September 20, 2014

Washington Budget Report: March 26, 2013

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The entry deadline for the Peter G. Peterson Foundation’s video contest on fixing the federal debt is Sunday, March 31. Players have a chance to win $500 for sharing their views on the importance of dealing with the debt. See details here.

Congress Should Compromise on a Budget Resolution

The House and Senate passed budget resolutions with largely partisan votes before leaving for a two-week recess. Resolving the two competing visions of fiscal policy in the weeks ahead will be difficult, though both parties should accept the challenge and come together on a compromise.

A compromise should address revenues and spending by including fiscally responsible components of both proposals. It should at least stop federal debt from growing faster than the economy in the years ahead.

In the House, Budget Committee Chairman Paul Ryan’s proposal  passed with a 221-207 vote. No Democrats supported it and only 10 Republicans opposed it. His proposal attempts to balance the budget over 10 years. The Concord Coalition supports the general goal of returning to balance but has questioned the Ryan plan’s reliance on vague revenue assumptions and unrealistic cuts to domestic discretionary spending and means-tested entitlement programs.  

Senate Budget Committee Chairwoman Patty Murray’s proposal passed with a 50-49 vote in that chamber, which marked the first time since 2009 that the Senate has passed a budget resolution. All Republicans and four Democrats voted against the proposal.

The Murray proposal calls for a mix of spending cuts and revenue increases to reduce debt held by the public from 78.5 percent of GDP in 2014 to 70.4 percent of GDP by 2023. This is a responsible goal, though the proposal is vague about some of the specific policy choices that will be needed to get there. Murray’s plan proposes cuts to discretionary spending but does not sufficiently address the mandatory spending programs that are driving the growth of the debt. To its credit, the plan proposes revenue increases, though it includes little discussion of the specific choices necessary.

Also last week, the House passed a continuing resolution that will prevent a government shutdown by funding federal agencies for the remainder of the fiscal year. The Senate previously approved the bill and President Obama is expected to sign it into law.

High Goals Require Political Courage, Public Engagement

In a recent speech in Jerusalem,  President Obama seems to have struck a responsive chord when he encouraged his listeners – particularly young  people in the audience -- to ignore the competing claims of extremists and take the push for peace into their own hands.

Concord Coalition Executive Director Robert L. Bixby suggested in a blog post Monday that the President could repackage some of the same themes for a national address as Washington enters a crucial phase in budget negotiations. “While the policy choices in each situation are not directly comparable,” Bixby wrote, “some of the points he made in the speech could resonate in this country as well.”

Obama praised the idealism and energy of young people, for example, and discussed how even deep differences can be bridged to reach critical goals. “Most importantly,” Bixby says of Obama, “he could remind the American people as he did the Israelis that they – not just politicians – can bring about solutions.”  

The President said that people should encourage elected officials to move forward in a positive way: “You must create the change that you want to see. Ordinary people can accomplish extraordinary things.”

As for the pursuit of fiscal reform in this country, Bixby says, “if by chance the President and his colleagues on Capitol Hill need a little push, then we the people should be there to provide it.”

 

Younger Americans Face Stiff Financial Challenges

Most fiscal reform plans assume that younger workers will pay more of their own retirement costs than previous generations have paid. But Washington already favors older generations in many ways, and younger Americans face a number of financial hurdles and future challenges that must be kept in mind.

Many younger people have been hit hard by the last recession, struggling with a poor job market and large amounts of student debt. With companies cutting back on retirement and health care programs, even many of the younger Americans who have jobs do not receive the compensation or employee benefits that their parents did.

A study this month at the nonpartisan Urban Institute focuses some welcome attention on the financial struggles facing Americans now in their 20s, 30s and early 40s. Although the U.S. economy in 2010 was about twice as rich as it was in 1983, the study says, younger generations were left behind.

“Roughly speaking, those under age 46 today, generally the Gen X and Gen Y cohorts, hadn't accumulated any more wealth by the time they reached their 30s and 40s than their parents did over a quarter-century ago,” says Eugene Steuerle, a senior fellow at the Urban Institute. “By way of contrast, baby boomers and other older generations, or those over age 46, shared in the rising economy -- they approximately doubled their net worth.”

In thinking about fiscal reform, Americans should carefully consider how the necessary sacrifices of deficit reduction are distributed among people of different ages. Inter-generational fairness is essential.

 

Good Advice For Dealing With the Federal Debt

Congress received some solid advice from widely respected budget experts at a recent Joint Economic Committee hearing on solving the federal debt crisis.

Alice Rivlin, a senior fellow at Brookings and a member of the Campaign to Fix the Debt Steering Committee, said her work on two high-profile panels on fiscal reform “convinced me that bipartisan problem-solving is possible when participants are willing to confront facts objectively, listen to each other, and seek common ground.”

She served as a member of the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) and as a co-chair of the Bipartisan Policy Center’s Debt Reduction Task Force (Rivlin-Domenici).

“Although detailed recommendations of the two groups differed,” Rivlin told the committee, “each involved three elements: (1) restraining discretionary spending; (2) reducing the growth of Medicare, Medicaid and stabilizing Social Security, and (3) comprehensive tax reform to cut spending in the tax code and raise additional revenue. Indeed, the arithmetic of the problems makes all three elements necessary.”

With Congress having already approved substantial restraint in discretionary spending, Rivlin said, “the task remaining is to find agreement on an acceptable set of entitlement and tax reforms.”

Former Sen. Judd Gregg, a member of The Concord Coalition’s Board of Directors and a Fix the Debt co-chair, said many studies from around the world draw a clear conclusion: Rising government debt will eventually hold back strong economic growth, with higher interest rates crowding out private investment.

Gregg also pointed to the “distinct likelihood that the financial markets themselves will at some point, sooner rather than later, look at our massive accumulation of debt and conclude that we will be unable to pay it back.” But reasonable deficit reduction, he said, “can actually strengthen the economy down the road.”

The committee also received testimony from Doug Holtz-Eakin, president of the American Action Forum, and Simon Johnson, a professor at the MIT Sloan School of Management.