July 25, 2014

Washington Budget Report: Oct. 31, 2012

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Nunn, Domenici Suggest a Better Fiscal Cliff

Washington could avoid the year-end “fiscal cliff” by substituting a better approach to long-term budget reform based on the recommendations of two bipartisan panels, according to a Washington Post op-ed this week by two former senators: Sam Nunn, co-chair of The Concord Coalition, and Pete Domenici, a senior fellow at the Bipartisan Policy Center (BPC).

They said the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) offers a “thoughtful, comprehensive plan” to stabilize the federal debt over the next decade. The op-ed noted that the BPC’s Debt Reduction Task Force, headed by Domenici and Alice Rivlin, reached similar conclusions.

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

Some sort of “grand bargain” with spending cuts as well as higher revenue -- in the same legislative package -- will eventually be needed. “In the meantime,” Nunn and Domenici say, “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.”

Their op-ed points out that in recent forums presented by the “Strengthening of America – Our Children’s Future” initiative, former federal officials with a wide variety of backgrounds and perspectives expressed support for using the Simpson-Bowles and Domenici-Rivlin proposals as the basis for a major deficit-reduction deal between the two parties.

The Presidential Candidates' Fiscal Policies

As election day approaches, it is appropriate to look at what we know and what we don’t know about the two candidates’ fiscal policy proposals -- especially since we are unlikely to get any more details before the election.

In many respects, the crucial differences between the candidates are defined by their fiscal policies, and it is almost certain that the winner’s fiscal choices will be as immediately consequential as any president’s in history.

In two new blog posts, Concord Coalition Policy Director Joshua Gordon evaluates the candidates’ proposals in three key areas: The overall budget goal, tax policy and health care.

Governor Romney’s fiscal policy proposals, as analyzed in the first post, lack detail and make promises that simply do not add up. With Romney proposing to balance the budget within eight to ten years, while rejecting the framework of budget plans like Simpson-Bowles or Domenici-Rivlin – which both increase revenues and cut spending -- the math becomes difficult,  and likely impossible.

Romney’s tax proposals to reduce rates, reduce taxes on people earning below $250,000, and pay for those reductions through reducing tax expenditures for the wealthy, do not add up. This problem is compounded by his call for higher defense spending and repeal of the Medicare cost savings in the Affordable Care Act. Romney has not provided sufficient detail to demonstrate that enough offsets can be found through spending cuts and tax reform to balance the budget.

Obama, as President, has been required to submit budgets that provide more details. Yet they clearly show an inadequate long-term fiscal goal. Over 10 years, federal debt held by the public would only stabilize temporarily, and at a higher level than it is today.

To the President’s credit, he supports negotiating a long-term, bipartisan “grand bargain” on fiscal issues with both spending cuts and new revenues. Unfortunately, during the campaign, he has taken some Social Security and Medicare options off the table -- making a bargain more difficult.

On taxes, the President has been contradictory, calling for more revenue yet ruling out tax increases for anyone earning less than $250,000. He has proposed new tax breaks even while arguing that others should be scaled back. He has not supported a broader fundamental reform in which major tax expenditures are eliminated or scaled back and better targeted.

Obama has framed his policy choices as countering his opponent’s instead of offering proposals that substantially advance any comprehensive march towards fiscal responsibility. While the politics of this strategy might be rewarding over the short term, it leaves voters with questions about whether there is a vision for longer-term sustainability.

The lack of key details in the candidates’ major campaign proposals is problematic. The public should have all the information possible prior to voting. When fiscal goals are in tension, recent history has shown that the goodies like tax cuts and spending hikes tend to get passed, while the hard stuff -- like eliminating tax breaks to pay for things -- tends to never happen, leaving large deficits.

More CEOs Join Fix the Debt Campaign

The Fix the Debt campaign has announced the formation of its CEO Council, a group of more than 100 business leaders who are part of the campaign’s efforts “to raise public awareness about America’s out-of-control national debt and urge policymakers to forge a comprehensive, bipartisan deal to address it.”

Fix the Debt is a non-partisan effort founded by former U.S. Senator Al Simpson and former White House Chief of Staff Erskine Bowles, who co-chaired the National Commission on Fiscal Responsibility and Reform. Fix the Debt, which claims nearly 300,000 grassroots supporters, seeks prompt enactment and gradual implementation of a budget plan that would stabilize and eventually reduce the federal debt as a share of the economy.

The campaign says the majority recommendations in late 2010 of the Simpson-Bowles commission – which would reduce projected deficits by $4 trillion over a decade -- provide “an effective framework” for a comprehensive, bipartisan plan.

Some of the business leaders who have joined Fix the Debt spoke last week at the New York Stock Exchange.

“This is an American problem that requires an American solution comprised of higher revenue, reduced entitlement spending, reduced discretionary spending, and investment in infrastructure and math and science,” said Dave Cote, a campaign steering committee member and Honeywell chairman and CEO. “We need to fix the debt now, thoughtfully and proactively . . . It’s time to pull together and not pull apart.”

Former U.S. Senator Judd Gregg, a Fix the Debt co-chair who also serves on The Concord Coalition’s Board of Directors, said that business leaders could support lawmakers who will need to make “difficult political decisions” necessary to put the country on a more sustainable path.

In addition to its activities with the business community, Fix the Debt is intended to engage the public at the grassroots level, and Concord plans to assist in that effort. The campaign has recently launched efforts in various states around the country.