Responsible Federal Budget’s preference that Congress directly addresses these urgent budget challenges, but given the seeming unwillingness to do so under regular order, CRFB thinks a commission would be beneficial.
“A commission is certainly not a cure-all,” said Maya MacGuineas, president of the Committee for a Responsible Federal Budget. “Our leaders must still make hard tax and spending choices, and sell them to the American people. But a commission can help to jump-start the critical process of crafting a sensible fiscal plan for the country, and make that process just a little bit easier.”
A budget commission offers a number of potential advantages including:
“The country now faces both medium- and long-term budget challenges. A commission will probably need to work toward two goals: stabilizing the debt in the medium term, and then bringing it down to manageable levels over the longer term,” MacGuineas said.
“The most important ingredient for success is that there is bipartisan buy-in. Nothing should be taken off the table in establishing a commission, both to help facilitate broad buy-in and because the problem is so large that all policy options will have to be considered” said MacGuineas.
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Over the past decade, discretionary spending has grown faster than mandatory. Between 1999 and 2008 discretionary spending grew annually, on average, by 7.5 percent – from less than $570 billion to over $1.1 trillion. Although the CBO baseline makes it appear as if discretionary spending will grow only modestly, more realistic assumptions tell a different story. Just holding discretionary spending growth to inflation would be a positive step. In the 1990s, it was these types of caps, along with pay-as-you-go rules, strong economic growth, slower-than-usual health care cost growth, and a commitment to deficit reduction that led to budget surpluses.
Follow the House's Lead: Pay for the Extenders
December 10, 2009
Yesterday, the House passed a $31 billion “tax extenders” bill to renew a number of tax rates for another year. The last minute passage of this legislation is part of an all too regular end of year crunch, since a number of expiring tax and spending provisions have not yet been renewed.
Often in the past, in the rush to leave town for the holidays, the House and Senate have simply extended the programs for a year without regard for cost. We commend the House for fully offsetting the costs of their tax extenders bill, but worry that other changes may be deficit-financed. This year, given the fiscal crisis facing the nation, we urge Congress to avoid the easy solution and find ways to offset the full cost of their actions.
“Ideally, policymakers would sit down and make rational decisions about what provisions are worth keeping in the first place,” said Maya MacGuineas, President of the Committee for a Responsible Federal Budget. “But if they are going to insist on a band-aid solution, the least they could do is pay for it.”
Among the other major items likely to be extended are:
Including the tax extenders bill, renewing these measures could cost more than $225 billion, mostly spent over one year. Fortunately, the tax extenders legislation was passed with offsetting revenue raisers.
“Kudos to the House for paying for this policy” said MacGuineas.
But Congress may use gimmicks to pay for some of these other measures (for example, using TARP money), and might not offset other changes at all. Congress should avoid such tactics and simply pay for whatever legislation they pass.
“Two hundred and twenty-five billion dollars? It seems like every year is worse than the last,” MacGuineas said. “When the Bush tax cuts expire next year, we’ll be talking about trillions. We’re in fiscal trouble here, and I don’t see things getting any better without a major change of course. Let’s at least make sure we aren’t making things worse.”
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The Hill | Dec. 10, 2009
In the next few days, the House and Senate will engage in their usual end-of-year dance and vote on two massive omnibus appropriations bills to keep the government funded. The bills will help avoid another series of stopgap Continuing Resolutions that have kept the lights on in much of the federal government since October 1—the start of the new fiscal year. Lawmakers, anxious to leave for the year and smelling the proverbial jet fumes, will consider the omnibus bills “must-pass” since they include seven of the “regular” appropriations bills needed to fund everything from veterans’ benefits to railroad safety.
Once again, the much-vaunted “regular order” has been thrown out the window. But in January, members will return to the Capitol and promise that things will be different. The appropriations bills will be finished on time. But will they? The last time Congress was able to complete all of the appropriations bills individually by the start of the new fiscal year was 1994. Republicans love to blame the Democrats for the mess and Democrats take every opportunity to blame the Republicans. But neither party has managed to find a way to make the trains run on time.
Now, this may all seem like inside baseball, but the impact is serious. Managers of federal programs, already well into developing their next year’s budgets, still do not have their final Fiscal 2010 funding levels. Then there’s the question of whether lawmakers seriously discuss federal priorities when spending programs are lumped into a huge piece of legislation. If Congress cannot not even pass the annual appropriations bills on time, how can we expect it to deal with the unsustainable fiscal path that awaits us over the next decade?
Is there a better way to do things? Can a process be developed that will work even with sharp partisan divides on Capitol Hill? The Peter G. Peterson Foundation, The Pew Charitable Trust and the Committee for a Responsible Federal Budget believe that there is a better way and have established The Peterson-Pew Commission on Budget Reform This commission will make recommendations for how best to improve the nation’s fiscal future.
Sphere | Dec. 10, 2009
Earlier this week, lawmakers confirmed that they will increase the national debt ceiling by as much as $1.8 trillion – raising it to more than $13 trillion – so the federal government can keep borrowing to cover its huge deficit.
As daunting as those numbers are, Congress has no choice. Fail to raise the debt limit and the government would default on its debt, sparking an immediate financial and economic crisis far worse than the one we just experienced.
But raising the debt ceiling only postpones that crisis. And if lawmakers want to avoid it, they have to get serious about bringing the nation's debt under control.
In the last year alone, the total government debt grew from almost $10 billion to nearly $12 trillion. The total government debt is on course to reach 100% of GDP by the early 2020s. Such high debt levels are likely to slow economic growth, dampen wages and harm jobs. Choosing this path is a sure-fire recipe for lower standards of living in this country.
It is true that much of our recent debt accumulation is either a direct or indirect result of the economic crisis, and acting to cut the debt too soon could damage the precarious economy. But the cost of waiting too long to change course would also be dire.
So, how does the U.S. gets its debt under control? The hard truth is that spending has to be cut and taxes have to go up.
I know, I know, that is exactly the opposite of what politicians like to promise, but there is no getting around it. Here are five ideas we should consider:
1) Raise the retirement age. Over the past 50 years or so, life expectancy has increased from 70 years to 78. Yet the average retirement age has fallen from 65 to 62. Raising the retirement age for Social Security would not only reduce the program's obligations, but would likely encourage people to work longer. And a larger work force means more taxable income and stronger overall economic growth.
2) Cap discretionary spending. Over the past decade or so, discretionary spending has grown far faster than the economy, even excluding defense spending. To ensure that politicians make tough decisions in this area of the budget, we must have strong enforceable spending caps in place. Even just limiting growth rates to levels of inflation could save $1 trillion or more relative to what would otherwise happen.
3) Require well-off seniors to pay more of their share of Medicare. To be affordable, there is no question that Medicare needs a major overhaul. But the chances of us getting there with health care cost control alone are extremely low – some benefits will need to be cut. To protect low-income seniors, we need to boost premiums and cost-sharing for wealthier seniors. That's already started in Medicare Part B, but we have to be more aggressive.
4) Don't extend so many of the Bush tax cuts. By the end of next year, nearly all the tax cuts passed over the past decade will expire. Renewing them all will cost around $2.3 trillion. Renewing them for everyone making less than $250,000 annually – with President Obama proposes – would still cost $1.8 trillion. We should go through the tax cuts one by one to decide which ones are worth keeping and which we simply can't afford.
5) Enact an energy tax. We are unlikely to stabilize our debt with spending cuts alone, and the current tax system is too inefficient to raise all needed revenue. An energy tax can make up some of the difference. By taxing carbon emissions or gasoline, as opposed to work and investment, we can reduce deficits and address climate change without hurting the economy too much.
I recognize that few of these options are easy, and frankly none are popular. Getting our fiscal house in order will be an exercise in hard choices. But our fiscal future depends on it.
On December 9, Secretary Geithner requested that TARP be renewed through October 3, 2010. Having spent a net of $386 billion, the $700 billion program is generally considered to have helped stabilize financial markets and the real economy. However, problems and risks remain.