Other CRFB Papers
Christian Science Monitor | September 16, 2012
Budget talk in Washington is again dominated by nonnegotiable demands and a potential government shutdown – or even an unprecedented default on US debt in October. Despite the heated rhetoric, we believe that a bipartisan agreement is still possible on a meaningful budget deal that puts America on the path to fiscal responsibility.
We believed this in 2010, when we co-chaired a bipartisan national commission to fix the debt, and we still believe it. The country simply can’t afford to keep lurching from one fiscal crisis to the next. True, some fiscal progress has been made, but the underlying problem remains: In just a decade, the debt will be equal to 77 percent of our economy – draining resources to pay interest on the debt, and negatively affecting American jobs, consumer credit, and the country’s competitiveness.
Still, we’re hopeful about a fiscal deal, in part because of our experience in revising a deficit-reduction plan based on last winter’s negotiations between President Obama and House Speaker John Boehner. In the process of splicing that plan together, it became clear to us that the two sides had been quite close to reaching an agreement and that the remaining policy differences could be bridged if both sides were willing to go a little further and come to a principled compromise without compromising their principles.
Our revised plan, The Bipartisan Path Forward, would go further than many Democrats have been willing in reforming costly entitlement programs that are driving long-term debt, particularly health care. It would, for instance, move away from Medicare’s fee-for-service delivery system and gradually increase the eligibility age. Our plan would also require Republicans to accept more revenues beyond the expiration of the 2001 upper-income tax cuts agreed to in January.
Our plan would implement entitlement reform in a way that provides important protections for the most vulnerable. And it would raise revenue through tax reform that repeals or reforms various deductions, exclusions, and credits; lowers rates; and ultimately reduces the deficit. Both sides would have to go beyond their political comfort zones to reach a real budget deal. But the end result would put the debt on a downward trajectory for the long term.
The sad lack of trust between the two parties in negotiating on fiscal policy has been perhaps an even greater obstacle to an agreement than the deficit details themselves. However, the dinners that the president hosted with Republican senators earlier this year were an important and long overdue effort at building the understanding that will be critical to getting that kind of a bipartisan agreement.
These social events have led to discussions between senior White House staff and Republican senators about the budget and replacing the mindless, across-the-board cuts in defense and domestic programs (known as sequestration) with smart, selective cuts.
President Obama also deserves credit for the budget that he proposed earlier this year. It took a significant step toward a possible bipartisan agreement by incorporating the tough choices and politically difficult compromises contained in the last offer he made during negotiations with Mr. Boehner in December – including reduced cost-of-living increases for seniors and expanding means-testing for Medicare.
For their part, a growing number of Republican senators have indicated they are willing to accept new revenues as part of a deficit reduction plan that also contains meaningful entitlement reforms. To be sure, significant differences remain between the parties on important details, but there has been a mutual willingness – at least between some GOP senators and the White House – to make politically difficult compromises if the other side is doing so as well.
Budget negotiators should also take heart in bipartisan Senate agreements on the politically difficult issues of immigration and student loans. They have led to renewed interest in bipartisan discussions on the budget. They show what can be accomplished when both sides talk to each other instead of past each other.
We are also encouraged by timely proposals on tax reform emerging from Congress – from the yeoman’s work of House Ways and Means Chairman Dave Camp (R) of Michigan and from Senate Finance Committee Chairman Max Baucus (D) of Montana and ranking member Orrin Hatch (R) of Utah. A bipartisan deal on tax reform could unlock one for the budget.
The senators’ “blank slate” approach would eliminate every tax preference and require advocates to justify adding each one back. This approach will hopefully result in many tax breaks being eliminated or scaled back, even beloved deductions such as for mortgage interest. Such a strategy could accomplish the Republican goal of substantially reducing rates and the Democratic goal of raising new revenue.
It is going to take political courage on both sides to come together on fiscal common ground. The problem is real, the solutions are painful, and there is no easy way out. But there is room for a solution. We must find it for the sake of our grandchildren, ourselves, and our country.
The Hill | September 9, 2013
After an August in the countryside or their states or somewhere around the world or Martha’s Vineyard, the president and the Congress are back in Washington.
One hopes they are ready to govern -— because this period from now until the end of the year may be the last legitimate opportunity to do just that before the next election cycle begins in earnest.
The debate about Syria is on the center of the global stage but there is really only one domestic issue that needs to be addressed in this period: the budget and the debt.
With both the end of the fiscal year occurring and the debt ceiling needing reauthorization, it is difficult to comprehend how the issues that underlie and drive both of these events would not be taken up with fervor and a real intent to get something done.
At the center of these issues is of course the fact that we continue on the path of piling up an unfathomable amount of spending that is not paid for. The expenditure is made possible only through borrowing and passing the bills on down the line.
It is true the deficit has dropped a great deal in the last six months. It is also true that the sequester, if allowed to continue to operate, will cut that deficit even further. But no great solace should be taken from either fact, even though certainly on their faces they represent positive movement.
The fact that the deficit is down by over half from its high point is like saying that a person who has fallen off a tall building is doing “OK” when they are only halfway down.
The deficits at their present level still remain the highest in the post-World War II period. At the present rate of compounding, our debt will have tripled by the end of the decade from where it stood at the start of the Obama presidency. Our debt as a percentage of GDP will still be going up at what is generally accepted to be a bankruptcy-in-waiting rate.
Another positive sign of fiscal restraint on its face is the fact that the sequester is continuing to be executed. During the next fiscal year, which starts in October, it will begin to significantly affect domestic discretionary spending. But, it has to also be obvious that this is not the right way to get our fiscal house in order.
The sequester does save money and it does cut spending, but it does it in the wrong places, in the wrong way and at the wrong time.
The issue has never been discretionary spending. This is especially true after the almost trillion dollars in cuts put in place with the agreement reached in the summer of 2011.
The issue has always been entitlement spending and how to change the major entitlement programs so that they can be put on a glide path to sustainability, even as they still serve as a necessary safety net for seniors.
The sequester is an arbitrary, non-programmatic approach that will actually retard economic growth in the short run and most likely negatively effect revenues as a result.
Entitlement reform, such as changing the CPI calculation and the process for reimbursing Medicare costs, will actually create economic growth. It will show people that we are willing to address the real problems behind our debt and thus release all sorts of investment and economic activity.
Of course, all these points which have been made by many and which are obvious to most mean nothing if we do not have a government that functions and moves forward with answers and action.
The next few months are what could be called the “big casino” of governing.
The president either steps up and leads or his presidency ends up on a road to nowhere.
The Republican House either joins in with a constructive effort or else people will ask what is its purpose is when they are next on their way to a polling place.
As for the Senate, it just needs to get a nod, not even a verbal expression, from Sen. Harry Reid (D-Nev.) to the senators meeting in the basement that he will give them a pathway to action if they can come up with a bipartisan agreement. They can do this.
The folks are back in Washington. One presumes they came back to do something. Or is that too optimistic?
The Hill | September 6, 2013
The last real government shutdowns occurred in the winter of 1995. Two funding gaps that winter resulted in a total of 26 days of hiatus when President Clinton battled it out with Speaker Gingrich and Majority Leader Dole over spending and taxes. While threats of government shutdown raised their head in 2011, 18 years have passed since anyone has really experienced a shutdown.
Forbes | August 21, 2013
Congress has left for its summer recess vacation at home. The President took his at Martha’s Vineyard. Based on legislative achievement, neither can be said to have earned time off. Nevertheless, it’s a good idea for both to depart the wearying, unproductive Washington battleground and rest up for the fall budget challenge.
Both need some relief from the intense frustration and animosity that have become Washington’s hallmarks. Congress, in particular, needs to hear from its constituents at home. The President always looks cool on TV, but in the toughest job on earth, he, too, needs occasional rest and family time.
While they rest and ponder the challenges of the rest of 2013, they will find that none of the problems which they have failed to solve in the first half of the year have not become any easier. Kicking the can down the road, as they have doing, buys some time, but it also makes solutions ultimately more costly and painful.
Because there weren’t many, adding up the successes of the first half of 2013 is easy. After the McConnell-Biden tax compromise that got us past the 2012’s fiscal cliff, our policy makers have done very little. For them it was 7 months of name-calling and blaming their opposition.
Their best effort was a reasonable college loan compromise. A responsible start to tax reform was begun by the chairmen of the Ways and Means and Finance Committees. And, after a confirmation dust-up, the Senate managed a filibuster compromise. For the people, that was pretty thin gruel for 7 months of work.
Just like in the stables, when the job is not done, work begins to pile up. The debt ceiling which reached its limit in May, has been postponed by clever manipulations at Treasury, but it will bite us sometime in the 4th quarter. No progress has been made there. Indeed, other than public statements of no concessions, the matter has hardly been discussed.
September 30 is the deadline for financing the government for Fiscal Year 2014. In its budget, the Senate dismissed the sequester. The House budget etched it in stone. There have been no real efforts to negotiate the differences yet.
No appropriations bills have been enacted, so another set of continuing resolutions will have to suffice, but the same budget differences must be negotiated there. Perhaps the appropriators will be better negotiators than the budgeteers, but there is no evidence of that yet.
The sequester poses a similar, but slightly different, problem. Both parties, and nearly all the policy makers, believe it is a thoughtless way to cut expenses. There is general agreement that it must be modified, but no agreement as to how. The Senate insists on wishing it away. The House demands that the total spending reductions be maintained and that other cuts be substituted for the unwise “meat-axe” approach.
Tax reform activity, bravely started, has little chance of success this year, or even next year for that matter. It is highly desirable, but it probably can’t stand on its own feet. Democrats want revenue for “investments.” Republicans want lower tax rates, both corporate and individual.
Even if agreement can be reached on the thorny problems of what preferences to repeal, the question of investments versus rates can only be negotiated in a grand bargain of spending controls and tax reforms. Aware of the problem for many years, the policy makers have repeatedly proved they are unwilling to negotiate that “grand bargain.”
They prefer the “grand delusion” that their team will win the next election. Then they can do the budget their way. Observers with the best prediction records believe that divided government will continue after the 2014 elections. Nevertheless, the grand delusion continues to dominate both parties’ strategic thinking.
So, when the stalwarts at the Capitol and the White House return, fully rested, to face this fall’s version of the fiscal cliff, there is no indication that they are interested in negotiating a long term arrangement. They may be more relaxed after their vacation, but both sides remain adamant as they face a fiscal cliff as difficult as 2012.
The best possible outcome is almost certain be a “small deal” that solves none of the long-term problems. That will keep the can rattling down the road. Perhaps they all need a longer rest. We who must watch the exercise, need one too.
Financial Times | July 23, 2013
Sir, Edward Luce says that “Simpson and Bowles are wrong about the US debt” (July 15) but he gets it wrong describing their position. In reality, Alan Simpson and Erskine Bowles are not as far off from Mr Luce as he implies.
Mr Luce describes the debt as a “medium-term threat”, which is the position of Mr Simpson and Mr Bowles and Fix the Debt as well. Our contention is that the US should put in place now a plan addressing the debt that can be phased in over time. Such an approach would be preferable to the steep sequestration cuts that rightly concern Mr Luce. A long-term, comprehensive approach would also include tax reform and curbing healthcare and retirement costs as Mr Luce admits would be ideal.
The threat to Social Security’s solvency is not as hypothetical or as far off as Mr Luce argues. The trustees who oversee the vital programme have been warning for years that the retirement of the baby boomers will put a strain on the programme as more workers receive benefits and fewer contribute to it. As the saying goes, “demography is destiny”. The choices facing policy makers will become increasingly unpleasant the longer action is delayed. Waiting until a crisis is imminent will require harsh solutions such as across-the-board cuts for all beneficiaries, including the poorest seniors. In addition, Social Security’s Disability Insurance Program Trust Fund will be exhausted in just three years, underscoring the fact that this is not a distant concern.
Furthermore, Mr Luce’s implication that addressing the debt versus the economy is a zero-sum game is false. There’s no reason why we can’t do both. In the commission report and the plan they recently put forward, Mr Simpson and Mr Bowles stress the importance of phasing in deficit reduction gradually to avoid harming the economic recovery. Indeed, that is the reason to act now to replace the immediate austerity from sequestration with policies that will reduce the deficit over time. In fact, putting in place a smart, credible debt plan would likely boost the economy by showing markets we are serious about dealing with the long-term debt.
Ultimately, Mr Luce’s condemnation is more geared towards a US political system that is seemingly capable of dealing only with immediate crises as opposed to Mr Simpson and Mr Bowles, who are challenging the system.
Judd Gregg, Former US Senator and Co-Chair, Campaign to Fix the Debt
POLITICO | July 22, 2013
In the quarter century since Congress last reformed the Tax Code, back in 1986, it seems Washington has worked overtime to create the most inefficient and ineffective globally anti-competitive tax system humankind could dream up.
It’s time to start over — time to start with a blank slate.
The 1986 reforms accomplished a great deal to simplify the Tax Code and promote economic growth by eliminating tax preferences and using the resulting funds to lower the top rate to 28 percent. Unfortunately, those deductions, exclusions and other preferences have returned over the years in the form of approximately $1.3 trillion worth of annual backdoor spending that now litters the Tax Code.
This hidden spending complicates tax filing, distorts economic decision making and slows economic growth. It also means that despite a top individual rate of 39.6 percent, deficits are still far too high. The current Tax Code is badly broken.
The conventional wisdom holds that real reform — reform that reduces or eliminates tax preferences to cut tax rates, simplify the Tax Code, promote economic growth and help to control the national debt — is impossible as long as powerful interests continue to promote the status quo.
But conventional wisdom was turned on its head recently when the two leaders of the Senate tax-writing committee called for starting tax reform with a “blank slate.”
The bold proposal from Chairman Max Baucus and ranking member Orrin Hatch begins by eliminating each and every tax preference. Starting from scratch, as Sens. Baucus and Hatch propose, provides the single best chance to accomplish fundamental tax reform, which could be one of the best ways to get the economy moving.
On the Fiscal Commission (known colloquially as Simpson-Bowles), our decision to take a similar approach — we called it the “zero plan” — was a turning point that truly broke the partisan logjam. At the time, we found eliminating all tax preferences would allow the top individual rate to be reduced to 23 percent and the top corporate rate to 26 percent, while still dedicating some of the revenue to reducing the deficit.
This was a true game changer that made it possible for us to put forward tax reform that accomplished the Republican goal of substantially reducing rates and the Democratic goal of raising new revenue.
Importantly, starting from scratch doesn’t mean that all tax preferences will be eliminated. Instead, it puts the onus on advocates of tax preferences to justify their existence and it requires policymakers to pay for those add-backs with higher rates. We believe most will not pass the cost-benefit analysis and will either be eliminated or phased out. Those deemed to serve important public policy purposes can be added back more efficiently and cost-effectively — for example, by using credits instead of deductions.
On the Fiscal Commission, we put forward an illustrative tax plan that added back a number of tax expenditures in a scaled-back, better targeted form, and achieved a top rate of 28 percent. Former Congressional Budget Office and OMB Director Alice Rivlin and former Sen. Pete Domenici have their own tax plan that includes similar rate reduction. Both plans would increase the progressivity of the Tax Code and, importantly, both would help raise new revenue to help pay down the deficit.
With $1.3 trillion of annual tax preferences, there are plenty of funds available to lower rates, restore worthwhile tax preferences and contribute to deficit reduction. And if we design the reform right, it also can do wonders for economic growth.
Of course, tax reform can’t do all the work on its own. Any successful effort to truly unlock the U.S. economy’s potential must bring our rapidly expanding national debt under control, which means slowing the growth of our unsustainable entitlement programs to match revenues from tax reform, along with other cuts in spending.
Combining tax reform with a broader package, one that also replaces the mindless sequester cuts with larger and smarter spending cuts and entitlement reforms, would represent a tremendous accomplishment.
Agreeing on such a package will not be easy. But the efforts and leadership of Sens. Baucus and Hatch, along with the hard work Ways and Means Committee Chairman Dave Camp has done in the House laying the foundation for reform, make it seem more possible than it has in some time.
Starting with a blank slate doesn’t allow us to avoid the hard choices. But it does make them just a little bit easier. It lets us build the Tax Code we want, rather than chip away from the Tax Code we have. If members of Congress and the administration rise to the challenge, this country’s future will be a whole lot brighter.