Politico | February 15, 2013
The continual fiscal brinkmanship of the past two years — in which policymakers go from crisis to crisis, avoiding catastrophe at the last moment and providing nothing more than usual “small ball” solutions that fail to address our underlying structural problems — has ground all progress to a halt.
The failure to get our debt under control, reform our Tax Code and put our entitlement programs on a fiscally sustainable course is robbing us of the ability to invest in our future and will leave us without the resources we need to meet other challenges facing our nation. And moving forward will be out of our reach as long as we continue to “pass the buck” on the debt crisis. It is critical that leaders in both parties come together in an honest and meaningful way to put our fiscal house in order if they have any hope of addressing the other challenges and opportunities that we face as a nation.
Congress could barely come to agreement on a last-minute, short-term compromise on the fiscal cliff at year’s end. All Washington has managed to do since our commission submitted its report is the easy stuff. Through a combination of the work done in the continuing resolution, the Budget Control Act and the pitiful revenue deal at year end, Washington has capped discretionary spending without being specific on what it will actually cut, and it has raised taxes on the rich. It has done nothing to reform the Tax Code or reduce the rate of growth of health care spending to no more than 1 percent above the rate of growth in the economy. Nor has it done anything to make Social Security sustainably solvent. This is the hard stuff that must be done to finally put our nation’s fiscal house in order.
An agreement large enough to complete the job may seem out of reach. However, looking at where the parties were in the negotiations last year, it seems clear that it is possible to reach agreement on a plan if both sides are willing to go beyond their comfort zones and come to a principled compromise.
President Barack Obama and Speaker John Boehner originally made substantial progress toward a comprehensive deficit reduction plan that could have gotten us most of the way. Importantly, these negotiations focused beyond the near-term crisis, with real discussions on structural entitlement reforms as well as comprehensive tax reforms. Both sides identified potential areas of agreement: using chained CPI to index both spending programs and the Tax Code with protections for low vulnerable populations; identifying additional savings from defense and domestic discretionary programs and unjustified subsidies; and finding savings in mandatory programs that can and should be included in a comprehensive deficit reduction plan.
That last round of negotiations should be the starting point for the next round — however, both sides will have to go further.
The president deserves credit for putting forward Medicare savings in his budget and offering further entitlement savings in the negotiations, but he and his fellow Democrats must be willing to do more to reform our entitlement programs. Reaching an agreement to achieve the amount of savings necessary to slow the rate of growth in health care to no more than 1 percent above the rate of growth in the economy will require a combination of Republicans and Democratic ideas for achieving savings from those programs.
For health savings, we’ll have to look at everything from increasing premiums for well-off beneficiaries to reducing reimbursements to providers and drug companies to modernizing cost-sharing rules to tort reform. We will also need to reorient incentives to change the delivery of care and make adjustments to reflect the aging of society. In short, it will require taking on favored and well-entrenched constituencies across the health care system. Remember, health care is the largest single driver of our future debt.
On the tax side, Republicans must be willing to acknowledge that more revenue will be needed as part of an agreement to meet our deficit-reduction goals, but those revenues need not be generated by “tax increases” but through comprehensive tax reform that broadens the base and lowers rates. The Tax Code is riddled with more than $1 trillion of annual tax breaks — most of which are just government spending in disguise. By reforming them, we can reduce individual and corporate tax rates in a way that keeps the Tax Code progressive while promoting economic growth and reducing the deficit at the same time.
If both sides move as one beyond their comfort zone on health and tax reform, those changes could be combined with the other spending cuts discussed in the negotiations last December to produce a package large enough to stabilize and begin to reduce our debt as a share of the economy.
Even with such a package, however, further steps would be needed to ensure long-term fiscal sustainability in light of the major demographic and health care pressures expected in the coming decades. Social Security will still need to be reformed to achieve sustainable solvency over 75 years; though these reforms could be gradual and designed to protect the most vulnerable. We will also need to continue implementing reforms of the health care system as we learn more about which policies are effective in controlling costs. We need to keep the pressure on to take further action to reduce health care spending if the policies we enact now are not sufficient to limit the growth to a sustainable level that grows no faster than GDP plus 1 percent.
The events over the past few weeks have demonstrated that neither party will be able to deal with this problem on its own and that any solution will require a bipartisan agreement based on principled compromise. Our generation created this mess, and it’s our generation’s responsibility to clean it up together. We do not have the time or the luxury of leaving this problem for the next generation to solve. If America is to compete successfully in this global economy, the time for responsible action is now. One thing is certain, if our generation does not solve this problem we created, the brute force of the markets will, and that will not be a pretty sight.