The Peterson-Pew Budget Commission met from 2009 to 2011 to make recommendations about how to improve the nation’s fiscal future. This site is historical and not regularly updated.

Deficits and Debt

Op-Ed: Recommendations on How to Solve Our Debt Problem

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.

Copyright 2009, St. Paul Pioneer Press


Op-Ed: Red Ink Rising

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.

Copyright 2009, Sphere

Op-Ed: It’s Time to Foster Long-Term Fiscal Stability

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.


Copyright 2009, Albany Union Times

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