In Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt, The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize debt held by the public at 60 percent of GDP. Given our current fiscal path, reaching this debt goal will not be easy. While the Peterson-Pew Commission does not endorse specific tax and spending policies to meet this goal, Budget Blueprint: Paths to 60% aims to demonstrate the types and magnitude of necessary policy changes.
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.
This paper examines the Obama administration budget reform proposals and evaluates how (and if) they would improve the budget process and restore fiscal responsibility. In particular, the paper examines the administration’s proposed changes to the calculation of the budget baseline and its reintroduction of a statutory pay-as-you-go (PAYGO) framework.
With the retirement of the baby boom generation drawing closer, concerns about the sustainability of current policies have become critical elements of the budget process. The seriousness of this problem should prompt us to reexamine the concepts and goals underpinning the budget process and find ways to focus budget decision-makers on the long-term implications of our current policy paths. This paper reviews some of these challenges and recommends ways they might be addressed.
This paper reviews the classes of information included in the budget resolution. It then examines potential changes to the contents in an attempt to focus deliberations and debate on core budgetary and fiscal questions. This paper also includes a discussion of current practice and budget principles. A more detailed discussion of fiscal information is included in a separate paper.
This paper lays out a model for converting the concurrent budget resolution into a joint resolution. It includes a description of the model and a discussion of its key advantages and disadvantages. Particular attention is devoted to how it would impact budget enforcement, both in terms of how budget limits would be enforced and the processes used to implement, comply with, or modify the limits.
Ripon Forum | April 21, 2009
This past February, four months after the beginning of the fiscal year, Congress passed the last bill needed to fund the government.
But what it finally passed was more than just late — it was sloppy. Instead of offering separate appropriation bills that could be debated thoughtfully and with undivided attention, Congress lumped them into one, gigantic 225-page “omnibus” bill, and hurriedly passed it on the floor.
Does anyone think this bill got the scrutiny it deserved?
Moreover, at a time of near-universal recognition that our entitlement and tax policies are unsustainable, Congress has made no improvements in these areas for the next fiscal year. Our national conversation on this broken system is long overdue. And if we are serious about changing the situation, then budget reform will have to mean reforming the process by which Congress considers, passes, and evaluates its annual budget.
In theory, the federal budget process is straightforward.
First, the President submits his “budget,” which is actually just a recommendation that reflects the administration's own priorities. After the President’s budget, Congress creates a blueprint for itself called a budget resolution. This resolution is developed through the legislative process, but is not presented to the President and hence doesn’t reflect the consensus of both the Congress and the Executive branches. What it is supposed to do is provide a framework for subsequent spending and tax bills. Congress then considers twelve separate appropriations bills, together with any tax and entitlements bills on its legislative agenda that will become law once they are signed by the President.
Our current budget process is the product of several major reforms -- the last was in the 1970s --but in recent times it has failed us in all the most important places.
The first — and most basic — criticism of the budget process is that it doesn’t produce a simple, realistic framework for how government intends to spend in the short term, plan for entitlements, or impose taxes. The President's budget and Congress' budget resolution are both just preliminary steps in the passage of a budget. They can and often do get kicked aside in the scuffle between the appropriations, authorization, and tax writing committees, all of which create different pieces of legislation that combine to form the big fiscal picture.
Moreover, both the President’s budget and the budget resolution make a variety of unrealistic assumptions that render them largely useless. For instance, the president’s fiscal year 2008 budget accounted for negligible spending on the wars in Iraq and Afghanistan, and made the unlikely prediction that Congress would soon allow expiring tax breaks to place billions of dollars in additional tax burden on the middle class.
Nor does the budget process focus efforts on the biggest drivers of deficits and the debt: long-term entitlement spending. Almost everyone knows that in the coming decades, we will be unable to sustain our entitlement commitments and tax policies, but the budget process doesn’t focus on the level of entitlement growth in existing law or, for changes to existing entitlement law, growth that occurs outside of a narrow window of time. Existing budgetary limits are easily evaded by pushing polices outside this budget window or pretending that they will expire when they likely will not. In the end, most of Congress’ time is spent on the 38 percent of the budget that makes up discretionary spending, with barely any formalized oversight on the mandatory side.
“Almost everyone knows that in the coming decades, we will be unable to sustain our entitlement commitments and tax policies, but the budget process doesn’t focus on the level of entitlement growth…”
Step back for a moment and think about what budgets are supposed to do. We’d all like to spend as much as we want, but budgets show us our limits by bringing all of our obligations and revenue sources into one unified picture. An ideal budget would encourage policymakers to take a look at entitlement spending when they adjusted discretionary spending (and vice-versa), weigh the importance of one tax break against other tax breaks, adjust revenue to compensate for new spending, and generally make real tradeoffs across all categories.
The bottom line is that if something is important enough for the government to do, it is important enough to pay for either by raising taxes or cutting other spending. But our budget process is missing this fundamental connection between the parts. Instead, we foster compromise at the level of individual appropriations bills, where the question is simply how to spend money within a narrowly defined area of appropriations. In practice, lawmakers are actually encouraged to stick with their party when they vote on the budget resolution, but then vote with their Districts or States when it comes to the appropriations bills.
Finally, the “teeth” of our budget process — enforcement — have proved themselves largely ineffective. The original pay-as-you-go rules had the force of law and were enforced by automatic spending cuts. The current rules are not legally binding and easily circumvented, whether through waving budget rules, designating phony emergencies, or pushing costs outside the budgetary window.
There has to be a better way to do things.
An improved budget should meet a few basic criteria. It has to be simple and realistic enough to set credible limits on spending and tax bills. The budget process should provide incentives for lawmakers to engage openly in the inherent trade-offs of real budgeting. And they should work within a framework that takes the country's entire fiscal picture into account: entitlements, discretionary spending, and taxes all have to be on the table. And perhaps most importantly, to ensure that we don't make decisions that endanger our country's fiscal health down the road, the budget should give ample consideration to the long-term ramifications of entitlement and tax policies. Finally, a good budget process has to be backed up with tough enforcement mechanisms: whether through enforceable limits on expenditures, some form of PAYGO, or a new mechanism, lawmakers must be held accountable for their budgetary decisions.
To address this critical issue, the Committee for a Responsible Federal Budget, working with the Peterson and Pew Foundations, has assembled a bipartisan team of experts for a budget reform commission. This effort is modeled after a noted 1967 budget concepts commission that laid the foundation for today’s consolidated budget. As our government spends trillions to pull the country back from recession, the crisis in the economy has spilled over into the budget. And once we begin to repair this budgetary damage, we will be hit by a long-term structural imbalance between spending and revenue that requires even harder choices. The need for serious and thoughtful reform has perhaps never been greater.
Jim Bates is the Project Director for the Peterson-Pew Commission on Budget Reform at the Committee for a Responsible Federal Budget. He previously served as Chief Counsel, Deputy Staff Director, and Staff Director of the Committee on the Budget for the U.S. House of Representatives.
The budget resolution should prompt debate about the implications of budgetary choices and aggregate totals for fiscal and economic policy, both near- and longer-term. This memo discusses options for increasing this focus through the development of better metrics, assessments of the macroeconomic implications of various budget plans, and the possible adoption of fiscal goals and targets. It also suggests ways to improve the budget process.
How could the current budgetary decision-making process be improved? This paper looks at the current process and how the concurrent budget resolution, authorization process, and appropriations process interact to establish a budgetary framework, allocate resources among competing priorities, and generate sufficient revenue. It also examines five reform proposals.