Roll Call | March 9, 2010
On a bitter winter night 40 years ago, a British trawler caught in a North Sea gale hundreds of miles from help was accumulating ice on its deck and rigging faster than the crew could chop it away. Soon water flooded the engine room, leaving the boat with only emergency power. In the hour before the vessel sank, a Royal Air Force radio operator made contact and asked: “What are your intentions?” The final transmission came slowly: “No intentions.”
Many seasoned observers are now beginning to worry that Congress is on the verge of a “no intentions” response to the threat of financial crisis from our growing indebtedness. In recent weeks, the Senate was unable to muster the votes needed — including those of many original supporters — to adopt the Conrad-Gregg proposal for a bipartisan commission to develop specific policy changes for deficit reduction. Other amendments intended to scale back the growing hole in the budget also failed to pass. Only a statutory pay-as-you-go proposal, laden with exceptions for expiring tax cuts and a free pass for payments to Medicare providers, won Senate approval.
At the same time, the public is growing increasingly concerned about the country’s fiscal future. In the face of deeply troubling projections of federal debts, a clear majority in recent polls has rated deficit reduction a “major priority.” The Peterson-Pew Commission on Budget Reform and other groups have warned that the U.S. faces an increasing risk of debt-driven fiscal crisis that could trigger a double-dip Great Recession. The commission’s December report also described the economic benefits of a federal commitment to stabilize the growth of the debt by 2018. Those benefits — a lower path for interest rates and a stronger dollar — could be captured without endangering the economic recovery, if the government could commit to stabilizing the debt and enact changes in policy now to become effective only as the economy strengthens.
The threat to the U.S. economy is not only that we will run up against a critical tipping point of debt to national income that will suddenly send us into economic decline. There is also a gnawing fear that the U.S. may have lost the political capacity to act in its own interest. To many Americans, the federal government appears increasingly dysfunctional.
The current lack of Congressional resolve and action is not due to a shortage of policy solutions that could correct the fiscal imbalance. To the contrary, many think tanks and public interest groups are busily turning out reasonable solution packages. Evidence of the willingness of our elected leaders to act now is the missing and desperately needed ingredient.
Make no mistake: The government of the United States faces a risk to its global credibility. Defusing that risk requires constructive action, and Congress should take a first step soon. A logical and important place to begin would be for Congress to express its common commitment to a bipartisan goal of reducing the debt over the medium term, as the economy strengthens.
For instance, the leadership could introduce and take up in short order a resolution that adopts medium-term fiscal targets and directs the Budget Committee to report a 2011 budget resolution consistent with that target.
A fiscal target could be designed in a number of ways. The Peterson-Pew Commission on Budget Reform recommended that Congress aim to bring federal debt down to 60 percent of gross domestic product over a multiyear period, a target that was endorsed by the National Academy of Sciences and National Academy of Public Administration. Others have suggested alternative targets that could also put the budget on a sustainable track.
We sail toward troubled waters as a result of a chosen course that ignored the dangers of an exploding federal debt. But even now, help is within reach. We need only find the will and the united resolve to make the first turn toward safe harbor.
The Hill | Jan. 25, 2010
From Afghanistan to China to Copenhagen, the actions of President Barack Obama have international significance. However, the greatest worldwide implications will stem from a domestic issue that he must not ignore: our nation’s mounting government debt. The U.S. has a debt problem, and the world is watching. The administration’s response will dictate not only the standard of living of future generations of Americans, but also their country’s global standing.
Just as the White House recently said that it would not have an open-ended commitment when it announced its new Afghanistan strategy, the United States cannot have an open-ended reliance on deficit finance. It needs a fiscal exit strategy that puts the budget on a sustainable path, keeps the economic recovery on track, and avoids a future fiscal crisis.
The budget problems are not brand new. Even before the economic downturn, the long-term trajectory showed a sharp rise in budget deficits as a share of the economy. But recent policy actions have expanded their size and accelerated their arrival. Under reasonable assumptions about what policymakers are likely to do on tax and spending policies in the next year or so, the nation’s public debt will likely be larger than that run up during World War II and will exceed the size of the economy in less than 15 years.
What are the global implications of spiraling U.S. debt? An ever-growing proportion of our debt must be sold outside U.S. borders and some international investors have publicly expressed concern about continuing to finance our spending. It was no accident that the issue of U.S. debt arose during President Obama’s recent trip to Asia. If international markets come to the conclusion that the United States cannot manage its debt, the U.S. will be unable to continue to borrow as freely, or cheaply, as it now does. The American economy could falter and U.S. securities could lose their value as investors flee to alternatives.
Policymakers should tackle this threat immediately.
The White House and Congress should commit to stabilizing the public debt (as a share of the economy) as quickly as feasible. That commitment, in and of itself, if credible, will reassure credit markets around the world that the U.S. is serious about getting in front of the debt threat. This will require that over the next year the administration and Congress craft a package of specific spending cuts and tax increases to achieve that goal. Democrats who are engaged in a spending spree won’t like to contemplate the former. Republicans who are traditionally averse to higher taxes will balk at the latter. Both need to place a higher weight on their obligations as guardians of the economic opportunities and living standards of future generations.
We recognize the need to balance fiscal responsibility and economic recovery, so the policies should be phased in as the economy recovers.
But other countries’ experiences have shown that a credible commitment to reducing debt can improve creditors’ expectations and diminish the risks of a debt-driven crisis while bolstering the economy. After an investment downgrade and debt of more than 100 percent of GDP in the 1990s, Canada implemented a plan that brought a decade of budget surpluses, and lowered its debt by around 40 percent of GDP by 2008.
The economies of Denmark, Sweden and Ireland were also improved simply through the implementation of a fiscal stabilization plan.
The United States can send a powerful message to the world that it can still exhibit leadership, tackle challenging problems, and bridge partisan divides to make politically unpalatable choices. Any meaningful effort to address the budget problems will have to be bipartisan and cannot be undercut by rigid stands on certain taxes or particular programs.
The possibility that future generations might be saddled with a lower standard of living and a much less-dynamic economy has moved from rhetorical scare tactic to frightening possibility. Without concrete action soon, this devalued bequest may also include a nation with greatly diminished global clout.
Star-Telegram | Dec. 28, 2009
Here in Texas, we have a saying: When you find yourself in a hole, the first rule is to quit digging.
As I learned from my 26 years in the House of Representatives, that’s not always easy advice to follow. Members of Congress like to deliver projects and programs back to their districts. And for a while, we were all told that deficits didn’t matter. As we’ve learned, they do matter. We may have not been able to avoid deficits in the past two years as the government tried to fix the economy, but I’m not worried about two years. I’m worried about the path that our debt is on, even after the economy gets better.
We’ve been on a path of reckless spending that seems never-ending. If only Congress and the White House could make changes like the folks in West Texas have had to do during this economic and financial crisis, then we could get out of our fiscal mess. The situation is bad and will only get worse if we don’t stop digging and do something.
If we do not lower our government debt, we will see interest rates go up, wages stagnate and our standard of living decline. Our grandchildren and their children will be left with the burden of paying for today’s borrowing and spending. This will mean large tax increases and large spending cuts.
The increased federal debt will make it more expensive to borrow for housing, education and business investments. If people are unable to borrow money, they will not be able to buy a new house or send the kids to college. It will really hit home for the American people when they go to the bank and cannot borrow any money. Or the interest rates will be so high that they can’t afford the loan. Higher interest rates will stop investment and hurt the creation of new jobs, something we desperately need.
While there is no silver bullet when it comes to fiscal responsibility, the bipartisan Peterson-Pew Commission on Budget Reform has come up with some reasonable targets. In "Red Ink Rising — A Call to Action to Stem the Mounting Federal Debt," a report we just released, we describe six steps to solving the debt problem.
We recommend that Congress and the White House develop a fiscal framework that includes promising to stabilize the public debt by 2018. The commission offers a path for getting there, annual debt goals with an enforcement mechanism and a plan to reduce the debt over the longer term. Waiting too long could fail to reassure our government’s creditors.
I’m a farmer in real life, and I understand that my banker has a lot to say about what we can or can’t do. As a former member of Congress who worked and, occasionally sparred, with both parties, I know that having this bipartisan group of policymakers agree on a plan is quite a feat. Enacting our proposal will be tough in this political climate. But it’s crucial that leaders in both parties make the tough choices. As elections approach, my Democratic and Republican friends in Congress need to remember that this is an issue for all Americans so that we can keep our standard of living and avoid a crisis.
Washington needs to commit soon to a clearly defined plan that changes the way it taxes and spends to show the world that the U.S. is serious about debt. Average citizens have tightened their own budgets and begun to live within their means, and now Congress and the White House have to follow suit. The public is ahead of the politicians on this one. As a farmer, I am an optimist. And I believe that policymakers can put aside their individual political interests to find a solution that is in the best interests of our nation and our children’s future.
Forbes | Dec. 21, 2009
Last week Bruce Bartlett devoted his Forbes column to criticizing plans for a budget commission to make recommendations on how to deal with the country's fiscal imbalances. This is the approach the White House and Congress seem poised to pursue to come up with the specific policies to put the nation's budget back on a sustainable path.
In making his case, Bartlett chose to take a number of swipes at our new report, Red Ink Rising, which calls for policymakers to commit to and develop a plan to stabilize the government's growing public debt at no larger than 60% of the economy by 2018.
The mission of the Peterson-Pew Commission on Budget Reform, made up of some of the most respected budget authorities in the nation, is to make recommendations to reform the country's outdated and ineffective budget process. We determined that the first step, given our horrid fiscal condition, is to develop a "fiscal goal" and put forth a framework to achieve it. (We will soon make further recommendations on more technical reforms such as budget baselines, government trust funds and new budget enforcement mechanism.)
We arrived at the 60% ratio because it reflects international standards at a time when one of the primary focuses of stabilizing the debt is to reassure foreign creditors that the U.S. continues to be a sound place to invest.
We picked 2018 because what was once a long-term fiscal problem, driven primarily by aging of the populating and growing health care costs, has become a more immediate problem exacerbated by the recent economic crisis. We now have to move more quickly. Waiting a full decade would have been risky, concerning the possibility of a fiscal crisis occurring before we stabilize the debt. However, we also recognized that acting too quickly could destabilize the budding economic recovery. So we attempted to balance both fiscal and economic considerations.
Some will say the goal it too aggressive, while others will complain it doesn't go far enough. Ultimately, Congress will have to decide whether our recommendations make sense. Bartlett's criticism however, comes a bit out of left field.
Bartlett argues that we failed because we didn't "put forward a serious, detailed plan for cutting the deficit that left no sacred cow unscarred." Well ... true ... we did not. But as Bartlett knows, because we talked about it over the telephone extensively before he published his article, we never intend to. Putting forth a budget plan of some type was not the purpose of our budget commission--not even close. It's like criticizing Bartlett's call for a value-added tax for failing to fix Social Security.
Red Ink Rising focuses on the first step in reforming the budget process during times of fiscal stress: setting a fiscal goal. Before our leaders can agree on the legislative specifics, they need to agree politically and publicly that debt reduction must be a national priority and that they need to set a specific national fiscal goal.
Sure, we could have put out a report calling for raising the retirement age, temporarily freezing discretionary spending, restructuring Social Security and Medicare, broadening the tax base, or creating a broad-based energy tax to deal with the nation's fiscal problems. The options that will be necessary are in fact well-known. Many of our members have been writing about them for years. There is no right or wrong answer for what combination the ultimate package will include. It will be the result of complex political negotiations. (We do show an illustrative budget of what it would take to achieve our proposed goal.)
But as we have seen in the past, getting prematurely specific is more likely to poison the debate then help. This has happened in presidential campaigns, for instance, where when the issue of raising the retirement age comes up candidates stumble all over themselves to promise they'll never do such a terrible thing (even though most experts agree it is in order given growing life expectancies). Most recently, when candidate John McCain suggested reforming the tax exclusion for employer-provided health insurance, candidate Barack Obama criticized it (again, even though almost all experts support the policy), and as a result the good idea was poisoned and left out of current health reform bills--an unfortunate outcome.
For the greatest chance of success, the right sequence is to first agree there is a problem and commit to a goal, and then to get specific.
Our report asks that we draw a "debt line in the sand" as a way to start discussing how our country must rebalance its spending and tax policies over the next decade. Once policymakers agree to a public fiscal goal and to debt reduction, we can move to a productive discussion of how to get there.
The Hill | Dec. 18, 2009
At the same time he is weighing further economic stimulus plans, the President is also arguing for getting deficits under control. There is no question that the United States is on an unsustainable fiscal path. The large and growing federal debt looms over every legislative decision before Congress. This will be the case for years to come as our policymakers struggle to fund economic stimulus packages now or health care and the retirement costs of our aging population over the next two decades from revenue sources that will not grow nearly as quickly as those demands will. The consequences are serious for public policy, the economy, and the standard of living of the American people.
For the past year, along with our colleagues on the Peterson-Pew Commission on Budget Reform, we have wrestled with this critical issue — a federal debt that is out of control. The Commission members share a common concern: the fiscal future we leave to succeeding generations will lower their standards of living. It is our strong belief that we must take action now to prevent that from happening.
Even after the economy has recovered from the deep recession, structural deficits will remain. The debt is on course to reach levels never before experienced in the United States. While it was necessary to ramp up spending to respond to the recent sharp decline in the economy, the United States must adopt a plan to stabilize the debt immediately and take the first steps down that path very soon.
Under reasonable assumptions, debt held by the public is projected to grow steadily, reaching 85 percent of GDP by 2018, 100 percent by 2022, and 200 percent in 2038. Before the debt reached such high levels, the United States would almost certainly experience a debt-driven crisis—something previously viewed as almost unfathomable in the world’s largest economy.
On December 14, our bipartisan Commission presented a report containing recommendations for how lawmakers and the administration can tackle the debt – “Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt.” In the report, we recommend: that policymakers commit to a plan for stabilizing the public debt over a reasonable timeframe; specific policies to stabilize the debt; annual debt targets with an automatic enforcement mechanism to ensure targets are met; and that policymakers commit to reducing the debt level over the longer term.
But in short, we agree that any solution must include tough choices on both sides of the budget. Both tax increases and spending cuts will have to be part of the solution so everyone has skin in the game.
The biggest factor in whether Congress can succeed in this task is political will—members of all political persuasions will need to come together and make tough choices. Promises not to raise certain taxes or reduce certain benefits only stand in the way of a realistic plan. Any meaningful effort to address our fiscal problems will have to be bipartisan. Remember the public is ahead of us on the issue of fiscal responsibility. But we all have to join forces to get the tough job done.
Congress will soon, once again, raise the country’s debt limit so the lights can stay on through the holidays. Key senators are demanding the formation of a bipartisan fiscal task force to deal with our fiscal problems in exchange for their votes to raise the debt ceiling. Unfortunately, lawmakers have not yet come together in the face of international concerns about how the United States is dealing with its debt, and with average citizens across the country tightening their belts, to put together a fiscal management plan to secure our economic future.
Lawmakers can begin now to put such a plan in place. But they can phase-in the necessary revenue and spending changes starting in 2012 to allow the economy to recover and to give beneficiaries and taxpayers time to adjust to a tougher budget. Committing now to a fiscally-responsible future will show our international creditors that we are serious about getting our debt under control.
Republicans and Democrats alike need to accept that they will have to cut spending and raise taxes to bring our debt down to a manageable level. Everyone should have a stake in the outcome – skin in the game we like to say. If that happens, everyone can take the credit for leadership, and, more importantly, our children and grandchildren can reap the benefits.
New York Daily News | Dec. 16, 2009
For years, Americans have been conditioned to worry about federal deficits. Congress and the President, we've been told, should strive to balance the federal budget every year. When annual deficits got big, there was hand-wringing. When Bill Clinton left office with a federal surplus, there was celebration.
But by worrying only about annual red ink, policymakers have ignored a far larger problem - the now-looming federal debt that is growing by the day.
New Yorkers in particular are reminded of this every day. The city is, after all, home to the government debt clock, the digital billboard that keeps track of our massive, mounting obligations.
Even before the economic downturn, the government had debt that was expected to grow over the years as a share of the economy. Now, the projections have become staggering: Under reasonable assumptions about what policymakers are likely to do on tax and spending policies in the next year or so, the nation's debt will likely grow to 100% of Gross Domestic Product by 2022.
In other words, we'll owe loans that are equal to the entire value of all the economic activity generated in the United States in a given year. Soon after that, our debt would surpass levels seen just after World War II, when it reached 109%.
Yes, we recovered and prospered after that war. But times were different then - that government debt was owned nearly entirely by domestic investors, including everyday Joes and Janes who stepped up patriotically to help pay for the war.
What's happening today is a formula for crisis.
First, because about half of our public debt is held by overseas investors. Without action in Washington, we could someday see a headline like this on the Daily News' front page, "World to U.S.: Drop Dead."
Second because, as with your personal credit cards or mortgages, the government cannot borrow for free. It must pay interest. Interest payments, now at 6% of the budget, will grow to 15% by 2018, squeezing out other budgetary priorities.
Our creditors have traditionally seen the United States and its debt as a secure investment. But as concerns about our fiscal stability grow, investors may not want to buy more U.S. debt. The U.S. Treasury would then have to raise interest rates on U.S. bonds to attract the funds we need, further increasing the interest burden on the budget. It could become a vicious downward economic spiral.
It is not just the government that will pay more if this happens. Families and businesses will have to pay more, too. Everything from mortgages to school loans will cost more. So will business loans. Companies may not be able to borrow money to expand their operations and entrepreneurs may be less likely to start new small businesses, the source of most new jobs in our economy.
St. Paul Pioneer Press | Dec. 14, 2009
In 1993, during my last term in the House of Representatives, Rep. John Kasich, R-Ohio, and I tried to convince Congress to pass our plan to cut $90 billion from the federal budget over five years. President Clinton lobbied furiously against us and we lost by six votes. Back then, the federal deficit was under $300 billion. It would take another four years before members of Congress and the administration could sit down and hammer out a budget agreement that would lead to a balanced budget.
But in recent years, we've returned to an era of reckless spending and $300 billion deficits seem like a distant past. The federal deficit is out of control at $1.4 trillion and has increased rather than shrunk within the last year. These deficits add to our massive and growing federal debt. If Congress and the Administration could only agree to the straightforward principle of living within its means, as many Americans have done during this economic crisis, then we would not be in the fiscal mess we are in today. The situation is dire and will only get worse if action isn't taken quickly.
Too much government debt results in rising interest rates, slowing growth of wages and lower standards of living. Future generations will be left with the burden of paying for today's borrowing and spending. Large tax increases and huge spending cuts will be needed and they will leave little room for setting future budget priorities. The increased federal debt will eventually make it more costly to borrow for housing, education, and business investments. People will be unable to buy a new house or send their kids to college if they are unable to borrow money; interest rates will be so high that they can't afford the loan. Higher interest rates will stop investment and hurt the creation of new jobs, something we desperately need.
There is no silver bullet when it comes to fiscal responsibility, but the bipartisan Peterson-Pew Commission on Budget Reform has come up with some concrete advice. In "Red Ink Rising - A Call to Action to Stem the Mounting Federal Debt," a report we released this week, we describe six steps that can be taken to solve the debt problem. We recommend that Congress and the White House formulate a fiscal framework that includes a commitment to stabilize the public debt (which is growing quickly from the current $ 7.6 trillion) over a reasonable period. The Commission offers a path for stabilizing the debt, annual debt targets with an enforcement mechanism and a plan to reduce the debt over the longer term.
Policymakers need to set clear goals and take action quickly, though not rashly, as the economy recovers. The Commission has developed a plan that includes both raising taxes and cutting spending, although the plan leaves the specific combination to Congress. As a former member of Congress, I understand the challenges of trying to please both sides of the aisle. I still bear the scars of trying to forge those compromises and I can say that having this bipartisan group of policymakers agree on a plan is quite an accomplishment.
Enacting our plan will be no easy feat, especially in this highly partisan political climate, but is necessary to achieve our common goal. If Republicans are willing to increase taxes and Democrats are willing to cut spending, we can get one step closer to fiscal responsibility. Leaders on both sides will have to come together and make the tough choices. This is not a Republicans versus Democrats issue. It is an issue that all Americans must confront so that we can maintain our standard of living and avoid a larger economic crisis. Waiting too long could fail to reassure our government's creditors. A commitment to something next year will show the world the U.S. is serious about debt reduction. Average citizens have tightened their own budgets and begun to live within their means. Now it is time for Congress to follow their example and do the same.
Sphere | Dec. 14, 2009
While many U.S. households are struggling with their own personal debt, citizens face an even larger – although less visible – threat from the mounting U.S. government debt. True, they don't receive a monthly mortgage statement or credit card bill for their share, but the effects will slowly chip away at the American standard of living – or even lead to the next major economic crisis.
In just one year, the U.S. public debt rose from 41 percent to 53 percent as a share of the economy, largely because of the recession. What is troubling, however, is that the debt is projected to reach unprecedented levels very soon. While the debt usually goes up in times of war and economic downturns, it typically shrinks back down once the national crisis is over.
But this time, we face the prospect of ever-growing government debt. The increase will be fueled by an aging population and growing health care costs, as well as Congress' inability to live within its means.
Under reasonable assumptions about what Congress and the president are likely to do, the public debt will grow steadily as a share of the economy, reaching 85 percent by 2018, 100 percent by 2022 and 200 percent in 2038 – though we'll never actually reach that point because a fiscal crisis would hit first.
As with personal credit cards or mortgages, the government cannot borrow for free and must pay interest. Interest payments, now at 6 percent of the budget, will grow to 15 percent by 2018, squeezing out other budgetary priorities. Every dollar spent on interest is a dollar that might be spent on research, education or tax cuts.
Government borrowing also affects the cost of individual borrowing. Our creditors have traditionally seen the United States and its debt as a secure investment. But as concerns about our fiscal stability grow, investors may not want to buy more U.S. debt. The U.S. Treasury will then have to raise interest rates on U.S. bonds to attract the funds we need, further increasing the interest burden on the budget.
But it is not just the government that will pay more – families and businesses will have to pay more, too. Everything from mortgages to school loans will cost more. So will business loans. Companies may not borrow money to expand their operations, and entrepreneurs may be less likely to start new small businesses, the source of most new jobs in our economy. Ultimately, the economy will grow more slowly, wages will stagnate and the U.S. standard of living will drop to well below where it should be.
So how can the United States get its debt under control? The Peterson-Pew Commission on Budget Reform, a distinguished, bipartisan group of the nation's budget experts, has tackled this important question and recommended a path to lower the government debt.
Congress and President Obama should immediately commit to stabilizing our debt at 60 percent as a share of the economy by 2018, rather than letting it grow indefinitely. Sixty percent is an international standard and will help to reassure international credit markets that the United States is serious about reducing its debt. It will be difficult, but we can do it. Other nations from Canada to Australia have done it. Better to suffer a little now than face the fate of other over-indebted nations.
But the economy remains weak and the plan shouldn't be phased in until 2012 – giving time for the economy to recovery. Waiting a little can be actually a good thing. Politicians can develop a plan this coming year, but phase it in gradually, giving taxpayers time to adjust and themselves a bit of political cover in the process.
As former policymakers, we recognize how difficult implementing this plan will be as raising taxes and cutting spending are never politically popular. However, as Americans, we know the cost of doing nothing is high. We believe firmly that high debt should not be our destiny and we believe the voters will accept and, in fact, demand these tough choices from Washington.
The Hill | Dec. 10, 2009
In the next few days, the House and Senate will engage in their usual end-of-year dance and vote on two massive omnibus appropriations bills to keep the government funded. The bills will help avoid another series of stopgap Continuing Resolutions that have kept the lights on in much of the federal government since October 1—the start of the new fiscal year. Lawmakers, anxious to leave for the year and smelling the proverbial jet fumes, will consider the omnibus bills “must-pass” since they include seven of the “regular” appropriations bills needed to fund everything from veterans’ benefits to railroad safety.
Once again, the much-vaunted “regular order” has been thrown out the window. But in January, members will return to the Capitol and promise that things will be different. The appropriations bills will be finished on time. But will they? The last time Congress was able to complete all of the appropriations bills individually by the start of the new fiscal year was 1994. Republicans love to blame the Democrats for the mess and Democrats take every opportunity to blame the Republicans. But neither party has managed to find a way to make the trains run on time.
Now, this may all seem like inside baseball, but the impact is serious. Managers of federal programs, already well into developing their next year’s budgets, still do not have their final Fiscal 2010 funding levels. Then there’s the question of whether lawmakers seriously discuss federal priorities when spending programs are lumped into a huge piece of legislation. If Congress cannot not even pass the annual appropriations bills on time, how can we expect it to deal with the unsustainable fiscal path that awaits us over the next decade?
Is there a better way to do things? Can a process be developed that will work even with sharp partisan divides on Capitol Hill? The Peter G. Peterson Foundation, The Pew Charitable Trust and the Committee for a Responsible Federal Budget believe that there is a better way and have established The Peterson-Pew Commission on Budget Reform This commission will make recommendations for how best to improve the nation’s fiscal future.
Albany Union Times | Sept. 30, 2009
Thursday marks the beginning of the new fiscal year, and while there are achievements to celebrate, we have a serious failing to fix. Indeed, we may require a new fiscal year resolution.
To start, we can look back and appreciate the professional judgment, perhaps aided by a bit of good fortune, that enabled the Federal Reserve, Treasury, FDIC, two presidents and Congress to act boldly to mitigate the effects of the financial meltdown
on the U.S. and world economies.
However, we did so by digging a much deeper fiscal hole. The extraordinary measures adopted by federal agencies and the fiscal stimulus legislation were layered on top of policies that already had the country on an unsustainable path. Under the combined new and old policies, we added $1.4 trillion, or more than $4,500 per person, to the public debt in the last fiscal year alone.
As the economy begins to revive and the stimulus winds down, the outlook for debt gets worse, not better. The public debt as a share of national income is projected to rise from 41 percent in 2008 to 68 percent in 2019. This will happen, even if the economy recovers fully, no new spending programs are enacted, the Bush tax cuts are permitted to expire, and no new crises occur. Beyond that, current policy will push up future deficits as a share of national income for as far as the eye can see.
Unconstrained growth in public debt could trigger more financial instability. This could happen, for instance, if foreign investors lose confidence in the credit quality of the dollar. As the current crisis shows, financial market shocks affect our lives in fundamental ways: lost wages, unrealized education plans and family disruption.
Continued deficits also undermine our ability to deal with future adversity, including climate change, the next economic shock or health pandemic.
We urgently need to break the federal fiscal habit of increasing spending and borrowing to pay for it. Like the family that discovers its debts are growing faster than income, we need to adopt a new year's fiscal resolution. But it needs to be one we can sustain.
Experience tells us some types of resolutions are easier to keep than others. We know that the more specific and measurable our goals, the more likely we will reach them.
One action each of us could take would be to urge Congress to adopt legislation now to stabilize the public debt as a share of national income by an established future date. Such a goal would be specific, measurable, and feasible. The process of adjustments could begin now.
But as citizens, we need to recognize that in asking the government to adopt a fiscal diet for our nation's health, we would also be asking Congress to take away our punchbowl and cookies. Lower federal spending and higher taxes today may be a necessary sacrifice if we are to sustain our resolution.
The Peterson-Pew Commission on Budget Reform, a nonpartisan group of federal budget experts, has been working since January to develop recommendations that would foster long-term fiscal stability.
It is too soon to speculate about the specific content of their recommendations, but it is natural to expect their proposals will attempt to rebalance fiscal resources with spending. If their recommendations are to be effective, they inevitably will require us to reduce our demands on government to levels that we are willing to pay for.
New Year’s resolutions are usually about correcting our overindulgences and are rarely pleasurable. But we know that making and keeping them is in our best long-term interest.
Marvin Phaup is director of Pew Charitable Trust's Federal Budget Reform Initiative.