Tax
Op-Ed: No more Ignoring the Debt - It's Time to Get Skin in the Game
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.
Red Ink Rising
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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 the national debt through a six-step plan. Crafted over the past year by former heads of the CBO, OMB, GAO, and the congressional budget committees, the plan reflects a bipartisan approach to avoiding the tremendous global risks of America's expanding debt, without destabilizing the economic recovery. Red Ink Rising is the first of two major reports to be released by the commission.
Event 12/14: Release of 'Red Ink Rising'
On December 14, the Peterson-Pew Commission on Budget Reform hosted a public event , moderated by David Wessel of the Wall Street Journal, to announce the release of its report, Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt. The six panelists included a distinguished group of fiscal experts, including among their many titles, former chairmen and ranking members of the House Budget Committee (Bill Frenzel, Jim Nussle, and Jim Jones) and two former CBO directors (Alice Rivlin and Douglas Holtz-Eakin). The panelists discussed the Commission’s proposal to address the debt. (See the webcast of the event below).
Bill Frenzel, the co-chair of the Commission, started off the event by discussing the plan. The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize the national debt through a six-step plan. The commission recommends that Congress and the President commit now to stabilize the debt at 60 percent of GDP by 2018, develop a credible package over the next year to attain that goal, begin phasing in the plan in 2012, implement a “debt trigger” mechanism to ensure that the process stays on track, and continue to reduce the debt as a share of the economy after 2018.
The economic and financial consequences of the debt problem also worried the panel. Jim Jones, a former head of the American Stock Exchange as well as the ambassador to Mexico, warned that financial markets are irrational and that a debt crisis can emerge overnight. During his time in Mexico, he saw how government debt can overwhelm families as its economic implications force them out of their homes and lower their standards of living. Douglas Holtz-Eakin warned that growing government debt will crowd out private investment and hurt economic growth.
Then, the panel turned to the politics of solving the debt problem. Jim Nussle argued that it will take a crisis or rude awakening to spur politicians to act. It might be a financial or market crisis, but he also believed that a political event, such as a midterm election loss or a presidential race where debt was a major issue, might force policymakers into overcoming their differences. Panelists also discussed the role of presidential leadership in solving this problem. Bill Frenzel thinks it will require the President to present a plan and even after that, require the President to force Congress to sit down and discuss a solution to the debt. Alice Rivlin echoed his comments and suggested that the 2011 budget (due from the White House in early February) will show how serious the White House is about addressing the debt (and how much they fear the political consequences of not addressing it). And then Charlie Stenholm, a Commission co-chair, offered that we also need political reform (specifically the redistricting of congressional seats) to ensure that we can address difficult problems such as the 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.
