Held Tuesday, June 22, 2010
BACK IN BLACK:
A PLAN TO DEFEAT THE DEFICIT
VICE PRESIDENT FOR POLICY,
REP. STENY HOYER (D-MD)
THE CONCORD COALITION,
CENTER ON BUDGET AND POLICY PRIORITIES
PRESIDENT AND CEO,
PETER G. PETERSON FOUNDATION
TUESDAY, JUNE 22, 2010
Federal News Service
JIM KESSLER: Good morning, everyone. If you could just continue to find your seats, we’re about to get started. I’m Jim Kessler, vice president for policy of Third Way. Welcome to Back in Black: A Plan to Defeat the Deficit. We have a fantastic lineup this morning. We have a very critical topic to discuss and we have a very, very tight schedule, so let’s just get right into it.
Quote: The votes we take today will lead to more taxes, higher inflation and slower economic growth. Quote: The bill will lead to a recession. This is the Democrat machine’s recession and each one of them will be held personally responsible.
Quote: This is a job-killer. The revenues will not materialize. The costs of this budget will be greater than what is forecast. The deficit will be worse. Quote: Hundreds of thousands of Americans will lose their jobs because of this bill and the president will be one of them.
Those were the predictions of Phil Gramm, Dick Armey, Newt Gingrich and Deborah Pryce on the eve of the 1993 Clinton budget vote. And if you’ll recall, they were wrong, wrong, wrong and wrong. They were wrong on the deficit. We went from record red to record-black ink. They were wrong on the economy. We went from malaise to magnificence: 21 million jobs; strong, sustainable growth; billions and billions and billions in private-sector investment. And they were wrong, obviously, on who would ultimately lose their job.
There are two lessons to learn from this vote and these comments. The first is if any of these four members of Congress – former members – come to you with investment advice, you might just do wise to go the other way. The second is this: The act of cutting the deficit, of reducing consumptive spending, containing entitlements, raising revenue and reforming the tax code – it is very hard. It is arduous; there is no doubt about it.
But the rewards are epic. The reward is long-term economic growth and middle-class opportunity. The reward is America as the world economic leader not just today, not just tomorrow, but far into the future, decades into the future. The reward is the security of knowing that we can afford the safety net that we spent the last 80 years painstakingly trying to weave.
The alternative is this: We cannot engineer the growth we need to lead to have the prosperous middle class that we desire, to afford the safety net we wove, without restoring fiscal order to Washington. And the American people – if we do not do this, they will punish us. Democrats, Republicans and independents – they will punish us if we don’t do what we know has to be done.
At this critical moment, our keynote speaker today is Majority Leader Steny Hoyer. He is going to open with remarks, then he’s going to take a few questions. He’s on a very tight schedule. Then we’re going to follow with brief comments from, you know, three of the nation’s most prominent, most distinguished, most knowledgeable people on the budget. I will moderate a discussion. We’ll have questions from the audience and from the press. We’re here today to discuss a road map forward to fiscal responsibility, to growth and prosperity.
Starting us off is Majority Leader Hoyer. Leader Hoyer is a pro-growth, pro-security, pro-middle class, fiscally responsible Democrat. He has put his mark on just about every piece of major good legislation that has passed through Congress in the past three decades. He is a principled and passionate moderate. He is a door-opener, not a door-closer. He is a great friend of Third Way and we really, really appreciate that. And we are so appreciative that you’re here. Good morning, welcome, Leader Hoyer. (Applause.)
REP. STENY HOYER (D-MD): Thank you very much, Jim Kessler. I’m appreciative of that introduction. They’re setting up more chairs over here if you want to come over here. I’ll wait while you transit from my left to your right or your right to your left, depending on what your perspective is. I want to say how pleased I am to be here.
I’m particularly pleased to be here from David Walker, Bob Bixby and Bob Greenstein. Bob and I have worked together since I started in Congress a couple of years ago. And Bob Bixby, leader of the Concord Coalition, extraordinary job. And David Walker – I congratulate David Walker on the work that he has been doing not only in his present position, but in his prior position, where he brought a clear and honest analysis to some of the issues that were confronting our country, particularly from a fiscal standpoint.
This month, a Gallup poll asked Americans to name the greatest threat facing our country. Two answers tied for the top choice. One was terrorism. The other was debt. This is a remarkable moment, I think, in our political history – a time when our creeping fiscal danger of our $9 trillion of publicly held debt troubles Americans as much as the prospect of the most brutal attack on our country.
More than ever, Americans understand the danger of debt – a stagnant economy, a hobbled government and a weak national defense. More than ever, it’s possible to imagine a government with nothing left to spend on educating our children, on securing our borders, on conducting the groundbreaking research necessary for our health and economic growth. More than ever, it’s possible to imagine a government of, by and for interest payments and entitlements.
Debt is a dominant part of the political landscape now. Debt will not be ignored because if there’s one thing we understand in Washington, it’s political incentives, political imperatives. The real question is how we respond to those incentives.
There’s the easy way: glib slogans about spending, solutions that are more about winning political power than confronting the scope of the problem and answers borrowed from decade-old dogma instead of from a hard look at reality.
And then there are the correct ways. The correct way starts by recognizing that our problem is structural, the product of generations’ worth of easy decisions. Our problem is not about the short term. So when the Heritage Foundation wrote in response to my last fiscal speech that, and I quote, “it is Congress’s out-of-control spending which is causing major deficits;” that kind of language makes for good attack ads, but it has little basis in reality.
It ignores the effects of massive regressive tax cuts, two debt-financed wars, a catastrophic recession, rapidly escalating entitlement cost and the 2008 emergency response that both Republican and Democratic economists agreed was necessary to stave off collapse. And if out-of-control spending refers to the recovery act and other jobs programs that are responsible for more than 2 million jobs and only a small fraction of our deficit, I’d ask what the alternatives were.
One alternative, of course, was to do nothing. That would have resulted, as economists now know, in millions more out of work, GDP growth up to four points lower than it has been, an even deeper recession, lower revenues and, as a result, bigger deficits.
Another alternative was to make tax cuts an ever-larger portion of the recovery act, one-third of which was already comprised of tax cuts for family and businesses – a fact little known to taxpayers. But whether we are spending or cutting taxes, creating jobs in a recession means adding to the deficit in the short term. It’s what every industrialized country did in the face of global recession. And it would have been, in my opinion, a dereliction of duty not to do so.
It’s an excellent measure of someone’s seriousness to see whether they point their finger at so-called out-of-control spending in this Congress or whether they face the real danger to our future, the structural deficit. Overreacting to short-term deficits while we’re still feeling the effects of recession will send our economy back into a tailspin, in my opinion, put even more Americans out of work and increase the very deficits we’re trying to reduce.
It’s the mistake President Roosevelt and the Congress made in 1937, when we prematurely cut off recovery from the Depression. And it’s a mistake we must not repeat. For the sake of millions of Americans who are still struggling, job creation must still be Congress’s top priority. The American public say that and, frankly, we believe that in the Congress.
But we’ve seen resistance to more justifiable efforts to create jobs with unpaid spending and even to keep teachers at work educating our children because of concerns, which are justified, about our deficit.
And many members of Congress agree with the Washington Post when it argued, in an editorial just this week: We find the “stimulus now, spinach later” argument more credible if its advocates give some hint of where the long-term belt-tightening will take place. I agree. An excellent way to build support for the job creation we still need is making credible and detailed plans to tackle the long-term debt.
So now is the time to start talking about the solution to a structural deficit, one we’ll be ready to put in place once the economy has fully recovered. Unfortunately, we can blame our long-term deficit on politics that are almost universally popular. We’re lying to ourselves and our children, however, if we say we can maintain our current levels of entitlement spending, defense spending and taxation without bankrupting our country.
It would be easy for a cynic to say that we will never touch those policies until a crisis forces our hand. Some would say, of course, that the crisis is at hand. In any event, we must prove that cynicism wrong. This Congress restored the pay-as-you-go law, which prevents us from forcing our children to pay tomorrow for the programs we buy today. Under President Clinton, PAYGO helped turn historic deficits into a record $5.6-trillion 10-year surplus. And combined with the economic growth, it can move our budget in the same direction.
Q: Why aren’t the wars in PAYGO?
REP. HOYER: Now, Jim, I’m going to take questions at the end of my speech. Jim, let me say that I carry around a card and I didn’t know you were going to do it on both sides, but let me – some people you didn’t mention. John Boehner said, how does this create any new real jobs? There’s no economic stimulus here – referring, of course, to 1993.
And another Dick Armey quote is, it’s not a recipe for more jobs. Taxes will go up. The economy will sputter along – all this for the hollow promise of deficit reductions of lower interest rates. And as has been pointed out by Jim, economist Armey was wrong on all counts. Under President Clinton, PAYGO helped turn historic deficits, as I said, into a $5.6 trillion surplus. And combined with economic growth, it can move our budget in the same direction again.
Some have criticized PAYGO for exempting the extensions of current policy on middle-income tax cuts, the estate tax, the alternative minimum tax and the doc fix that help seniors facilitate their access to doctors. I understand that criticism. But it neglects the fact that a PAYGO law without those exemptions would simply be waived again and again, and would become toothless.
As it is, Congress has to face strong political pressure to go even further than the current policy exemptions statutory PAYGO allows. Simply enforcing PAYGO as it now stands, let alone taking PAYGO further, we’ll continue to face strong challenges from both sides of the aisle. It is essential that we move from the temporary extensions to permanent solutions, but we cannot consider those solutions without taking into account our long-term fiscal challenges. Permanent solutions for the estate tax, AMT and the doc fix should be developed in the context of the broader budget agreement that I’ll discuss shortly.
And as the House and Senate debate what to do with the expiring Bush tax cuts in the coming weeks, we need to have a serious discussion about their implications for our fiscal outlook, including whether we can afford to permanently extend them before we have a real plan for long-term deficit reduction.
At a minimum, the House will not extend the tax cuts benefiting taxpayers of incomes above $250,000, despite some suggestions in the Senate that they be extended along with all other Bush tax cuts. As CBO director Doug Elmendorf recently warned, extending all of the Bush tax cuts without making any other changes in policy would put us on a path towards a publicly held debt equal to up to 90 percent of GDP by the end of the decade – an unsustainable, dangerous level; territory, Doug Elmendorf said, that is unfamiliar to us and to most developed countries in recent years.
Democrats have also been wrongly criticized for not sticking to PAYGO’s promise. PAYGO often means saying no to policies we like. And for that very reason, these decisions aren’t often reported. They’re like the dog that didn’t bark. They are all the bills that never see the light of day because we can’t find offsets for them. They are the decisions committees make to scale back the policies they want to fit within the savings they can find.
As majority leader, I see the impact of PAYGO every day, in ways that aren’t always apparent to others. Every day, members come to me and to other leaders with bills they want to bring to the floor. And every day, I ask, how are you going to pay for it? And every day, we say no to more spending.
For instance, in the American Jobs, Closing Tax Loopholes and Preventing Outsourcing Act, we found offsets for many items that were initially advocated as deficit spending, including agricultural disaster relief, TANF supplemental grants, which create jobs – and because PAYGO required us to do so.
Another example of the power of PAYGO is the way the Bush and Obama administrations treated health legislation. President Bush let PAYGO lapse and then signed a prescription drug bill that added an astounding $7 trillion to our long-term unfunded liabilities. President Obama refused to finance his health reform bill with debt. And as a result, the Congressional Budget Office tells us that it will significantly reduce our future deficit.
Some claim that those savings are imaginary. I know my good friend Dave Walker has some concerns about it. I think those are correct concerns because he’s concerned and I’m concerned that Congress will cave to pressure and revoke the bill’s cost-cutting provisions. That is a risk that we must avoid.
But the people making that argument are also the very same people bringing the political pressure we’re supposed to be afraid of. They’re the same people who complained about out-of-control spending and then turned around and tried to frighten seniors with a false and demagogic claim that we were cutting their Medicare benefits. Critics of health-care reform simply can’t make both those attacks and remain, I think, intellectually honest.
The House also passed two important bills to reform defense procurement: one to cut unnecessary spending from weapons acquisition, which President Obama has signed, and one to cut from contracting, which is awaiting action in the Senate. Our defense leaders, including Secretary Gates, have repeatedly pointed out that paying for programs we don’t need only makes our country weaker in the long run. Our defense spending cannot be above careful scrutiny and analysis of alternatives.
In an important speech last month, Secretary Gates drew from the legacy of President Eisenhower, who held that – and I quote – “The United States could only be as militarily strong as it was economically dynamic and fiscally sound.”
Q: Why are the wars off the books?
REP. HOYER: I’m going to answer questions at the end.
He went on and added, quote, “The proverbial wall has been brought to our back.” As a result, all the parts of our defense establishment must – and quoting Eisenhower again – “take a hard, unsparing look at how they operate. Any conversation about the deficit that leaves out defense spending is seriously flawed before it begins.”
Now, the easy way of cutting debt would point to all of these steps and declare victory. The correct way, however, would be to admit that we’ve barely begun. That is why the House is working to adopt a budget enforcement resolution, written by Chairman John Spratt, which will set limits on discretionary spending that require further cuts below the president’s budget, reinforce our commitment to PAYGO, direct committees to identify reforms to eliminate waste, duplication and inefficiencies within our jurisdiction and endorse the goal of the president’s bipartisan fiscal commission and reiterate the commitment to vote on the commission’s recommendations.
This budget enforcement resolution will enforce fiscal discipline in the near term while the fiscal commission works on a long-term plan to get our country back to fiscal health. It isn’t possible to debate and pass a realistic long-term budget until we’ve considered the bipartisan commission’s deficit-reduction plan, which is expected in December. I believe that Congress must take up and vote on that plan.
To share sacrifices fairly and to be politically viable, the commission’s proposals can only have, in my view, one form: an agreement that cuts spending and looks to revenues when the economy recovers. On the spending side, we could and should consider a higher retirement age or one pegged to the lifespan, more progressive Social Security and Medicare benefits and a stronger safety net for the Americans who need it most.
We also need the in-depth scrutiny of defense spending, which I have alluded to, that Secretary Gates has demanded. He has urged Congress to stop funding additional C-17 cargo planes and an extra engine for the F-35 Strike Fighter to fight the rapid cost inflation – and to fight the rapid escalation of military benefits – to cut unnecessary weapons systems and to trim the overhead that makes up more than 40 percent of the defense budget.
While his proposals have met with controversy, I wish more of us in public life were as honest about hard budget choices as Secretary Gates has been. I’m also glad that the chairman – that Chairman Ike Skelton is directing the House Armed Services Committee to scrutinize the defense budget for cost savings.
The savings in front of us deserve a careful look and thorough debate, but I fear that if we can’t decide what we can afford to do without today, we’ll be forced to make much more draconian cuts in the years to come. Of course, we must conduct such a review with the intent of maintaining – and I emphasize – a strong and sufficient armed force to deter and defeat any enemy that puts our nation and our people at risk. We can and must do both.
Raising revenue is part of the deficit solution. When President Clinton did so in 1993, he faced predictions of disaster, which Jim has read to you and I’ve reiterated. But he helped to unleash historic prosperity and budget surpluses for our country and he did it without raising spending. So I’m glad that President Obama has made clear that everything, revenues included, should be on the commission’s table.
I’m also glad that some of my colleagues in Congress are talking seriously about simplifying the tax code to raise revenue more fairly and efficiently and increase economic productivity by cutting time lost in tax preparation.
Why am I so sure that a spending and revenue compromise is the only plan that has a chance for succeeding? Because a spending-only plan has been on the table for more than two years. It’s Republican congressman, Paul Ryan’s, roadmap and it was originally introduced in May of 2008. Even though I strongly opposed some of its severe Medicare cuts for seniors, I praised and continue to praise Congressman Ryan for being the only one in his party to offer a solution equal to the problem.
But what have we heard from his own party? Crickets for two years. The Republican Party has run away from Paul Ryan’s plan, even though you’d expect it to rush to embrace a proposal based on spending cuts. As the Cato Institute’s Michael Tanner observed last month, and I quote, “The Ryan roadmap is a test.” And right now, the Republican Party is failing it.
Nevertheless, I’m still hopeful that we can reach a balanced solution, in large part because we have a history of success to draw from. In the 1980s, President Reagan and Speaker O’Neill agreed on a Social Security reform. Reagan and Chairman Dan Rostenkowski agreed on tax reform. In 1990, the first President Bush agreed with congressional Democrats on a compromise to raise the top marginal tax rate and cut spending.
Three years later, President Clinton enacted a similar spending and revenue agreement even though Republicans unanimously said no. Spending fell from 22 percent of GDP to 18 percent. Revenues rose from 17 percent to 21 percent. And the Reagan-Bush deficits were eliminated. President Clinton and Speaker Gingrich also took our country in a more fiscally responsible direction by agreeing on the reauthorization of PAYGO. So let’s not pretend that what I’m proposing can’t be done. It was done within the lifetime of every member of Congress.
So what is standing in the way now? There are two political factors we ought to worry about. One is superficiality – the eagerness of so many to blast spending in the abstract without offering solutions that come close to measuring up to the size of our challenge.
Consider the Republican YouCut program. In case you missed it, Republicans have an attractive new website on which they solicit votes for ideas to cut paper-thin slices in the budget. I agree, every dollar counts. This consideration is not without some merit even when discussions two one-thousandths of a percent of our debt, which was the size of the first YouCut winner.
But sadly, unlike their budget leader Paul Ryan, this partisan gimmick is emblematic of the way most republicans have behaved in the minority: soundbites, not sound policy. We have hard choices and fiscal discipline to face. And pretending that a series of small items will even put a dent in the real problem is just the false impression of real action.
Where were the fans of YouCut when the House voted to pay for what it buys? They were AWOL. Where will they be when it comes time for the politically painful vote that has the actual power to reverse our slide into debt? Hopefully, present. Hopefully, they’ll have the courage to do the right thing.
The second political factor we have to struggle with is the legacy of the supply-side dogma. Conservative economics used to be in touch with fiscal reality. Remember that even President Reagan raised taxes in ’82, ’83 and ’84. Today, Ronald Reagan would be kicked out of the Republican Party. He and Bob Bennett might have a partnership.
Conservatives abandoned, in my opinion, the first President Bush after the successful 1990 budget agreement, which was part of the reason we got to surplus. The budget agreement of 1990, the bill of ’93, which was totally partisan, and the ’97-’98 agreement to reauthorize and continue with PAYGO for the same reason anti-tax crusader Grover Norquist said this about the possibility of a budget compromise. This is quoting Grover Norquist: “At some point, conversations about unicorns are tedious because they don’t exist in the real world.” He went onto say that budget deals where they actually restrain spending and raise taxes are unicorns.
I’ll only say that budget agreement is entirely possible between two parties that look at reality as it is, not through the prism of 30-year-old ideologies that lead to defeatist falsehoods, like budget deals don’t exist. As I had pointed out to you, they have existed to good effect.
The good news is that after three decades, some on the right are realizing what supply-side has accomplished in reality. The administrations most committed to regressive tax cuts – the Reagan administration and the Bush 2 administration – left conservatives with bigger government and left all of us in deeper red ink.
As Kevin Williamson wrote in an influential April article in the National Review, and I quote, “tax cuts don’t get us out of the spending pickle and growth isn’t going to make the debt irrelevant. You can’t starve the beast if the Chinese and the bond market keeps lending him bonbons by the ton,” close quote.
Even Alan Greenspan who during the Bush administration advocated for – or at least, rationalized large tax cuts to avoid the supposed danger of paying down the debt too quickly. Does anybody remember that deep concern that we had about paying down the debt too quickly? Well, the Bush administration certainly saved us from that alternative.
They acknowledged in The Wall Street Journal this month that, that policy helped wipe out the surplus and led to higher interest rates. That’s the kind of honesty we all need to show if we want to hit off a crisis. And slowly but surely, that honesty is spreading to Congress. This month, Sen. George Voinovich candidly said that Republicans can’t sign Norquist’s anti-tax pledge and take on the debt at the same time.
That was not a Democrat. That was not Steny Hoyer. That was Sen. George Voinovich of Ohio – a governor. Interestingly enough, what do governors have to do? They have to make real decisions because their decisions have real consequences. Sen. Voinovich is absolutely correct that, that pledge is inconsistent with the oath of office that they took when they became members of the United States Senate, George Voinovich concluded. I agree with him. And it’s because I take my own oath so seriously that I take our common danger so seriously.
So I want to end with this image: There are two clocks. One of them is counting down the time to our debt crisis. The other can wake us up to see our situation as it is, not as we want it to be or as our ideologies say it should be. And the kind of country that our children, that my three daughters and my three grandchildren and my one great-grandchild will inherit and what they will live in – growing or stagnate? On the rise or on decline? Depends on which clock goes off first.
We can keep making easy choices and hoping that the crisis clock just keeps ticking. But sooner or later, if that’s what we choose, there will be a time when we find that we have hardly any choices left at all. We must have the courage to avoid that alternative.
I want to congratulate Third Way for the leadership they have shown. I want to congratulate those of you in this audience. You continue to raise your voices to make sure that we make the hard choices so that when my children and my grandchildren and my great-granddaughter has her national security crisis, has her natural disaster, has her health crisis, she and they have the money and ability to respond in an effective way. That is as much a moral issue as an intellectual issue. Let us hope they look back on our generation and say, they were up to the task. Thank you very much. (Applause.)
MR. KESSLER: Leader Hoyer has a few minutes, so we’ll take some questions from the audience. In the back?
Q: Yeah, I appreciated the comments about – (inaudible) – particular weapons but was bewildered by the failure to mention two related points. One is that you’re increasing the overall military budget funding for particular weapons and the other being that you’re continuing to escalate hopeless wars and fund the Taliban off the books with so-called emergency supplementals. How could those have slipped your mind?
REP. HOYER: Your assertion, they slipped my mind, is incorrect, I want to assure you. However, having said that, frankly, members of our caucus – David Obey in particular has indicated not only they ought not to slip our mind but that we need to consider that. In my last comment, as you heard, I think war expenditures cannot be off the table. No expenditures can be off the table because we know that a decade from now or two decades or three decades, as much as we hope for catastrophes not happening, national security problems not happening, that history shows us that we need to be prepared.
One way we need to be prepared is to be fiscally sound in our treatment today of those issues. Frankly, President Bush and those in the White House concluded that the efforts internationally would cost us, as you recall, maybe, $60 billion. We are now in excess of a trillion dollars in Iraq and Afghanistan combined, and certainly, they need to be computed within the context of paying for things. In fact, as you know, there are people in the United States Senate – Republicans in the United States Senate and Democrats – who are both talking about exactly that objective. I think that needs to be on the table. Thank you.
MR. KESSLER: Let’s go over here in the front.
Q: Leader Hoyer, do you think that OMB Director Orszag’s departure will have an impact on the seriousness with which the administration tackles the deficit?
REP. HOYER: No, I think the administration is – the president is very concerned about the deficit. The president has taken three very concrete, direct steps. First of all, he made it very clear early on that he was for the reinstating of statutory PAYGO. He supported that, worked towards it.
He also indicated that he was in favor of a commission. We couldn’t get that done statutorily, ironically because many of the Republicans who’d said they supported it – and some Democrats supported it; some Democrats who didn’t – but the Republicans who had told Judd Gregg they’d support it in the United States Senate ended up not supporting it. So we didn’t get statutory PAYGO but the president, nevertheless – excuse me, we didn’t get a formal commission, appointed, which would have had statutory authority.
So the president did what he could do. By executive order, he created the commission. Thirdly, which I, as you know, and can garner from what I’ve said, hope, A, reach a resolution, reach a concrete, substantive recommendation; report those recommendations for the United States Senate. I hope the United States Senate deals with them and if they pass them, Speaker Pelosi and I have both indicated we will put those recommendations on the floor of the House of Representatives, which I expect to happen before the end of the year.
Now, thirdly, the president sent down to the Congress a budget that froze nondefense, nonsecurity discretionary spending. So the president, I think, has made it very clear that he believes that fiscal discipline and fiscal responsibility is a critical component of his administration. So whether or not Mr. Orszag is the director of OMB or not, I believe it’s the policy of the administration to pursue a physically responsible alternative.
MR. KESSLER: Let’s go here in the front row and then we’ll go behind you.
Q: You mentioned working on budget enforcement resolution –
REP. HOYER: Mentioned what?
Q: You mentioned you guys had been working on a redeeming resolution regarding discretionary spending –
REP. HOYER: No, I mentioned we were going to do a budget enforcement resolution. (Laughter.)
Q: Tomato, “tomato.” To what extent has there been completion among spending levels between the wings of the party and what other extraneous items do you expect to be in that language?
REP. HOYER: I think we are close to reaching agreement on levels that can be supported and I’m hopeful that that’s the case and I would hope that we will pass the budget enforcement resolution before we break for the July 4th break.
Q: Yes, hello, my name is Ricardo Lopez. I work with EIR. Why is it that in a lot of these discussions, there seems to be something which is overlooked, which is the fact that Wall Street has created a huge burden on the government? And I think that’s just been clearly evident since Paulson was at the Treasury and now Geithner is pretty much continuing the bailout.
In fact, I find it quite distasteful that one of the immediate things that we say needs to be cut are entitlements when clearly I think Wall Street could use some austerity. And quite frankly, I think if we are going to have a budget surplus, there has to be a real economic recovery, which means some systemic regulations in the system. And I think we need to return to things like Glass-Steagall, which is one of the things FDR was able to get through. Thank you. (Applause.)
REP. HOYER: Let me say that as all of you know, we are pursuing pretty vigorously regulatory reform. And I expect that to be on the floor prior to us leaving for the July 4th break. So I am very hopeful that we will have very significant regulatory reform – a package adopted by the Congress and sent to the president.
It is clear from my opinion – it was talked about – I don’t know if it’s clear. My view is that the two major failures of the Bush administration were fiscal responsibility and regulatory neglect. We saw that in the financial community; we are now seeing it, frankly, with the oil spill, which is, at its heart, due to extraordinary negligence of BP and as well as the negligence of regulators to vigorously act.
I’m going to be talking later today at – (inaudible) – Fed; I know some of my friends will be here – about the pattern of regulatory neglect that has been talked about, frankly, over the last 30 years about how government was a problem and ought to get out of the way. Of course, there are some who had that premise who are now saying government should get in the way and make sure that regulations that have been adopted if we need more or be enforced.
Q: (Inaudible) – at The Tax Foundation. Volcker and some others have suggested that long-term spending has been ratcheted up to a level of about 25 percent of GDP. Do you think that’s accurate? And if not, what would be the right level?
REP. HOYER: Well, Paul Volcker was in my office last week. We were talking about regulatory reform, not the budget and the deficit, per se. But he and I, some months ago, discussed the issue of debt level – debt load that a country could carry without danger. And his observation was he wasn’t sure where that number was but he was sure that we were getting pretty close to it and therefore needed to exercise the discipline that I’ve discussed. While we didn’t get into your specific question, I don’t think there’s any doubt that Paul Volcker shares the view with many, many economists.
And let me make it very clear – and I think I said this in the speech but I don’t want anybody confused by this: In the short term, we cannot stimulate and depress at the same time. That is not only counterintuitive but I think it will not work. And therefore, in the short term, I still think we need, as I said in my speech, to ensure the growth of our economy.
As Mark Zandi said the other day, and I’m sure that many agree, you will not solve the deficit problem if you don’t have a growing economy. Period. No matter what we do, you can’t cut yourself to a balanced budget. You’re going to have to have a growing economy.
If that’s true, if that’s a sine qua non, as Bill Clinton – Bill Clinton didn’t get to 5.6 trillion simply because we adopted a program in ’93. What we did was we set the environment for venture capitalist and other and the CHIP to explode our economy and therefore increase revenues. That’s the key. I happen to personally believe the Recovery and Reinvestment Act was absolutely a critical step to take. And had we not taken it, the deficit level might be higher, not lower.
Q: Hi, David Logan, Brookings Institution. In an April 14th report by Goldman Sachs on historical fiscal consolidations across the world, they found that the vast majority of successful fiscal consolidations consisted mainly of spending cuts in addition to some tax revenue highs. But those fiscal consolidations happened almost unilaterally after a change of government. What are your thoughts on this Congress’s and this administration courage to step in and make spending cuts that may be almost universally viewed as unhealthy or unwanted?
REP. HOYER: Let me say – I don’t want to parse words with you but as you know, budget projections are on what present policy is. Frankly, while cuts are certainly appropriate, and as we look at cuts, what is critical is restraints; restraints stopping the level of growth which CBO, of course, takes as this is the law, this is the level of growth, this is where we will be. So my view is that we need to restrain significantly some of the growth of our spending, whether that’s in entitlements or defense or other areas of our budget.
Secondly, let me say this: I’ve been in Congress for 30 years. This is my thirtieth year, so I guess 29 years and two months. And I’ve served 20 of those years with a Republican president. Every year that I’ve served with a Republican president – every year – without fail, there’s been a budget deficit of significance. Only Bill Clinton – nobody in this room as I look around was alive when another president had four years of surplus.
Now, is that totally attributable to Bill Clinton’s policies? As I’ve said, it is not. We had an extraordinary growth in the economy. In the ’80s, we were all worried about the rest of the world going past us very quickly. In the ’90s, we went past the world pretty quickly because of our entrepreneurial, private-sector growth – the CHIP in particular – so that if we look at a president, who is the only person who can stop spending in its tracks – only the president. I can’t stop spending in its tracks. If I have 217 other people voting with me, I can do that. No senator can do it unless they had 49, or in this case in the Senate, 60 other – 59 other senators voting with him. But a president can stop spending in its tracks.
No president in the time that I’ve served, which is about, I think, probably a little longer than you may have been born – I’m not sure exactly, but close – one year, okay; pretty close – but no president in the 30 years I’ve been in Congress has had a veto overridden on an appropriations bill to spend more money – in other words, if you vetoed a bill for too much spending.
The only bill I remember being overridden was Ronald Reagan’s when he sent back, I think in ’83, a bill to us which send you’re not spending enough on defense. That was overridden pretty handily because we had a –
Q: (Off mike.)
MR. KESSLER: Let’s take one last question back here.
Q: Hi, sir. Could you please address concerns with some of the left as the gentleman earlier articulated that some entitlement reforms such as raising your retirement age created an impact –
REP. HOYER: How did you preface that? I got the right “raising age.” How did you preface that, speak to it – in what terms?
Q: Oh, I was saying could you please address what an earlier gentleman started to address, which is reforming entitlements in a way that can have an impact on some lower-income people such as raising –
REP. HOYER: On some lower-income people?
Q: Yeah, such as raising the – (inaudible, cross talk).
REP. HOYER: Okay, well if you heard in my – thank you – I’m sorry, were you through? Okay. As I said in my speech, I think – I hope you got that – was that I think we need to make sure that those who are in most need are protected so that as we look at entitlement programs, we ought to look at entitlement programs in the context of assuring those most in need of entitlement help get it. But that’s what I’ve talked about in terms of progressivity, which is very controversial and I understand that, and some people on my staff said don’t say it, so – (laughter) – I said it. There you go.
But in any event, I agree with your premise which, as I understand, making sure those most in need, affected positively by entitlements are not adversely affected by any reforms or restraints that we effect.
Let me thank, again, Third Way for giving me this opportunity. Let me thank all of you for being here. But much more than that, for either covering this issue in a sense that it is a very real, important issue that must be dealt with now, and for those of you who are advocates of dealing with this challenge now, whether in the private sector or academia or in any other fora. Thank you all very, very much.
MR. KESSLER: Let’s just give the leader a few minutes to exit and then we will continue on with our panel.
MR. KESSLER: Okay, let’s continue on.
MR. KESSLER: Dave Walker ran GAO for a decade, which is amazing. He now heads the Peterson Institute, which I’m sure everybody here knows – one of the most thoughtful and important economic think thanks in America.
Greenstein – if you don’t know what the earned run average is, you’re not a baseball fan; if you don’t know CBPP, you’re not a policy wonk in this town. Bob founded the Center for Budget and Policy Priorities, and for more than three decades, which is hard to believe, he’s been educating members and staff. If I had a nickel for every time a member asked, what does CBPP say on this issue, I’d have many, many, many nickels.
And Bob Bixby – Bob joined the Concord Coalition at its inception in 1992, which is last time America faced a serious deficit crisis. Obviously, Bob, we need you again. The Concord Coalition is the lead bipartisan budget watchdog organization, and they provide something that few other organizations on this issue can offer, and it’s something that Majority Leader Hoyer alluded to – sober, fair, non-ideological analysis. We’re going to start with Dave Walker, then Bob Greenstein, then Bob Bixby, and then we’re going to take questions.
DAVID WALKER: Jim, first, thanks for the opportunity. Secondly, it’s good to be here with my two colleagues. I want to commend Leader Hoyer for his comments, and let me say that I agree with his comments. The bottom line is that we need fiscal responsibility with social justice. That means that we need to focus on protecting people – those truly in need – not necessarily the status quo of whatever programs might exist, whether they be on the spending side or on the tax side.
I also agree that the challenge is not the short-term deficit, 50 percent of which is caused by declines in revenues, 50 percent caused, roughly, by increases in spending, much of which is temporary. The challenge is the structural deficits. Those are the deficits that will exist when the economy has recovered, when unemployment is down, when the wars are over and when the recent crises have long past. Those threaten the future of the country, our standing in the world and frankly, our standard of living at home.
If you look at parallels, we are worse than Spain on total public debt as a percentage of GDP. We are comparable to the U.K., Ireland and Portugal, and we are within 10 years of being where Greece is. We have more rope because we’re a superpower and have 64 percent of the world’s global reserve currency, but we are not exempt from the prudent laws of finance. And ultimately, we have to make tough choices.
Everything’s got to be on the table because of a new four-letter word in Washington: it’s called “math.” The math doesn’t come close to adding up. Government’s grown too big, promised too much, waited too long. It’s going to have to take steps on the spending side, as well as on the tax side. And the longer we wait, the tougher the choices are going to be. And the less transition time, the bigger the changes. People have to be engaged and involved.
We’re funding, along with MacArthur and Kellogg, an unprecedented national event this Saturday in 19 cities around the country. The fiscal commission offers some hope. Hopefully, they’ll make some recommendations that Congress will be able to act on in 2011 or further. And the bottom line is, this is about the long-term position of the United States in the world and the long-term standard of living of our families at home. Thank you.
ROBERT GREENSTEIN: Thank you very much. I thought Mr. Hoyer gave an excellent speech, and there are many parts of it I could say something about. But given that in these opening remarks, we only have one to two minutes, I’m going to focus on one particular aspect of his talk that I think was particularly important.
Let me preface this by saying that, as the head of an organization that, for a long time, has been issuing analyses about our unsustainable long-term fiscal problems and the need to begin paying attention to them, I would have expected that I would have thought that when the focus on deficits began to escalate, that this was a positive development.
Yet, I have found myself deeply concerned in recent weeks by the way in which the sudden focus on the deficit may actually be causing policy debates to become less well-informed and more problematic because of the deep confusion on Capitol Hill and in the media and around the country between our short-term problem and our long-term structural problem.
And I was particularly pleased that Mr. Hoyer emphasized, in the beginning and throughout, the distinction between the current state of the economy, the current deficits that are necessary to help deal with it, the importance of having a sustainable recovery, now, and not having growth slacken or possibly even go into a double-dip recession, and the distinction between that and the long-term problem, which is a result of the ongoing structural imbalance between projected spending and projected revenues, as distinguished from current, temporary levels of spending.
I have been particularly astonished and appalled by the debate, in the last couple of weeks, in the Senate, where essential efforts to continue unemployment benefits at a time when the unemployment rate is 9.7 percent are argued against on deficit grounds, when the need to prevent near-meltdowns in state governments across the country, resulting in big reductions not only in public-sector employment in everything from teachers to firefighters, but in the very functions and basic services states provide through private contractors who employ many private employees – when this is suddenly thought of as, oh, we can’t do this because of the deficit.
And most appallingly, when many of the same members of the Senate who are arguing against our ability, our need to do that, are then coupling their criticisms with requests to scale back permanent reforms in the pending Senate legislation that would close tax loopholes relating to Wall Street traders and tax avoidance on the part of S-corporations.
Something is fundamentally wrong when a deficit debate is used to argue against temporary measures like unemployment insurance and fiscal relief, which in every past recession, have been strictly temporary, have ended when the economy recovered, and therefore, have not contributed to some ongoing structural imbalance, while some Senators are arguing for weakening tax reforms, including reducing noncompliance, that would be permanent reforms and would help, if modestly, very modestly – I don’t want to overstate it – in the long term.
So let me just go back to saying that was, I think, a particularly welcome part of Mr. Hoyer’s remarks. We really need to distinguish between the short and the long term. We have to be able to walk and chew gum at the same time. We have to be able to tackle both problems and not avoid either one or the other.
ROBERT BIXBY: Thank you. I’ll make it three for three in terms of saying that the right issue to focus on is the structural deficit, and not the cyclical deficit – I almost said the cynical deficit – the cyclical deficit. And that’s a really key point because it affects not just the short-term politics, but also the work of the fiscal commission that’s working on a plan to be released in the end of the year, hopefully.
There’s been a lot of recent commentary about the tension between deficit reduction and economic recovery, as if those two things are incompatible. I don’t think that they are incompatible. As a matter of fact, I think that they’re both essential and I think that they’re complementary. We do, as Bob said, have to be able to walk and chew gum at the same time, meaning that we can look at the short-term economic recovery measures and the long-term structural deficit simultaneously.
And in fact, if we work on them both simultaneously, they will reinforce one another. If we look at one and not the other, then we’re going to have a problem. In other words, if we just say, well, we can’t look at the structural deficit because we’ve still got a problem with the short-term economy and so, spend, baby, spend, or cut taxes to do anything we can to stimulate the economy – that’s not going to lead to any sort of a credible situation because we have this pre-existing condition called unsustainable structural deficit.
And so if it looks, to the people that are lending us money, and who the government is going to ask to lend us even more money, that we have no plan in place to bring about a sustainable fiscal future, then we’re going to end up paying much higher interest rates and the things that we would do in the short term would have very limited effect. But if we just concentrate on the long term and forget the short term, we could end up in a worse situation in the short term. So things like unemployment compensation, aid to the states – those things really need to be on the table at the present time.
But I think that it is a matter of – and I’m very glad that the majority leader pointed out that our unsustainable trend results from things that are very popular – the programs like Social Security and Medicare and Medicaid, which have been very, very successful and popular programs, are on an unsustainable path, and people like their tax cuts. And so we’ve spent the last few years increasing spending and eroding the revenue base, so it should be little wonder that we’re on an unsustainable track.
So getting hold of that is going to require some very, very difficult political choices, and we really need to get to that sooner rather than later because the other ticking clock that is hanging over all of us here is the interest clock. Because as we run large deficits, even if it’s for short-term stimulus that we think is a good idea, that does come with a cost, and we need to recognize that. And that’s the long-term interest cost.
And you know, interest in the budget – the costs are projected, under the president’s budget, to go up dramatically to around $900 billion or so by the end of the decade. And that’s not, you know, way off in the future. That makes it a short-term problem, as well as a long-term problem.
When you look at the long term, you know, CBO’s long-term analysis, it’s the interest costs that eventually kill you much more than anything else – the programmatic costs. So just, you know, to summarize what – you know, what I think about this, is that we need to recognize the structural deficit, get to work on that immediately. That does not mean you need to have immediate cuts or immediate tax increases, but we do need to have a plan that is phased in. I think there are no easy answers here. Everybody wants to cut waste, fraud and abuse. We ought to do that, but it’s not going to get us out of the dilemma that we’re in.
There should be no, you know, misconception that we’re going to grow our way out of this problem. Economic growth is important, but we’re not going to grow our way out of the problem. Everything should be on the table. There should be bipartisan negotiations. And most important, there does need to be public engagement in this issue. I think that the commission, or anybody else that looks at this, really needs to make the public a part of the process because people will reject choices on – policy options on popular programs if they haven’t been part of the process.
And I was very glad to hear, just in conclusion, that Congressman Hoyer did mention that this really – despite all of our talk about numbers and charts and everything, it really is a moral issue, about the legacy that we’re leaving to future generations. And we must not lose track of that fact, that this is not a green-eyeshade issue; it’s a moral issue.
MR. KESSLER: Thank you very much. Those are great remarks by our panel, and following an excellent speech by the Leader Hoyer. We’ve got about 15 minutes for questions. I’m going to ask the first questions and then we’ll go over here. So there is – I think you’ve probably seen in CBO’s projection, they have a chart, 2020, that shows that 61 percent of the federal budget, projected, in 2020 is going to be Medicare, Medicaid, Social Security and interest on the debt.
And I looked at the 1990 budget, and it was 44 percent of the budget was Social Security, Medicare, Medicaid and interest on the debt. So on the spending side, do you feel there is some sort of optimal level at which those programs should make up a portion of the debt? And are we crossing that line or not? And why don’t we – actually, this time, we’ll start with Bob Bixby and we’ll just, quickly, go down the line.
MR. BIXBY: I don’t think there’s any magic number for what the – you know, some particular part of the budget ought to make up. But we need to be – I mean, the number that I would look at is the growing cost of interest, if we don’t do anything. But in terms of Social Security, Medicare and Medicaid, they’re about 42 percent of the budget right now. Yeah, they’ll probably grow to be more. What we just need to be aware of is the budget dynamic that more and more of the budget is on autopilot. You’ve got about two-thirds of it are entitlements or interest right now, and that just means less annual control over the budget. But I don’t think there’s a magic number there.
MR. GREENSTEIN: So I would want to disaggregate the four components you mentioned, like Bob Bixby. Interest is in a different category. Interest, really, should not be viewed as simply a spending program. It is a function of the imbalance between revenues and spending. Whether you raise revenues or you reduce projected spending, either one reduces interest payments on the debt. And when one looks at projections that show a debt explosion in future decades, what really drives the debt explosion is the explosion of interest, which, then, is, again, the derivative of those other factors.
Social Security hasn’t risen that much, as a share of GDP or the budget as a share of GDP. It peaks in 2035, maybe about a percentage point or so of GDP higher than it is today and then edges down a little bit. The big driver on the spending side is, of course, health care. And that’s a function not of something inherent in Medicare and Medicaid, but rather in the rate of growth of health-care costs, system-wide.
And as many people have said, it underscores the fact that, while you need to do a number of other things on the revenue side and other areas of spending, any approach to long-term deficits that does not succeed in slowing the rate of growth of health-care cost is simply not going to get there from here. So that remains central.
Given that, we really don’t know yet exactly how much we can slow the rate of growth of health-care costs. I don’t think one can come up with any magic figure and say, that’s the percentage to hit. And of course, one also very much wants to get revenues in the equation. One quick, final remark – there was a question over here when Mr. Hoyer was here about how fiscal consolidation in some other countries, or as we’re seeing in Europe now, is more or primarily on the spending side.
But it’s also true that most other Western, industrialized countries, certainly in Europe, have significantly higher rates of both spending and revenue than we do, as a share of GDP. And after all the fiscal consolidations are done in Great Britain and Germany and so forth, they will still have higher levels of both spending and revenue than we do here. So I think this is complex issue to look at.
MR. WALKER: I don’t think there’s a magic number. I think we have to recognize in the last 40 years, discretionary has gone down from 62 percent of the budget to 38. It’s expected to go down even further. We cannot allow that much of the budget to be on autopilot without some type of reconsideration. And by the way, the autopilot is not just on the direct-spending side; it’s also on the tax preference side.
We lose about a trillion dollars a year on deductions, exemptions, exclusions and credits. Those aren’t in the budget; they’re not in the financial statements; they’re not part of the appropriations process; they’re largely off the radar screen. Many of them are outdated; many of them are ineffective; many of them are duplicative. And they need to be subject to the same type of periodic review and re-examination as direct-spending programs.
MR. GREENSTEIN: Could I just quickly add – David made a great point – that of course, there are a lot of health tax expenditures, and they rise very rapidly in cost, just like Medicare and Medicaid do.
MR. WALKER: Number one.
MR. KESSLER: Over here in the back. Sir?
Q: Yeah, how would you fix the annual budget rules? They seem to be disregarded every year – (inaudible).
MR. KESSLER: Does anybody want to take the budget rules – (laughter) – question?
MR. GREENSTEIN: Well, I’ll just start by repeating the old cliché – some things are clichés because they have great wisdom in them and people say them over and over again – and the cliché, in this case, is the problem isn’t the process; the problem is the problem. If there is not a will on the part of policymakers, and they don’t think the public will accept tough choices, rules won’t force them to do it.
We particularly saw that with the Graham-Rudman-Holling rules in the late ’80s that attempted to force deficit reduction Congress otherwise wasn’t willing to make, and they failed. On the other hand, rules can be effective in trying to prevent adverse steps. So the pay-as-you-go rules can be effective. They really were adhered to well in the ’90s, for example, until we got budget surpluses, in preventing things from becoming worse.
Or another rule that hasn’t gotten much attention, but it was a significant change, in 2007, was the rule that said we can’t use reconciliation bills to increase the deficit. Had that rule been in place and honored, the big tax cuts in ’01 and ’03 might have come out – certainly, the ’03 tax cuts wouldn’t have been able to have been passed. So rules can be helpful in a protective sense, but I don’t think they can force hard choices. That has to come from a broader consensus of policymakers and, related to that, the public has to be ready to accept those hard choices.
MR. WALKER: I think we need at least two things. One, I think we need a constitutional limit on how much debt, as a percentage of the economy, the country can take on. We need a credit card limit. We don’t have a credit card limit. Other countries do; we should.
Secondly, we need statutory limits that will help us constrain actions and keep us from ever approaching that constitutional credit card limit. And that means doing things that President George Herbert Walker Bush, 41, and President William Jefferson Clinton did. That means meaningful pay-as-you-go rules on both the spending and tax side of the ledger. It means discretionary spending caps that are tough, but realistic.
But it also means looking at mandatory spending and tax preferences and periodically re-examining those and considering the longer-term cost – beyond the 10-year cost – of affordability and sustainability of things, so we don’t play games with trying to make the numbers work within a 10-year budget horizon, when in fact, they could explode behind a 10-year horizon. Those are just a few ideas.
MR. BIXBY: I think that I would agree that the process is – without the political will, the process isn’t going to bring about the solution. But also, it does sort of create the framework and the groundwork in which the budget plays out, and so it can create incentives, and hopefully set a standard that you can’t – things that Congress creates, Congress can always ignore. So I do think that process, you know, can help.
Caps and PAYGO, I think, are a good idea. I think one of the things that really strikes me about the current budget situation are the number of temporary things. You look at all of the things that are set to expire – the sunsets. You know, I’m a sunshine person and all these sunsets make me depressed because you look at all the things that Congress is going to have to deal with, that’s not in the baseline.
You know, you’ve got the extenders. The extenders bill has been about anything but the extenders. The extenders are just assuming that we’re going to extend those things. They all expire. We got through this dance every year, don’t really look at them or give them any scrutiny and just, you know, maybe try to find something to pay for it. These are, like, $32 billion and they’re paid for in this bill – you know, money is fungible – but they’re going to have to come up with offsets for the next round of – and now, we’re using permanent tax increases to offset the extenders.
But that’s just a minor thing. You’ve got AMT. You’ve got the doc fix. And then you’ve got the mother of all extenders, which are the Bush tax cuts – the 2001, 2003 tax cuts – which are going to expire at the end of this year, and they don’t know quite what they’re going to do with them now.
I think one of the most interesting things about what the majority leader said today and what I agree with, is that all of these things should not be made permanent until you have some sort of a – they should be – if you’re going to make them permanent, do it as part of some sort of comprehensive plan that gets ahold of the long term because if you just extend all of these things, and certainly if you extend them and don’t pay for them, you’re going to have a much, much worse budget situation than it appears on paper.
So if there’s some sort of budget process rule that can limit the use – or, you know, I wouldn’t want to say sunsets shouldn’t be used because there are times when, clearly, they are appropriate – in times of recession or to experiment with something. But the way they’re being used now is more to game budget rules, and I think that’s a real problem.
MR. KESSLER: We’ve got time for two more questions. Let’s do quick questions and quick answers. We’ll do here and then here.
Q: (Inaudible, off mike) – set up to address deficits. The higher-profile one is certainly the fiscal responsibility commission – the name escapes me right now. These kinds of commissions have a somewhat poor history of achieving anything. The other one is the Medicare panel, created by the health-care law, which seems, to me, to have some real authority to make cuts to Medicare. Can you talk about the potential of these two entities to affect the deficits?
MR. WALKER: Well, hopefully, the Fiscal Responsibility Reform Commission, which is the presidential commission, which is supposed to report by December 1, I believe – hopefully, they’ll come to some recommendations where they can get 14 out of 18 votes. They’ve got to get 14 out of 18 in order for the Congress to vote on it – the commitment that the speaker and Majority Leader Reid have made.
But even if they don’t get 14 out of 18 votes, their work can be important in helping inform President Obama and his administration as to what he might want to propose himself, either as part of the next budget proposal or otherwise. I think it’s very possible to get statutory budget controls enacted next year that would take effect at an appropriate point in time. For example, you don’t constrain spending or raise revenues when the economy is uncertain and when unemployment is as high as it is.
On the other hand, you can agree on what needs to be done and have triggers of when they would take effect, based upon some criteria. Secondly, I think it’s possible to get Social Security reformed to make it solvent, sustainable, secure, more savings-oriented, a strong, defined benefit base and a way to try to help improve our savings rate, if you will. Not because that’s the immediate crisis – it’s not; not because it’s the biggest problem – it’s not.
But we can get some points on the board and enhance some credibility and build some confidence to be able to go to what are probably going to be the two biggest and toughest issues that are probably going to have to be done in tandem. And that’s health-care cost restrain and comprehensive tax reform that will generate more revenues. Those are going to have to be done. The way has to be prepared. They’ll probably have to be done in tandem because of the nature of what then involve.
MR. GREENSTEIN: The conventional wisdom is that the deficit commission probably will not be able to get 14 of 18 votes. I don’t have any insights others don’t have. I presume the conventional wisdom is correct, primarily because – you know, and I’d love to be proved wrong on this – but primarily because I don’t see any sign yet, although it’s early, that some of the Republican members of the commission will be willing to put net revenue increases on the table. If they really are, that might change the dynamic in the commission, but I think that’s more unlikely to happen than likely.
And by the way, David Walker just said something very important. I would like to associate myself with his remarks. And that is that, you know, at our center, we were enthusiastic supporters of the Tax Reform Act of ’86. But we’re not in 1986 today, and any future tax reform, important as tax reform is, really needs to contribute to deficit reduction. We would have a problem if we did tax reform that took a lot of low-hanging fruit – egregious tax loopholes – off the table and made no progress on deficit reduction. Then we’d have a harder time, actually, getting deficit reduction.
But the second part of your question was on the Medicare commission in the health bill. And there, I really do have optimism that, that commission, by the way – that it’s structured where, really, if it makes recommendations and the president supports them, then you would effectively need two-thirds of both Houses to stop them because Congress would have to pass a bill to block the commission’s recommendations. If the president vetoed that bill, Congress would have to override it. So I think in the long term, that commission will be much more important than the current deficit commission.
And a lot will ride on the ability of that commission to come up with changes that, while initially are changes in Medicare, are the kinds of changes in the delivery of medicine that go beyond Medicare and are picked up by the private sector.
MR. BIXBY: I think that to me, as a deficit hawk, one of the most important aspects of the health-care bill was the Medicare commission that was included. And it wasn’t eventually called the Medicare commission; it was independent payment advisory board or something like that – IPAB. But I think that it’s kind of a safety valve, in the sense that – or the trust but verify clause. There’s a lot in the bill that are assumed savings, and people are skeptical about whether those savings will ever happen or not. So for me, the important thing was to have some sort of mechanism – an ongoing mechanism, a permanent mechanism, that would have the ability to look at things like payment reform, that really can bend the cost curve over time. So getting that and keeping that in the bill, even though it was, you know, substantially cut back over time, it’s powers were trimmed here and there. But it did survive, and I think that, that was a very important aspect of that bill and could eventually be the most – well, I wouldn’t say the most important, but just in terms of a process, the most important for keeping the savings on track.
As far as the fiscal commission is concerned, again, I think it was very important it was done – might have been better to do it statutorily, but it was done. And I think they can – even if they can’t get 14 votes, I’m very hopeful that the members of the commission, if they take the job seriously, as I believe they are – might be able to come up with some proposals that would be in the president’s budget next year and could serve as a basis for some – I mean, I really think they can set a standard by making suggestions that would serve as a basis for going forward in 2011 to help.
MR. WALKER: Quick intervention – in the final analysis, commissions are only as good as the people who comprise them and the amount of presidential support they’re given. And that’s the case, obviously, in connection with these as well.
MR. KESSLER: We have one more question.
MR. BIXBY: I’m going to have to leave, I’m sorry.
MR. KESSLER: You know what, two of our panelists – one has to catch a plane –
MR. WALKER: I can do one more question.
MR. KESSLER: Okay, one more question. Go right back here.
MR. BIXBY: I agree with my colleagues. They’re very wise. (Laughter.)
Q: Hi, Ernie Todeski from the Pew Charitable Trusts. Once you put aside the fixes to Medicare in the long term and the fixes to Social Security that have to happen, the decision that’s going to have the most impact on the long-term fiscal gap is happening this year, which is the extension of the 2001 and 2003 Bush tax cuts. But those are exempt – or the partial exemption – is exempt from PAYGO right now.
Do you believe that we should just pass and extend what’s already exempt from PAYGO and let the deficit commission deal with an offset later, either through tax reform or other means, or should we, as an insurance policy, not extend the Bush tax cuts, or only extend them for two years, or find some alternative to bring down the deficit?
MR. GREENSTEIN: My answer will probably surprise you, and this may be one on which David and I differ, although I would think we’d have the same goal. So I am sufficiently pessimistic about the current political environment that I, as someone who strongly argued in 2001 and 2003 that despite the projected deficits for the next 10 years in 2001, that the long-term situation looked very troubling even then and that we could not afford those tax cuts in 2001 or 2003. Given that, it may surprise you that I think the most fiscally responsible course probably is to make the middle – so-called middle-income tax cuts permanent.
The reason is the following: The reason is that my fear is that if we extend them for one or two years, that the one or two year extension will end up being an one or two-year extension of all of the tax cuts, including those at the top, and that the next Congress will then continue all of them.
So it’s not that I think making the current tax cuts permanent – those for people below 250 (thousand dollars per year) is great policy, but I am sufficiently concerned about the current political environment and where I think the political environment is going after November that I worry that a temporary tax cut – while I agree it gives a potential to revisit the issue in a larger fiscal context.
So from a deficit reduction standpoint, it’s an opportunity, but it also creates a risk. And I think that the risk is greater than the opportunity. I look at the fact that, if the upper-income tax cuts are continued, that including interest costs, that’s $825 billion in added deficits and debt over the coming decade. So I think that the first step is to completely separate the upper-income tax cuts and let them go from the rest of them.
Sooner or later – and I don’t think it’s going to happen in the next two years – but before too long, we’re going to have to revisit a lot of things in health care and other spending programs, and in taxes generally. But I just fear that if we do a short-term extension, that we’ll end up, in the name of fiscal responsibility, that it will bite us and that we’ll actually end up, contrary to the intention of such a move, that we’ll actually end up with higher deficits and debt rather than lower.
MR. WALKER: I don’t believe that all the Bush tax cuts should be extended, and I believe that whatever is extended should be done on a temporary basis and that the ultimate resolution ought to be part of comprehensive tax reform, as part of what we decide makes sense on a going-forward basis to have a more competitive or more equitable, more effective tax system, and one that, quite frankly, generates enough revenues that it will pay our bills and deliver on the promises we intend to keep.
MR. GREENSTEIN: And the difference between the two of us is one of strategy, not one of philosophy or analysis.
MR. WALKER: I agree with that.
MR. KESSLER: Thank you very much. On behalf of Third Way, I want to say thank you to our panelists, thank you to Leader Hoyer. (Applause.) I want to also just quickly acknowledge the Third Way staff who put this together – Jen Pengelly, who organized this whole thing, and our communications team. Dave Kendall is our fiscal responsibility hawk – runs our fiscal responsibility program. Anne Kim is our director of the domestic policy program. And thank everybody here from Third Way, and all our guests. Thank you very, very much. (Applause.)