Other CRFB Papers
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.
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.
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.
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.