July 28, 2014

Building a Better ‘Fiscal Cliff’

Pete Domenici, a Republican, was a U.S. senator from New Mexico from 1973 to 2009. Sam Nunn, a Democrat, was a U.S. senator from Georgia from 1973 to 1997. They and former senators Warren Rudman and Evan Bayh co-chair an initiative called Strengthening of America—Our Children’s Future, which seeks to call attention to the nation’s debt.

Once Election Day passes, attention will quickly turn to whether and how to avoid the “fiscal cliff.”

Neither presidential candidate has stepped up to fully embrace the Simpson-Bowles commission’s recommendations. Neither has explicitly rejected them, either. That’s promising because the panel offered a thoughtful, comprehensive plan to stabilize the federal debt over the next decade. A parallel effort by the Bipartisan Policy Center, led by one of us and Alice Rivlin, came to similar conclusions.

These plans, or something like them, could be the key to responsibly dealing with the fiscal cliff — the simultaneous impact of indiscriminate spending cuts and broad tax increases scheduled to take effect Jan. 1 that could plunge the country back into recession.

The policies embedded in the fiscal cliff were never intended to be a rational deficit-reduction plan. They are a default position designed — like a suicide pact — to force reluctant policymakers to make hard choices. So far, that has not worked.

A “grand bargain” of some sort — including spending cuts and higher revenue in the same legislative package — will eventually be needed. In the meantime, quick action is also necessary to establish a more rational default position, one that may not be anyone’s ideal but that both Republicans and Democrats can live with unless and until a grand bargain is reached.

Most pundits believe that, rather than go over the cliff, Congress will kick the can down the road during the lame-duck session after Election Day. We suggest that the lame-duck Congress should change the “can” before it is kicked.

Such a strategy has several advantages. First, it could avoid the worst effects of the fiscal cliff without ignoring our fundamental fiscal challenge, the unsustainable mismatch between spending commitments — largely for health-care programs — and current revenue projections. Absent more constructive action, simply postponing when we go over the cliff could hurt business confidence, worry investors and lead to another disruptive debate over raising the debt ceiling.

Second, it is politically achievable. While it is unlikely that a grand bargain to fix the debt could be reached during the lame-duck session, Congress could accomplish replacing the fiscal cliff with broad targets for deficit reduction along the lines of Simpson-Bowles and Domenici-Rivlin, to take effect if no other deal is reached.

Third, this strategy would increase the likelihood of reaching a comprehensive budget deal. If we learned one thing over our many years of service in the Senate, it is that elected officials require political cover on difficult votes.

Enacting such a deal means that Democrats have to be willing to consider reforming — over time — Medicare, a key driver of U.S. deficits. Republicans will have to consider raising revenue through reducing tax expenditures, if not through higher rates. Neither will be an easy vote to cast.

Changing the can before kicking it would allow lawmakers to explain to constituents that, while they don’t like everything in the deal, it is far better than going over the fiscal cliff. In this context, a vote to substitute a rational compromise would be a vote against recession, major tax increases, mindless spending cuts and diminished American influence abroad.

Likely opponents are people who believe the fiscal cliff provides their party with leverage to extract their desired outcome from the other side. This is effectively playing Russian roulette with global markets and the U.S. economy. No matter the results of November’s elections, neither side will achieve enough of a mandate to impose its will on the other party. Even those who believe their party is 100 percent right must take into account the reaction of the global markets while this game of political chicken plays out.

The two of us, along with our former colleagues Warren Rudman and Evan Bayh (two Republicans and two Democrats), have recruited 35 former members of Congress for assistance. Over the past few weeks we convened four public forums with a number of national experts to push for a meaningful fiscal sustainability plan.

We heard from noted former federal officials such as James A. Baker III, Robert E. Rubin, Robert Gates, Adm. Michael Mullen, Martin Feldstein, Larry Summers, Bill Frist, Donna Shalala, John Taylor and Alice Rivlin.

The former officials and business leaders who participated have enormous credibility and a great diversity of backgrounds, views and preferences. What they all have in common is the belief that federal debt is one of the nation’s most important challenges and that a framework such as Simpson-Bowles or Domenici-Rivlin, while not perfect, provides a logical starting point for discussion.

Fortunately, a group of senators and House members of both parties are working together and have put the country’s future before their political parties. Some are reportedly considering a plan similar to what we advocate. Americans should get behind this common-sense effort — and soon.

We can no longer afford to act out Winston Churchill’s prediction that America will always do the right thing — after it has explored every other alternative. It’s time to do the right thing.