Experts to Congress: We Need Fiscal Goals
As D.C. slowly emerged from under the white blanket of the blizzard, discussion turned today to how the U.S. can rise out of a sea of red ink. Three fiscal experts, all members of the Peterson-Pew Commission on Budget Reform, testified before the Senate Budget Committee today on the need for the U.S. to set fiscal goals now to stabilize the debt and place the nation on a more sustainable fiscal course. CRFB president Maya MacGuineas, Alice Rivlin, and Rudolph Penner expressed a great deal of agreement on the need for a fiscal goal and what it should look like.
Budget Committee Chairman Kent Conrad (D-ND) opened the hearing by saying that he “can’t think of a better group” to hear from on the subject. He mentioned that the topic is very important as Congress begins developing a budget resolution and plans for a fiscal commission that will make recommendations to reduce the debt.
He noted that several blue-ribbon groups have recently concluded that the United States is on an unsustainable fiscal path and that policymakers must set fiscal goals to rectify the situation. Conrad also observed that the groups recommended similar goals. He specifically mentioned the six-step plan proposed by the Peterson-Pew Commission in the report, Red Ink Rising. He presented several charts that showed the recommendations of the Commission and other groups.
In her opening statement, MacGuineas testified that the benefits of a fiscal goal include reassuring credit markets that the U.S. is serious about addressing its mounting debt and giving policymakers a reason to say “no” to costly proposals. She argued that the “announcement effect” of committing to a credible plan could lead to relatively lower interest rates because creditors would be more comfortable with continuing to lend to the U.S. (Check out CRFB’s Announcement Effect Club for a list of prominent economists who share this opinion.)
MacGuineas also contended that policymakers must now begin educating the public about the severity of the situation and the need for tough decisions to be made and to start offering specific solutions. She referred to the Red Ink Rising report as well as an accompanying Budget Blueprint that contains examples of how to reach the goal of stabilizing the debt at 60 percent of GDP by 2018 recommended by the Peterson-Pew Commission.
She went on to assert that a debt trigger equally applying to spending cuts and tax increases that would take effect if annual debt targets are missed would be critical to enforcing a fiscal goal. She also suggested that the expiration of the 2001 and 2003 tax cuts provided an opportunity for a deal coupling the setting of a fiscal goal with extending the tax cuts. She concluded by recommending the the U.S. commit to a debt plan now and gradually phase it in as the economy improves.
All the witnesses agreed that spending cuts and increasing revenue would likely have to be part of achieving fiscal goals. MacGuineas and Rivlin agreed that a fiscal commission would be a key mechanism for reducing the debt. Rivlin stressed the need for bipartisanship and Penner emphasized the need to address entitlements in a serious way. In closing, Senator Conrad offered that instead of balancing the budget, policymakers should concentrate on stabilizing the debt, which is a key recommendation of the Peterson-Pew Commission.
In a town where people can’t agree on whether the recent storm was “Snowmaggedon” or the “Snowpocalypse” this level of agreement on the debt problem and how to address it cannot be ignored.