Other CRFB Papers

Op-Ed: With Order Restored, Let’s Act

The Hill | November 11, 2013

For the past three years, Congress has been stuck in a partisan stalemate that has threatened fiscal confidence and slowed our already sluggish economic recovery. It has proven easier for both political parties to stand firm in their ideological corners instead of presiding over a functioning budget process that promotes stability, government efficiency, and economic investment.

The Constitution granted Congress the authority to tax and spend, and they have certainly exercised it. But it wasn’t until 1974 that “The Budget Act” established the House and Senate Committees on the Budget and finally created what we now refer to as regular order in order to manage these resources in a manner worthy of a great nation. Under the law, each house of Congress would draft and pass their own budget resolutions and then a conference committee would meet to work out the differences.  Reconciliation legislation could also be utilized to enforce the spending and revenue levels set out in the budget resolution.

Unfortunately, this established process hasn’t always yielded results in today’s divided Washington. That is one of the reasons we came together in 2009 to  introduce legislation to establish a  Bipartisan Task Force for Responsible Fiscal Action to put Congress back on a path to fiscal sustainability. That effort eventually led to the Simpson-Bowles Commission which we were both privileged to serve on. Since then, there have been sporadic attempts at dealing with the debt as Congress has engaged in habitual fiscal cliff-jumping. 

Now nearly 40 years after the Budget Act, Congress has once again returned to regular order and convened a budget resolution conference committee to address our growing debt. We cannot let another year pass without at least taking some common sense steps to reduce our debt, beginning with a workable federal budget.

Despite some short-term improvements, the debt as a percentage of our economy is projected to rise much faster later this decade, as health care costs continue to grow and the baby boom generation retires in droves. The growth in entitlement programs alone will require increased federal borrowing and interest spending, crowding out other priorities. In addition to the entitlement tsunami, we remain burdened by a tax code that stifles innovation and economic growth.

As former chairmen of the Senate Budget Committee, we know more than most that one budget resolution conference report cannot solve the nation’s fiscal problems, or even strike the grandest of budget bargains.

Budget resolutions by design are not signed into law and therefore do not actually make changes to the law. Instead, they set topline levels for discretionary spending, mandatory spending, and revenue collection, leaving the allocation of funds to the appropriators and the ability to make changes to mandatory spending and revenue policies to the authorizing committees.

In addition to setting funding levels, the budget resolution can establish a process, known as budget reconciliation, to require those authorizing committees to comply with instructions to make changes to the tax code and mandatory spending programs. Reconciliation is a complicated process, but it provides one avenue for a budget conference to get at some of the largest drivers of our long-term debt.

As senators who were often on the opposite sides of recent budget resolution debates, we also know how partisan politics can complicate the path to common ground.

With the budget conference committee meeting again this week, we want to commend the bi-partisan and productive tone that Conference Committee Chairs Rep. Paul Ryan (R-Wis.) and Sen. Patty Murray (D-Wash.) have set. While we acknowledge the limitations that are inherent in the budget resolution process, we encourage the chairs and their fellow conferees to use the tools that the Budget Act provides to come up with a budget resolution that:

  1. Puts debt on downward path as share of economy, like the House Republican, Senate Democratic, and White House fiscal year 2014 budgets
  2. Replaces the across-the-board sequester cuts with targeted deficit reduction that offsets any changes
  3. Establishes a fast-track process for entitlement and tax reform to strengthen Social Security and Medicare and make our tax code simpler and more competitive

There is no doubt that we will need additional measures beyond a budget conference report to deal with the long-term drivers of our debt. A budget resolution is not an end itself, but merely one means of jumpstarting a functioning federal budget process and negotiations over national fiscal policy.

Many Americans, from North Dakota to New Hampshire and beyond, have lost faith in the federal government as they watch their leaders lurch from crisis to last-second stopgap and from to standoff to shutdown. Now is the time for our leaders to show they have the fortitude to make the tough choices needed to put us on a more prosperous path. Setting a budget, just like every American family and small business, is a good place to start.

Op-Ed: Stop the Madness, Start Discussing Long-Term Solutions to Debt Issues

The Hill | October 29, 2013

The recent budget showdown was both completely predictable and totally avoidable, as was the resulting damage to our economy and public confidence in our government. Not only did the shutdown and debt-ceiling standoff slow growth, waste money and inhibit basic governmental functions, but it distracted from the real issue: the long-term debt challenge facing our nation.

It is time for leaders to break the cycle of bouncing from crisis to crisis by taking three common-sense steps: Stop the madness, start talking and solve the problem.

Reopening the government and raising the debt ceiling was a good start in at least putting the madness on hold, and agreeing to establish a conference committee on the budget resolution will help facilitate a start of discussions. Our leaders must now find a way to make these discussions fruitful both in terms of slowing the growth of our debt and ending the practice of operating the world’s largest economy on a month-to-month basis.

We suggest deliberations should start by identifying areas of agreement. There seems to be broad-based support for reforming farm subsidies, modifying the federal worker retirement system and charging user fees that better reflect the actual costs of certain government programs. Savings in these areas could be used to soften the blow of the mindless sequestration over the next year or two and allow appropriators to fund defense and non-defense discretionary programs at more reasonable levels.

Trading across-the-board, temporary and anti-growth cuts for more targeted and permanent savings would represent an important step, but negotiators must resist the temptation to declare victory with such a “small ball” approach.

As Congressional Budget Office Director Doug Elmendorf recently warned, despite some improvements, “the fundamental federal budgetary challenge has hardly been addressed.” A budget conference that does not make progress in this area will not have lived up to its potential.

And progress could indeed be made if leaders start talking to each other instead of talking at each other. The two parties have been close to agreement in the past, and there is more potential for common ground than either side realizes.

Both sides have taken encouraging steps toward a principled compromise. The budget President Obama put forward earlier this year incorporated some tough choices and politically difficult compromises, including adopting a chained Consumer Price Index to measure inflation more accurately and achieving significant savings from Medicare. House Budget Committee Chairman Paul Ryan (R-Wis.) recently identified a number of areas of potential agreement in an op-ed, including means-testing Medicare premiums, modernizing Medicare cost-sharing rules and pursuing pro-growth tax reform.

Building from some of these policies and concepts, any responsible plan must have a few key elements. It should slow the rate of growth in federal healthcare spending by enacting structural reforms that improve incentives for all parties. It should eliminate unwarranted subsidies and low-priority spending while reducing fraud and improving the way we index the federal budget to inflation. It should protect and enhance important investments and support for low-income individuals. It should put in place a process that allows House Ways and Means Committee Chairman Dave Camp (R-Mich.) and Senate Finance Committee Chairman Max Baucus (D-Mont.) to pursue comprehensive tax reform that cuts tax preferences to lower rates, promotes growth and reduces the deficit. Finally, it should find a way to reform Social Security on a separate track to make the program financially sound for future generations.

Savings from these policies should be used both to reduce the mindless cuts from sequestration and help to stabilize and reduce the debt as a share of the economy. A plan large enough to at least stabilize the debt could also be used to justify a permanent indexing of the debt limit, which would put an end to the repeated political brinksmanship by eliminating the need to pass debt-ceiling increases so long as the debt remains on a sustainable path.

Earlier this year, the two of us put forward a plan — built on the progress made in previous bipartisan negotiations — to achieve $2.5 trillion in savings, replacing the sequester with smarter, more gradual deficit reduction that would avoid disrupting a fragile economic recovery while putting the debt on a clear downward path relative to the economy over the next 10 years and beyond. Importantly, the plan would achieve this deficit reduction while respecting the principles and priorities of both parties. It called for significant savings from entitlement reforms, but with important protections for low-income and vulnerable populations. Likewise, it proposed additional revenues for deficit reduction, provided that those revenues be achieved through pro-growth tax reform and not higher marginal income rates.

The proposal we put forward is not our ideal plan, and it is certainly not the only plan. We also recognize that it may not be possible to reach a bipartisan agreement on a plan as aggressive as the one we put forward. But so far, we have done the easy stuff (raising taxes on the wealthy and calling for unspecified cuts in discretionary spending) and we’ve done the stupid stuff (across-the-board cuts under sequestration). Now it’s time to do the tough stuff and the smart stuff: reforming our entitlements and tax code.

Policymakers should seek to reach agreement on a framework that at a minimum stabilizes the debt as a share of GDP. Reaching such an agreement will require Democrats to accept some structural reforms of entitlements, and will require Republicans to use a portion of revenues that will result from simplifying the tax code for deficit reduction, instead of using all savings to reduce tax rates. But such an agreement is achievable.

It is going to take real political courage on both sides to come together to find common ground. The problem is real, the solutions are painful, and there is no easy way out. But there is room for a solution if both parties commit to stop the madness, start talking and solve the problem.

The Budget Crisis Is Over (Temporarily), But Another Is Coming Soon

Forbes | October 25, 2013
 
Each house passed a budget for FY 2014. Those budgets were miles apart but neither house showed any interest in negotiating a joint budget resolution. Negotiations are for sissies. Modern politicians prefer a fist fight.
 
As the new fiscal year approached, Tea Party House Republicans announced that they would not vote for a resolution to keep the government operating unless Obamacare was repealed. That Tea Party bloc was large enough to prevent the Republican leadership from passing a bill without its support.
Along with a major share of the blame for initiating the crisis, the group earned the title of “Suicide Caucus” because those members were willing to take down the government, and, later, to see it default. “Homicide Caucus” would have been more appropriate, because any sacrifices would have been made by their party and by the country, not by them.
 
Next, a small group of Republican senators, the senate counterpart of the Suicide Caucus, joined the anti-Obamacare crusade. The Cruz filibuster reignited the fury of the Tea Party base. Tea Party energy not only reinforced the Congressional Tea Partyers. It also intimidated other House and Senate Republicans who had viewed the abrupt switch from the debt strategy to the Obamacare strategy as a loser from the start.
 
As usually happens, this non-negotiable demand bred contrary non-negotiable demands on the other side. The President and the Democratic majority in the Senate demanded a “clean” Continuing Resolution to finance the government their way in FY 14, and a “clean” debt ceiling extension. Instead of negotiating, each side succeeded in painting itself into its own narrow corner.
 
At that point, everybody had joined the Suicide Caucus. Nobody had a Plan B. Nobody wanted a Plan B. Each side deemed the other’s position unworthy of discussion. Both sides appeared suicidally content to have a partially non-operating government which might have to default on its obligations.
 
And then, suddenly, the pictured changed. No more shut-down; no more default, at least for a couple of months. There was, of course, no solution. The warring parties had only managed to push all the problems ahead a few months. They simply agreed to go to Conference on the ’14 budget, something they should have done in June.
 
We have been watching this long-running soap opera since well before Republicans regained their majority in the House in 2010. The Bowles-Simpson Deficit Commission began its work in April that year. On their clearer-thinking days, both parties agree that the goal is supposed to be a reduction in the US debt ratio, something along the lines of Bowles-Simpson.  Unfortunately, there are few clear-thinking days.
 
Although it remains the gold standard of budget plans, Bowles-Simpson failed. In 2011, there was a debt ceiling fight. The Joint Super Committee was formed, and failed. The sequester was triggered. In 2012, the “fiscal cliff” was narrowly avoided by an agreement on extending tax cuts and increasing taxes on high earners.
 
At every stage of this running battle, the solutions have been temporary. Crises have been averted, but only for a few months. No solutions have been achieved. Increasing debt continues to loom. Each catastrophe temporarily avoided has set up another a few months ahead.
 
Republicans took a political hit on the debt ceiling dust-up in 2011. They are taking another one today. The public still believes that Republicans are more culpable than Democrats. But, with both parties frozen in place, the public is having increasing difficulty assigning blame. Nobody is, nor should be, very popular in Washington these days.
 
After giving our economy, and our world reputation, a kick in the pants, the parties have delivered another temporary postponement.  Time is too short now for the grand compromise. But the policy makers could salvage something in this otherwise dismal year.
 
They could modify the sequester cuts, but off-set changes with cuts elsewhere. They could also establish a budget path forward to a targeted debt ratio of 60% in 10 years, using growth-oriented tax reform and reductions in the long-term programs that are driving the deficit /debt.
 
At this point, the best that can be expected is a future target, a plan without details, and without enforcement. But that’s far better than we have achieved in the past five years. Congress is not very good at keeping its promises, but a 10-year target would be worth trying.

Op-Ed: A Fair Trade for Entitlement Reform Includes Increased Revenue

The Washington Post | October 25, 2013

The Post’s Oct. 20 editorial on the budget challenge [“A fiscal quid pro quo”] made important points but was way off-base on the issue of revenue. It suggested that a fair trade would be reductions to the “sequester” budget cuts in exchange for reforms to Medicare and Social Security and said that Democrats should not insist on additional revenue because that’s a non-starter with many Republicans. Democrats would make a serious mistake by following that advice.

Our country needs more revenue to help us get back on track. Citing Congressional Budget Office calculations, The Post said that “federal revenue as a share of [gross domestic product (GDP)] will hit 18.5 percent by 2023, near the upper-end of the postwar range.” That’s true, but the last five times our country had a balanced budget, revenue averaged 20 percent of GDP. The Bowles-Simpson plan, which The Post strongly endorsed, achieved revenue of 20.6 percent of GDP — not by raising tax rates but by broadening the tax base and lowering tax rates.

Tax reform should be part of any budget deal. Tax reform is necessary to unlock the full potential of our economy. The current tax system is not fair and damages U.S. competitiveness. A five-story building in the Cayman Islands claims to be home to more than 18,000 companies. Is it the most efficient building in the world? No! That and other tax scams cost our country more than $100 billion each year, the Senate Permanent Subcommittee on Investigations has found.

If we don’t fix the revenue side of the equation at the same time as we repair Social Security and Medicare, it will never happen. To suggest, as The Post does, that Democrats should trade adjustments to the sequester for reforms to these programs assumes that the sequester affects only Democratic priorities. More than half of the $1.2 trillion in sequester cuts are to defense, long a Republican priority.

A fair trade would be modest additions to revenue as part of a balanced plan. A revenue increase of $300 billion to $400 billion over 10 years would amount to only 1 percent of the $37 trillion the federal government is expected to collect over that time. We can’t do 1 percent? Of course we can. And by reforming the tax code, we could do it without raising tax rates on a single American.

A similar $300 billion to $400 billion in savings out of Medicare and Medicaid would amount to about 3 percent of the $11 trillion the federal government is expected to spend on health care over that time. We can’t do 3 percent? Of course we can. And we must: Health spending is the fastest-growing part of the federal budget, projected to increase from 1 percent of GDP in 1971 to more than 12 percent of GDP in 2050. And the trustees of the Medicare system say it will be insolvent by 2026.

The Post was correct that adoption of a “chained CPI,” or consumer price index, system of measuring inflation should be part of any agreement. Most economists say that chained CPI, which accounts for behavioral changes people make when faced with increasing prices, is a more accurate way of measuring inflation. Going to chained CPI would raise revenue because our tax system is indexed for inflation, and it would cut spending because many programs, including Social Security, are indexed for inflation.

Federal spending has been cut by $900 billion in the Budget Control Act, by $1.2 trillion in the sequester and by more than $500 billion in the 2010 continuing resolution. That is spending cuts of $2.6 trillion, while only $600 billion in revenue has been added. That is hardly balanced.

To suggest that Democrats should give up on revenue because it’s a non-starter with many Republicans is like telling Republicans they should give up on entitlement reform because it is a non-starter with many Democrats. The truth is, both sides need to give a little ground on their must-haves for real progress to be made.

A mini-“grand bargain” would require all of these elements: changes to Social Security and Medicare to ensure their solvency for future generations; a modest increase in revenue so all parts of society participate in getting our country back on track; and changes to the sequester cuts that force nearly all of the deficit savings on less than 30 percent of the budget.

We can do this, but everyone must be prepared to give a little so that our nation can gain a lot.

Op-Ed: Hey Congress: Use This Moment

zpolitics | October 17, 2013

As we finally emerge from what was simply the most recent in a long series of short-term fiscal crises, it is abundantly clear what our leaders in Washington should do to prevent themselves from governing on the edge of a cliff in the future: they must stop the madness of shutdowns and showdowns, start earnest bipartisan negotiations and solve the problem of our unsustainable national debt once and for all.

The just-concluded fiscal near-disaster proves that short-sighted political gamesmanship produces very few winners, and a whole bunch of losers. Worse still, such crises divert attention from the real issues that are driving our debt over the long term – namely our outdated tax code and our ever-more-costly entitlement programs.

The only thing our leaders in Washington won for themselves with this fiasco is more time – time that they must consider their last opportunity for finally confronting our national debt.

It’s undeniable that our debt is a huge – and growing – problem. Relative to the size of the economy, our debt is larger than it has been at any time since the immediate aftermath of World War II. And, even with shrinking deficits over the past couple of years, it is projected to start growing again, unchecked, to unprecedented levels. Such elevated debt levels have been associated with higher rates of interest, inflation and unemployment, not to mention slower economic growth and greater risk of a debt-fueled fiscal crisis.

Moreover, Americans understand that the national debt is problematic. In a recent poll we commissioned with prominent Democratic and Republican pollsters, a plurality of respondents said that the debt was the single most pressing issue Washington must tackle – more than jobs, immigration reform or health care.

The poll also showed that dealing with the debt in a comprehensive, gradual manner, Americans are willing to make personal sacrifices for the sake of long-term deficit reduction. When paired with cuts to wasteful and low-priority programs, enacting deficit-reducing reforms to our entitlement programs and revenue-enhancing reforms of our tax code are broadly popular. There are a variety of proposed common sense deficit-reducing provisions that could garner the political common ground.

That we must take on the true drivers of our debt – and that Americans understand this – is why the Campaign to Fix the Debt firmly believes that making tough choices to reduce the deficit is good politics in addition to good policy. Fix the Debt has enlisted hundreds of thousands of citizen-activists – including civic leaders, academic economists, small business leaders and corporate executives – to let Congress know that what their constituents want is the policy certainty and economic stability that a comprehensive deficit-reduction agreement would bring about.

The time for our elected leaders to be worrying about short-term political gains has long since passed – if it ever existed at all. Now, they must use this latest opportunity to stop all of the fruitless chicanery, start honest negotiations and solve our fiscal problems – before they get even worse than they were last week.

Op-Ed: Don’t Believe Myth That Debt Problem is a Myth

The Weekly Wonk | October 10, 2013

Last week, the government of the richest and most powerful nation in the world shut off its lights and closed its doors. As a result, 800,000 federal workers were immediately furloughed; new patients were turned away from NIH clinics; the national parks were closed to visitors; and economic growth is expected to slow by a quarter to a half percentage point in the fourth quarter of 2013.

This disruptive and completely unnecessary shutdown follows 7 months living under “sequestration,” an across-the-board cut to many of the important functions of government that followed the failure of the bipartisan Super Committee to reform the nation’s fiscal policy. And to make matters worse, we are only days away from reaching the nation’s legal debt limit which, if not raised, will require us to default on some of our obligations.

In the context of all this short-term turmoil, while officials are wrestling with whether the lights will be on and whether the nation’s bills will be paid next week, it may seem strange to want to talk about our long-term fiscal situation.  But we have to – immediate issues and long-term challenges are intertwined. Until policymakers recognize the importance of addressing our long-term debt situation, it is difficult to see how we avoid jumping from short-term crisis to short-term crisis.

There is a dangerous and pervasive myth in Washington that our debt problems have been solved – that we no longer need to worry about growing entitlement costs. This myth leads many Democrats on the left to falsely assume any call for deficit reduction is a call for job-killing austerity, Republicans on the right to shift their focus away from entitlement reform to oil pipelines and medical device taxes, and policymakers to opt for mindless sequestration over strategic spending cuts, and government shutdowns over commonsense budget agreement.

It is true that we have made substantial progress in addressing our short- and medium-term debt. In combination with the economic recovery, a number of spending cuts and tax increases enacted over the past three years have helped to stabilize debt levels as a share of the economy for the next five years. Yet temporary stability does not suggest a permanent solution. Though growth has slowed, our debt levels are the highest as a share of the economy they have been since the aftermath of World War II. At roughly twice the historical average, our extraordinarily high debt levels put us at substantial risk if interest rates rise and leave little flexibility if new needs or emergencies arise.

More frightening, our debt levels are likely to begin growing again sooner rather than later.  As health care costs continue to grow faster than the economy and the large baby-boom population enters retirement, the costs of Social Security, Medicare, and Medicaid will balloon and revenue simply won’t keep up.

The result: debt is projected to exceed the size of the economy by 2035, double the size of the economy in the 2060s, and triple it in the 2080s.

The myth that we no longer have a long-term debt problem is doing a disservice to the next generation of Americans who will ultimately pay the price in those coming decades for our inaction today.

A failure to address this growing debt will translate into stagnant wage growth, threaten the value of retirement accounts, raise interest rates on all types of loans, reduce the government’s ability to respond to new needs and emergencies, and increase the chance of an eventual crisis.

The progress we’ve made would reduce the chance of such a crisis, but not by nearly enough. As my old boss Erskine Bowles likes to explain, our leaders have done the easy stuff – raising taxes on the top 1 percent of Americans. They’ve done the sneaky stuff – capping defense and non-defense discretionary spending so future lawmakers can identify the specific cuts. They’ve even done the stupid stuff – allowing a deep, abrupt, across-the-board cut to all the programs not responsible for our growing debt through so-called “sequestration.”

But what our leaders haven’t done is the hard stuff – reform our tax code and entitlement programs. What our leaders haven’t done is worked together to reach principled compromise on a plan that neither side loves, but both know would be a win for the American people.

The solutions are relatively straightforward: bend the health care cost curve by improving the way we pay for medicine and changing incentives for providers and beneficiaries; make Social Security solvent by slowing the growth for wealthier beneficiaries, adjusting for growing life expectancy, and bringing in new revenue from those who can afford it; reform the tax code by cutting many of the $1.3 trillion of annual tax preferences and using the money to lower rates and deficits; and replacing the mindless cuts of sequestration with thoughtful cuts to wasteful and low-priority programs.

These solutions are not easy, to be sure. They require Democrats to take on their base and pursue entitlement reforms. They require Republicans to break their pledges and support new revenue. And they require both sides to put the next generation ahead of the next election.

But they are possible.

Despite the dysfunction in the halls of Congress, efforts to design and agree to these changes are already underway. The President’s budget took an important step by putting a number of entitlement changes into his budget, including the adopting of the chained CPI which would switch to a more accurate and slower inflation index for calculating Social Security COLAs, changes in the tax code, and various indexed provisions in the budget.. The relevant Committees in both Houses are taking another important step by looking at ways to reform and replace the so-called “sustainable growth rate” (SGR), which threated to cut Medicare physician payments by about 25 percent. And perhaps most encouragingly, Republican House Ways & Means Chairman Dave Camp and Democratic Senate Finance Chairman Max Baucus are working together to enact the first comprehensive overhaul of our tax code in over a quarter century.

The true test will be whether these efforts can be joined and ultimately enacted into law. Every bipartisan effort to reduce the deficit – the Simpson-Bowles Commission, the Domenici-Rivlin Commission, the Boehner-Obama discussion – found that the best way to get a budget deal was through shared sacrifice. Everyone has to be part of the solution, and all policymakers has to be willing to put their own sacred cow on the table. The retirement age must be on the table. The mortgage-interest deduction must be on the table. The defense budget must be on the table. And payments to Medicare providers and beneficiaries must be on the table.

Congress has an opportunity to do right by the American people. But they have to stop the madness, start talking, and solve the problem. And they need to begin now.

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