WASHINGTON - Congress and the Bush administration face the critical challenge this year of adopting a framework for using near-term budget surpluses to help fill the huge long-term gaps in federal entitlement programs and household savings, and to best further our continued economic well being. This is certainly a more welcome challenge than eliminating budget deficits, but it is every bit as vital.
What are we concerned about?
- We are concerned that the mere prospect of very large, but highly uncertain, budget surpluses is being used as an excuse to abandon fiscal discipline, creating the threat of renewed non-Social Security deficits and failing to realize the full opportunity of paying down the publicly held debt.
- Then there is the fundamental long-term challenge, which The Concord Coalition has always stressed, of setting aside sufficient resources to meet the huge retirement and health care costs associated with the coming “senior boom.” The surpluses provide an opportunity to help meet this challenge -- but only if we are careful to preserve them.
The obvious question: How much should we be willing to gamble on 10-year projections that the Congressional Budget Office itself says could be off by trillions of dollars?
Answer: The Concord Coalition believes that it is unwise to rely on these projections to commit ourselves to a series of large escalating tax reductions over a 10-year period, particularly in advance of addressing the huge and daunting future deficits of Social Security and Medicare. Doing so would be to rely on the unreliable while we ignore the inevitable.
We believe that fiscal discipline is the key to providing for the unmet needs of the future.
- Savings from deficit reduction, and now surpluses, have helped provide the capital to increase the productivity of American workers ¾ a major factor in the record growth of the last 10 years. Further gains in productivity will become especially urgent when the retirement of the huge baby boom generation virtually halts the growth in the size of the U.S. work force.
- Continued debt reduction is the government's most direct contribution to net national savings. Increasing national and personal savings is the single most effective policy the government can pursue to promote long-term economic growth and retirement security. Budget proposals should be assessed in that context.
- As public debt is reduced to the low levels possible, other policies such as retirement savings accounts also play an important role. Household savings are nowhere near adequate to prepare for ever-lengthening retirements.
We recommend that as Congress and the Bush administration decide how best to deploy budget surpluses, they be guided by the following framework:
- Ensure the continued economic benefits of a stable fiscal policy by maintaining discipline and avoiding both a spending spree and large escalating tax cuts.
- It is exceedingly unwise to lock in a large 10-year tax cut based on unreliable long-term budget projections.
- An immediate moderate tax cut is justified and reasonable as a surplus dividend, given last year's surplus and in light of near-term economic and budgetary prospects.
- However, a back loaded 10-year tax cut is not the right tool to provide short-term economic stimulus ¾ particularly at the expense of the urgent long-term need to fund our senior entitlements and retirement savings needs.
- Realize the full opportunity for paying down the public debt to the low levels possible.
- Establish a new set of firm, but realistic discretionary spending caps.
- Consider establishing a system of mandatory, individually owned retirement accounts to help families build a more ample nest egg while alleviating concerns that future budget surpluses will result in either higher spending or in a large build up of government- owned private sector financial assets.
The Concord Coalition was founded in 1992 by former Senator Warren Rudman (R-NH), the late Paul Tsongas, former Democratic Senator from Massachusetts, and former Secretary of Commerce Peter Peterson. Former Senator Sam Nunn (D-GA) joined Rudman as co-chair of the organization in 1997. The Concord Coalition is a nonpartisan, grassroots organization dedicated to balanced federal budgets and generationally responsible fiscal policy.