Other CRFB Papers
New York Times | October 9, 2013
As we enter the second week of the government shutdown, one area of government waste has been clearly exposed: the time wasted by policy makers on finger-pointing and point-scoring, as opposed to finding real solutions.
There definitely is plenty of wasteful and overlapping spending in Washington -- and the sequester pushes policy makers to focus on where they can get savings. The Government Accountability Office has identified dozens of areas of duplication and overlap in the federal government, like that between the Agriculture Department and the Food and Drug Administration over catfish inspections. There's still much needed oversight that is lacking. But a government shutdown isn't the way to solve it.
There is still room to cut in areas like farm subsidies. Reforms to federal retirement and health benefit programs can also achieve savings. Privatize the Tennessee Valley Authority. Charge more to cover the cost of the national parks. The list goes on. We need to do all of these and more, but it's not where the real money is.
What we’ve learned from sequestration and the shutdown is that despite the significant economic disruption caused by these efforts in the near term, they have done little to reduce the long-term debt. Under realistic assumptions, public debt is expected to reach 100 percent of the economy by 2035 and will continue increasing.
The budget cuts so far have come from a small sliver of the federal budget and are poorly timed, coming as the economy struggles to recover. A smarter approach deals with all parts of the budget, including tax and entitlement reform, and is phased in over a longer term, allowing for more deficit reduction without stunting growth.
A much better investment is to start bipartisan discussions to comprehensively address our longer-term fiscal challenges.
The Hill | October 9, 2013
We are on a collision course with financial calamity. A first-time-ever failure to extend the federal debt limit would lead to higher interest rates not only for the U.S. government, but also for every business, home, car, student and personal loan in America. The looming debt ceiling — and the ongoing government shutdown — is causing harmful uncertainty around the world and here at home.
But there is a way out.
It’s right in front of us. Bipartisan proposals have been advanced to get America back on track. Whether it is Simpson-Bowles, Domenici-Rivlin or even where President Obama and Speaker John Boehner (R-Ohio) left off their negotiations two years ago, there are common elements in all of these plans that could be implemented now to bring this crisis to a close.
Here are the common elements:
- Extend the debt limit for at least one year, preferably two, without condition. That aligns with Obama’s position that we not negotiate on the debt limit.
- Do the negotiating within the context of a continuing resolution to fund the government and end the shutdown.
- Agree to the Republican funding level of $988 billion for this fiscal year.
- Agree on a process for individual and corporate tax reform next year. The goal should be to reduce rates and raise additional revenue to go toward deficit reduction. A reasonable goal would be $300 billion to $400 billion in additional revenue over the next 10 years.
- Agree to additional savings in Medicare and other healthcare accounts by better coordinating care, especially of the chronically ill. A reasonable target would be $300 billion to $400 billion over the next 10 years.
- Take the savings from numbers 4 and 5 above and use them to cut in half the effects of the sequester.
- Adopt “chained CPI” as a more accurate measure of inflation that both reduces spending and raises revenue. The combined effect is a savings of about $250 billion over the next 10 years
- Repeal the medical device tax of 2.3 percent, about which no one seems enthusiastic.
- Name a commission to reform Social Security to ensure its long-term solvency. The longer we wait, the more draconian the solutions will have to be.
Of course, neither party would be completely happy with all of these proposals. However, it’s not really a “bargain” if neither side has to give up things on its wish list.
We can do this. We can end the shutdown, resolve our debt crisis and put America back on a more sustainable course for the future. Let’s do it!
Star Tribune | October 5, 2013
Here we are again, watching as our national leaders engage in another fiscal fistfight. Partisan rancor, sadly, is now hard-wired into our political system.
According to political analyst Charles Cook, out of 435 congressional districts, there are “only 17 Republicans sitting in districts Obama carried, and only nine Democrats sitting in districts Romney carried.” The number of so-called split-ticket districts was far higher when we served in Washington two decades ago. In the ensuing years, increasingly, “gerrymandered” districts created seats that are safe for one party. The result is a decreased likelihood that moderates will ever be elected — and that only exacerbates partisan behavior.
In this highly toxic environment, it is hard to see how any long-term consensus can be reached, especially on budget issues where the two parties are poles — and polls — apart. If we learned nothing else last week, it is that it’s no longer reasonable to expect members of Congress to be problem-solvers. The budget impasse is just act one in a drama that will be on stage for a long time to come.
A full-fledged debate over the appropriate role of government at the beginning of the 21st century is overdue. However, instead of a thoughtful discussion that explores legitimate ideological differences regarding the size and role of government, we hear only each side blaming the other. Republicans cry out for Obamacare’s demise (hint: Obama has a veto pen), while Democrats loudly decry every attempt by Republicans to cut spending (hint: there aren’t enough rich taxpayers to pay all our bills).
The need for balanced solutions is too important to leave to the partisans in Congress yet too urgent to ignore. One of the great strengths of our country is the balance of power shared by families, government, businesses and nonprofits, including the faith community. When one of these institutions is failing, we should look for leadership elsewhere. Business organizations can start by no longer echoing the Republicans’ no-new-taxes mantra. Instead, they can lead on comprehensive tax reform. Sen. Mike Lee, R-Utah, has proposed a tax overhaul that would promote investment and reward people for working. Among other features, Lee offers a $2,500-per-child tax credit against either income or payroll taxes (Medicare and Social Security) owed by a working family. The proposal recognizes that those in Mitt Romney’s 47 percent still pay significant federal taxes even if they owe no income taxes. More than that, it recognizes that we can no longer pay lip service to the importance of strong families. We need to invest in the ability of families to succeed.
Lee’s proposal is far from perfect, but it’s a good start. The revenue calculations still are being done, but it’s likely that some taxes will be increased in order to reduce others. Some business leaders (particularly those active in the Fix the Debt campaign) have embraced tax reform principles similar to those embodied in the Lee plan. We need their strong voices and the voices of other businesspeople to lead the discussion. Otherwise, we are left to the context created by Grover Norquist and other antitax crusaders.
Similarly, let’s ask organized labor to step forward to propose new ways to address the spending side of the federal budget, starting with health care. Obamacare on its own doesn’t solve the health care crisis. It promotes broader access but offers little cost control. However, throwing it out without an alternative — as Republicans have tried to do — is the wrong approach. And, asking for an exemption, as unions have done, is also wrongheaded.
The groundwork for a labor-inspired health care solution might be in a statement four years ago issued jointly by the leaders of the Service Employees International Union and Wal-Mart, Inc. Their 2009 letter to President Obama made the case for expanding access, including an employer mandate that doesn’t act as a barrier to hiring entry-level workers. Significantly, the letter also argues for the importance of controlling health costs, rightly asserting that “health care reform without controlling costs is no reform at all.”
The encouraging news is that innovative public policies are emerging to address America’s critical challenges. But these ideas are primarily being developed and implemented by grass-roots organizations, nonprofits, faith communities, business and labor groups. In other words, outside of government.
Eventually, Washington will find its way. But in our view, when politicians finally get serious, the path will have been paved by other foundational institutions that are offering true leadership.
Public Finance International | October 1, 2013
The US government, and large parts of American society, have strayed from the principles and values on which the country was founded and that helped to make it great. The federal government has also grown too big; both it and many state and local governments have overpromised in relation to what they can actually deliver. The recent budgetary problems besetting Detroit, Chicago and other US cities are a stark reminder of what is at stake.
It is time for transformational reform at all levels of government, or else the US’s financial troubles will continue to worsen, and the economy will never achieve its potential. The past 12 years have seen a dramatic increase in the US’s fiscal challenges, and it is important to understand the key events that have shaped its current situation and future path.
For most of the initial 200 years of American history, spending was largely balanced with revenues – with the exception of times of war and major national emergencies, after which steps were taken to reduce debt burdens relative to GDP. But more recently, consistent peacetime deficits emerged, and then deficits became unsustainable and debt burdens mounted.
During the 1990s, several legislative agreements were reached by Congress and the president, many of which demonstrated political courage and fiscal responsibility. The Budget Enforcement Act of 1990 was part of a $500bn deficit-reduction plan over five years that established discretionary spending caps and ‘pay as you go’ (Paygo) rules for both taxes and spending. Paygo rules mean that any new spending or tax proposals must not add to the federal deficit.
Another major legislative agreement was the Omnibus Budget Reconciliation Act of 1993. Obra was designed to reduce the deficit by a projected estimate of almost $500bn over five years by increasing taxes on high earners. It also extended the Paygo rules from he BEA and the discretionary spending caps through 1998. In 1997, the Balanced Budget Act and Taxpayer Relief Act were passed. These acts sought $130bn in deficit reduction over five years, and extended Paygo and discretionary spending caps through the 2002 fiscal year.
Deficit reduction was clearly a priority throughout the 1990s, in part because of the visibility and related debates resulting from Ross Perot’s run for president in 1992. The resulting focus on fiscal responsibility, combined with an unanticipated economic boom in the late 1990s, resulted in actual economic growth and unemployment being much more positive than forecast at the start of the decade. Consequently, towards the end of the decade, the US government experienced surpluses; public debt as a percentage of GDP declined; and the country’s fiscal outlook appeared to be very positive.
But the fiscal course for the next decade shifted suddenly with the tragic events of September 11, 2001. In the aftermath of 9/11, there was a brief period of bipartisanship in Congress, but the terrorist events had a significantly negative impact on the economy.
These events were followed by several imprudent decisions in 2003 – arguably the most fiscally irresponsible year in US history – when Congress and the president passed additional tax cuts, despite the fact that deficits had returned; enacted extra and largely unfunded Medicare entitlements; and began a new, yet undeclared ‘war’ in Iraq that was charged to the nation’s credit card.
The economy continued to decline and, in 2008, the world entered the ‘Great Recession’. The housing bubble burst, in part due to irresponsible lending policies. Deregulation and low capital requirements caused the government to bail out financial institutions and take on private and corporate debts.
These bailouts were accomplished either by directly purchasing toxic assets through the Troubled Asset Relief Program and/or via short-term loans through a Term Asset-Backed Securities Loan Facility.
Shortly after President Obama assumed office, the American Recovery and Reinvestment Act of 2009 was passed. According to many independent and non-partisan observers, ARRA ensured the recession was not deeper, created jobs and helped to sustain the social safety net during the economic downturn. The bill included public works projects on infrastructure, social welfare provisions, short-term tax cuts, investments in education and renewable energy, and extended unemployment benefits. Even though the legislation was deemed to be necessary, it was projected to add $787bn to the deficit over 10 years.
Then, in 2010, the Patient Protection and Affordable Care Act was passed into law. Although health care reform was needed, the ACA served to increase federal health care promises when the US already had an estimated $37trn in unfunded Medicare promises. While the intention of the ACA was not to add to the deficit, there is significant uncertainty regarding whether many of the anticipated savings will be realised. As an example, the Office of the Chief Actuary of Medicare’s alternative cost estimate was $10 trillion higher in discounted present value than the Medicare Trustees’ following the passage of the bill.
In the past two years, the main fiscal events have been the 2011 debt ceiling, the ‘fiscal cliff’ and the sequester debates. As Congress is expected to enter yet another long, tenuous debate over raising the debt-ceiling limit this autumn, it does not seem likely that policymakers will achieve a specific and comprehensive fiscal ‘grand bargain’ in the near future.
Elected officials in government have so far failed to effectively address the four common challenges that all levels of government face: unfunded retirement obligations, escalating health care costs, outdated tax systems and spending more on consumption than investment. Policymakers should be attempting to achieve a grand bargain that tackles these four key issues, which collectively represent the disease that must be addressed to beat our fiscal cancer. It will take great political courage and leadership to address these in a coordinated and integrated fashion.
By far, the largest deficit the US faces is a leadership deficit. Presidents and the Congress, especially in the past 10 years, have not stepped up to the plate to address the structural deficits in a timely manner. The president has the greatest impact on whether or not progress is made at the federal level, but governors, mayors and other chief executives have just as much opportunity and obligation to lead in connection with the finances of their states and municipalities. These officials should step up to the plate and take action, or run the risk of following in Detroit’s footsteps.
Detroit recently declared bankruptcy, which serves as an example for other cities and even states that face similar challenges. These cities and states need to restructure their finances, and must act quickly because, unlike the federal government, they cannot print money. The largest single problem for many state and local governments is their unfunded retirement obligations (such as pensions and retiree health care).
Historically, there have been situations where politicians and union leaders have worked together to create very generous retirement benefits that are not funded properly. Irresponsible benefit commitments that are not properly funded represent false promises. Elected officials have gotten away with these promises because they are accounted for on a cash-flow basis in the budget. As a result, accounting and disclosure are needed at all levels of government, but most importantly at the state and local level, and in regard to retirement benefits and inter-governmental dependencies.
Often, pension plans are only partially funded. States and cities must restructure their pensions and create different plans for new employees. They also need to curb abuses attributable to existing employees, and possibly cap indexing formulas for retirees. Steps should be taken to eliminate pension padding through adding overtime, vacation or sick time, and to curb double-dipping, where workers draw more than one pension from related employers.
More dramatic restructuring is required of retiree health care obligations. Most of these obligations are entirely unfunded. First, states should consider moving retirees onto the ACA exchanges to reduce some of the burden that would otherwise be felt by state taxpayers. Specifically, eligible pre-Medicare early retirees should be enrolled in the ACA exchanges with a defined contribution-type premium-support subsidy. Furthermore, state and local leaders need to ensure that individuals collecting retirement health care benefits are actually retired. In this regard, individuals and their spouses should not be eligible for taxpayer-funded health care if they have access to health care at their place of employment.
Government employees should be provided with retirement benefits that are competitive and equitable. However, these benefits must also be affordable and sustainable. In addition, equity is a two-way street. These plans must be equitable to employees and retirees, as well as to current and future taxpayers. Achieving these objectives will require elected officials to restructure the current systems – hopefully sooner rather than later.
It’s time for America’s elected officials to demonstrate more leadership at all levels of government. Ultimately, we will need political reforms to help make our government more representative of and responsive to the public. This will take time, but by making them a reality, we will be able to address a whole range of key sustainability challenges in a more timely and responsible manner. And by doing so, our future will be better than our past.
This paper has since been updated. Click here to read the 2015 version.
It’s déjà vu all over again – Congress seems deadlocked in the face of several looming fiscal crises. The first obstacle is just around the corner: if lawmakers fail to pass legislation to fund federal programs before September 30, the government will shut down. Below, we offer a brief primer to describe what that would mean.
What is a government shutdown?
Many federal government agencies and programs rely on annual funding appropriations made by Congress. Since the government’s fiscal year starts on October 1, a government shutdown will occur if Congress has not passed appropriations bills for next fiscal year by September 30. In a “shutdown,” federal agencies must discontinue all non-essential discretionary functions until new funding legislation is passed and signed into law. Essential services continue to function, as do mandatory spending programs.
What services are affected in a shutdown and how?
Each federal agency develops its own shutdown plan, following guidance from previous cases and coordinated by the Office of Management and Budget (OMB). The plan identifies which government activities may not continue until appropriations are restored, requiring furloughs and the halting of many agency activities. However, “essential services” – mainly those related to public safety – continue to receive funding. In prior shutdowns, border protection, medical care of inpatients, air traffic control, law enforcement, and power grid maintenance have been among the services classified as essential, while legislative and judicial staff have also been largely protected. Mandatory spending on programs like Social Security, Medicare and Medicaid also continue.
Although a number of programs are exempt, the public is still likely to feel the impact of a shutdown in a number of ways. For example:
- Social Security and Medicare: Checks are sent out, but new applicants likely will not have their applications processed until funding resumes. In 1996, over 10,000 Medicare applicants were turned away every day of shutdown.
- Law Enforcement: Although public safety generally continues to be funded, some functions are delayed. In 1996, applications to the Bureau of Alcohol, Tobacco, and Firearms were not processed, bankruptcy cases were suspended, hiring of law enforcement officers was postponed, and delinquent child support cases were delayed.
- National Parks: In 1995, the National Parks Service turned away 9 million visitors to more than 350 parks and dozens of national monuments.
- Passport Processing: Passport processing employees will be sent home during the shutdown. In 1995, 200,000 U.S. applications for passports went unprocessed. More than 20,000 applications by foreigners for visas went unprocessed each day; airlines and the tourist industry lost millions.
- Federal Housing Administration: In the event of a shutdown, the FHA, which guarantees many mortgages, would not be able to guarantee housing loans. In 2011, a senior administration official said that "would have significant impact on the housing market."
Is the government preparing for a shutdown?
On September 17, the Office of Management and Budget told federal departments and agencies to begin making plans for the government shutdown. In the memo, OMB Director Sylvia Burwell said that although there was enough time for Congress to prevent a shutdown, “prudent management requires that agencies be prepared for the possibility of a lapse.” Federal departments and agencies are now updating their contingency plans in case the government does shut down, including the determination of which functions will and will not operate, consistent with existing law and past legal opinions.
How would federal employees be affected?
If agency shutdown plans are similar to those in place in 2011, the last time there was a possibility of a shutdown, approximately 800,000 of 2.1 million federal employees would be furloughed. These employees would not be allowed to work, and would not receive paychecks. Although Congress has historically granted back pay, it is not guaranteed.
How and why do mandatory programs continue during a shutdown?
Whereas discretionary spending must be appropriated every year, mandatory spending is authorized either for multi-year periods or permanently. Thus mandatory spending generally continues during a shutdown. However, some services associated with mandatory programs may be diminished if there is a discretionary component. For instance, in the 1996 shutdowns, Social Security checks continued to go out, but staff who handled new enrollments and other services, such as changing addresses or handling requests for a new Social Security card, were initially furloughed – though this decision was ultimately reversed when they were deemed necessary to administer the mandatory program.
How many times has the government shutdown?
Since Congress introduced the modern budget process in 1976, there have been 17 “funding gaps,” where funds had not been appropriated for at least one day. However, before 1980 government did not shut down, but continued normal operations through six funding gaps. Between 1981 and 1994, all nine funding gaps occurred over a weekend, and government operations were only minimally affected. The only “true” shutdowns happened in the winter of 1995-1996, when President Bill Clinton and the Republican Congress were unable to agree on spending levels and shut down the government twice for a total of 26 days.
Does a government shutdown save money?
While estimates vary widely, evidence suggests that shutdowns tend to cost, not save, money. For one, putting contingency plans in place has a real cost. In addition, a number of user fees and other charges are not collected during a shutdown. Contractors sometimes include premiums in their bids to account for uncertainty in being paid. And although many federal employees are forced to be idle during a shutdown, they have historically received back pay, negating much of the potential savings on that front. OMB official estimates of the 1996 government shutdown found that it cost the taxpayer $1.4 billion (over $2 billion in 2013 dollars), and some estimates have put an even greater price tag on a shutdown.
How can Congress avoid a shutdown?
There are essentially two ways to avoid a government shutdown – by passing appropriations or through a continuing resolution (see below question on “What is a Continuing Resolution”). Theoretically, the House and Senate Appropriations committees are supposed to consider 12 different appropriations bills, broken up by subject area, and based on funding levels allocated in a budget resolution. Often these bills are combined into a larger “omnibus” or “minibus” set of appropriations. And sometimes, when the House and Senate fail to agree to a concurrent budget resolution, the levels in these measures must be “deemed” by each house.
This year, a budget resolution has not been passed and neither chamber of Congress has had success getting appropriations bills passed by the full body, even as they have been moving through committees. The House Appropriations Committee has passed ten out of twelve bills, but only four – Defense, Military Construction-VA, Energy-Water, and Homeland Security – have made it through the full House. Meanwhile, the Senate Appropriations Committee has passed eleven bills (all but Interior-Environment), but the full Senate has not passed any of them.
What is a Continuing Resolution (CR)?
A continuing resolution temporarily funds the government in the absence of full appropriations bills, often by continuing funding levels from the prior year. Traditionally, CRs have been used to give lawmakers a short period of time to complete their work on remaining appropriations bills while keeping the government operating. CRs sometimes apply to only a few categories of spending, but can also be used to fund all discretionary functions.
CRs differ from normal appropriations bills in that they often “continue” the funding allocations from previous bills. Even when overall funding levels have differed, lawmakers have often simply scaled up all accounts by a percent change in spending rather than making individual decisions on spending accounts. However, CRs often do include certain “anomalies” where select accounts are increased or decreased or “policy riders,” specifying certain statements of policy.
How often does Congress pass CRs?
Congress frequently passes CRs during periods of political turmoil, and occasionally, many CRs are necessary to fund the government for an entire fiscal year. They have also sometimes been relied on during Presidential transition years. In FY 2001, for instance, a series of intense congressional negotiations leading up to the 2000 elections led to a series of ten one-day CRs. In total, Congress funded the first three months of that fiscal year with 21 continuing resolutions. Not surprisingly, they have been quite prevalent in the past few years, being used to fund the government entirely in FY 2011, when 8 CRs were passed, and FY 2013, when 2 CRs were passed. The most recent year when a full-year appropriations bill passed and no CRs were necessary was 1997.
What are the disadvantages of using CRs?
Continuing Resolutions have several negative implications on the budget’s overall efficiency. CRs usually continue funding at the past year’s level without any regard for changing policy needs or the value of each program within an agency. Using a continuing resolution wastes hundreds of hours of careful consideration and program evaluation incorporated into each agency’s budget submission. For instance, the President’s Budget annually proposes a list of eliminations and reductions of programs which are duplicative or ineffective. A continuing resolution will continue to fund these unwanted programs. Finally, the use of continuing resolutions disrupts activities within agencies, makes it difficult to plan future projects, and costs staff time to revise work plans every time the budget changes
What would the recently passed House CR do?
The House passed a CR on September 20, which would avert a government shutdown and appropriate funds through December 15. The House CR sets appropriations at an annual level of $986 billion, approximately equal to last year’s post-sequester level with minor adjustments. This level is $19 billion dollars higher than allowed under the sequester—with all of the additional funding going to the defense department. In other words, if this CR became law and were extended into next year, a $19 billion across-the-board defense cut would be implemented in mid-January.
Importantly, the House CR, in addition to setting spending levels, includes language to “defund Obamacare,” preventing any discretionary funding from being used to implement the Affordable Care Act. However, many of the law’s functions are funded with mandatory funds and would continue.
What is the Senate’s plan to avoid a shutdown?
The Senate-passed budget resolution would reverse the discretionary reductions called for under sequestration and fund government at $1,058 billion, compared to $988 billion last year.
Given the temporary nature of a CR, however, Senate Majority Leader Harry Reid has said the Senate will consider the House-passed CR, though it will strip out the language relating to the Affordable Care Act. The Senate would have to make it over several procedural hurdles to pass such a bill, and then the House would have to pass that piece of legislation.
How does a shutdown differ from “sequestration”?
A government shutdown closes down non-essential government operations due to lack of funding, whereas sequestration keeps agencies open, but automatically reduces funding levels to enforce budgetary targets. The first example of sequestration was included in the Gramm–Rudman–Hollings Balanced Budget and Emergency Deficit Control Act of 1985. The current version of sequestration is a product of the Budget Control Act (BCA) that resolved the 2011 debt ceiling negotiations. The BCA called on a Joint Select Committee on Deficit Reduction (the “Super Committee”) to identify at least $1.5 trillion in deficit reduction over ten years, and set in motion a “sequestration” if it did not identify at least $1.2 trillion. After a two-month delay, this sequestration went into effect on March 1, cutting discretionary programs and certain non-exempt mandatory programs across-the-board. Under sequestration, government remains “open,” but must operate at lower funding levels.
How does a shutdown differ from a default?
In a shutdown, government temporarily stops paying employees and contractors who perform government services, whereas the list of parties not paid in a default is much broader. In a default, the government exceeds the statutory debt limit and is unable to pay its creditors (or other obligations). Without enough money to pay its bills, any of its payments are at risk—including all government spending, mandatory payments, interest on our debts, and payments to U.S. bondholders. Whereas a government shutdown would be disruptive, a government default could be disastrous.
For more information, see the following:
- Congressional Research Service – Shutdown of the Federal Government: Causes, Processes, and Effects
- Committee for a Responsible Federal Budget – What We Hope To See From Government Funding Negotiations
- Roy T. Meyers – Late Appropriations and Government Shutdowns: Frequencies, Causes, Consequences, and Remedies
- Office of Management and Budget – Planning for Agency Operations During a Lapse in Government Funding [FAQ for how a shutdown would have proceeded in April 2011]
- Congressional Research Service – Shutdown of the Federal Government: Effects on the Federal Workforce And Other Sectors
- Congressional Research Service – Federal Funding Gaps: A Brief Overview
- Government Accountability Office – Uncertainty Limited Management Options and Increased Workload in Selected Agencies
- Committee for a Responsible Federal Budget - Appropriations Update: Sequester Looms Large in the Process
- Committee for a Responsible Federal Budget - Appropriations Update: Progress Beginning to Slow
Washington Times | September 23, 2013
The past decade has been a disaster when it comes to fiscal stewardship and political leadership. Our official federal debt has tripled, and the best measure of our fiscal burden — the total of federal liabilities and unfunded obligations — has soared even more, to more than $70 trillion during the next 75 years. Washington is in partisan and ideological gridlock with prospects for a fiscal “grand bargain” this year being remote, and perhaps unlikely until 2017. For the first time in America’s history, we are on course to leave future generations with a country that is worse off than the one we inherited.
I have sounded this alarm throughout the past 10 years, stating bluntly that our situation is dire and that the solutions will require the public and our elected officials to put partisanship aside and act in the best interests of our nation. The good news is that most Americans understand we have a problem and want something done about it. In addition, we still have time to right the ship of state. As I see it, there are some steps that we need to take to preserve the American Dream for our children and grandchildren:
We need to set a realistic fiscal objective for 2013. A grand bargain is not in the cards, and Congress needs to pass a short-term continuing resolution to keep government funded. The House did so on Friday and sent the measure to the Senate. Still, a funding agreement for fiscal 2014 should include several fiscal actions in addition to raising the debt ceiling.
Congress and the president should work together to replace the senseless sequestration with alternative mandatory and discretionary spending cuts for at least the next two years. They should also set targets for additional spending reductions through social-insurance reforms and additional revenues through comprehensive tax reform. The relevant congressional committees should be charged with coming up with related legislation by a specified date.
To ensure more timely and informed actions moving forward, Congress should also enact biennial budgeting, a meaningful no-budget-no-pay bill, the recently introduced Inform Act, and a substantive Government Transformation Commission that can recommend cost-control measures. Finally, the individual mandate under Obamacare should be delayed, because the government is not ready to implement it effectively.
We must change the way the federal government keeps score. Right now, policymakers focus on annual deficits and 10-year baselines. A more comprehensive and credible approach should take into consideration all our unfunded promises and liabilities, including Social Security, Medicare and civilian and military retirement obligations, and a much longer time frame. Importantly, that figure can go down if we achieve a responsible grand bargain — unlike the amount shown on our National Debt Clock. We also need to focus our fiscal reform efforts on the ratio of debt to gross domestic product, and not the budget deficit. In fact, we should ultimately replace the debt ceiling with a debt-to-GDP limit.
We must broaden the fiscal message to include state and local governments. They share many of the fiscal woes of the federal government, including huge unfunded pension and retiree health obligations. They are more vulnerable than the federal government for several reasons. They can’t print money, and their credit ratings are at risk. In addition, “bad news flows downhill” — meaning that as the federal government restructures its finances, which will ultimately happen, it will cut back on the funding that state and local governments rely upon. Therefore, it is critical that cities and states act quickly to get their fiscal houses in order.
We need to fix our dysfunctional democracy. Unless we dramatically reform our political system, we will be unable to address the key fiscal challenges and other sustainability tasks that lie ahead. This will require redistricting reform (gerrymandering has made countless districts uncompetitive), revisions of our current primary system, more equitable and consistent requirements for ballot access, extensive campaign-finance reform and term limits. If Congress won’t act on these and other needed reforms, we should also consider a state-based effort to convene a “clean call” Constitutional Convention under Article V that would propose specific fiscal, political and states-rights amendments for ratification by three-fourths of the states.
We must build on successful public engagement models. President Obama can take a lesson from former President Bill Clinton, who promoted Social Security reforms by joining other public officials and public policy experts in town hall meetings across the country. By emulating this strategy of citizen education and engagement, the president can energize and activate the American public, providing the “cover” that many politicians need to support actions that carry political risk.
We must address our biggest deficit — the leadership deficit. Our elected officials have shown too little backbone when we need the courage and conviction that goes with true leadership. This will take both the emergence of nontraditional leaders and political reforms that will encourage more qualified people to seek office.
Ultimately, however, it is “We the People” who must take the lead. Independent-minded Americans of all political affiliations and diverse groups need to come together to focus on common concerns and goals. My travels across the country have convinced me that a significant majority of Americans would rally behind specific economic and political reforms, as long as they are deemed to be comprehensive and fair. In the end, the prescription we need is a consensus for action, and a voting public that says “enough” to politicians who refuse to be part of the solution.
Correction: This paper originally stated that the Social Security trust fund is projected to be exhausted in 2033. The combined Social Security and Disability (OASDI) trust funds are actually projected to be exhausted two years earlier, in 2031.
The Hill | September 17, 2013
For more than a decade, I have dedicated myself to sounding the alarm about our government’s fiscal mismanagement and promoting a change in course to preserve the American Dream for future generations. Now I am ending my full-time efforts so others can take the lead, especially younger Americans who have the most at stake.
The task ahead will be challenging, but based on what I’ve seen and heard, especially in my travels to all 50 states, we have more reason for hope than despair. Here’s why:
We the People are in charge.
Today we have a government that is neither representative of nor responsive to the American people. That can change if Americans insist on accountability and punish unduly partisan and ideological politicians in the voting booth.
The truth is, President Obama—like President Bush (43) before him—has failed to use the powers of his office to champion responsible reforms to the American people. And our leaders on Capitol Hill, both Republican and Democrat, have shown an appalling lack of courage in standing up to the extreme wings of their parties. As long as Republicans kowtow to those resisting any increases in revenue—despite a tripling of our national debt in the last decade—and Democrats knuckle under to those refusing to rein in the unsustainable costs of our social insurance systems, we will remain in political gridlock.
More than anyone else, I have gauged the will of my fellow citizens when it comes to fixing our government’s financial mismanagement—most recently in a nationwide bus tour through 27 states last fall. Their verdict could not be clearer. In gatherings across the country, with participants of every political stripe, we obtained 92 percent agreement on six key principles to guide a fiscal “grand bargain.” The reforms should lead to economic growth, and be socially equitable, culturally acceptable, mathematically accurate, politically feasible, and able to achieve meaningful bipartisan support. When we discussed specific reforms, most conservatives and liberals were willing to put aside ideology as long as proposals were deemed to be fair and part of a comprehensive plan.
That tells us that politicians in Washington can gain the public support they need for bold reforms as long as they explain our urgent need to act and then lay out responsible positions. I am convinced that over time political courage and leadership will be rewarded—and cowardice will be punished.
More policymakers are focused on the issue.
There is a growing roll call of present and former government officials who recognize the need to achieve a fiscal grand bargain. During Comeback America Initiative's (CAI) tour last fall, which engaged Americans on our nation’s deteriorating financial condition, we had the explicit support of, among others, two former chairmen of the Federal Reserve, two former chairs of the RNC and DNC, former directors of the Office of Management and Budget, and a who’s who of former governors, senators and representatives from both parties.
It is also clear from recent news reports that President Obama and Speaker John Boehner (R-Ohio) would like to strike a deal on a grand bargain. An increasing number of members are also acknowledging the reality that the status-quo is unacceptable and unsustainable. Hopefully, we will reach the tipping point where enough politicians in Washington will put the good of the country before the next presidential election.
More organizations have joined the cause.
CAI has been far from alone in its efforts. The Concord Coalition and the Committee for a Responsible Federal Budget have pushed for fiscal responsibility for a number of years, and now they are joined by newer organizations like Fix the Debt, the Peter G. Peterson Foundation, and The Institute for Truth in Accounting. The group No Labels is pushing for a new politics of bipartisan problem-solving, and the Government Transformation Initiative is a coalition of corporations, non-profits and others dedicated to changing the way government does business. There is even a Millennial-led organization, The Can Kicks Back, which is mobilizing young people to fight for their fiscal future. The grassroots efforts of these and other organizations, coupled with the pressures they’ll bring to bear in Washington, will augur well for our future.
Clearly the hole we have dug ourselves is deep, and getting deeper, and our political system is badly broken. But I am hopeful about our ultimate prospects for success. We the People have awakened, and Washington is slowly waking up, too. If we act boldly and responsibly, our best days will surely lie ahead.