Maya MacGuineas Testifies in Front of Senate Budget Committee
In her testimony, MacGuineas told Senators that we are not out of the woods yet from the economic problems following the Great Recession and that critical national objectives require controlling our historically high national debt.
MacGuineas’ testimony focused on four key points:
Our deficit and debt problems are far from solved.
While the deficit has come down by about two-thirds since the 2009 peak, this was only after a 780 percent increase in the prior two years. Importantly, the recent declines in the deficit are only temporary. The deficit is only projected to shrink for the next three years, and trillion-dollar deficits are projected to come back within a decade. In addition, CBO’s already-bleak projections might be too optimistic, since they assume that lawmakers won’t further increase the deficit, including by continuing temporary policies as they often have in recent years.
Having a fiscal goal is a key part of budgeting.
It is critical that the country pick a fiscal metric. Currently, there are virtually no limits on our borrowing and no agreed-upon fiscal goal. If there were one, such as balancing the budget by a certain date, or getting the debt to a specific level in a certain amount of time, policymakers would be required to show their preferred paths for doing so and could discuss the various trade-offs of different approaches. That is a core principle of what budgeting is supposed to be.
There are many advantages to getting the debt to more manageable levels.
Advantages that MacGuineas brought up included: greater investment and economic growth; higher income and wages; lower interest rates; declining government interest payments, thus freeing up resources; increased ability to respond to problems; and finally, a reduced risk of fiscal crisis. Importantly, these advantages apply not just to balancing a budget, but also to putting deficits on a path that will lead to falling debt as a share of the economy.
Policymakers should avoid backward steps that add to the debt.
MacGuineas reminded Senators that they increased deficits by $100 billion last year in new funding for veterans health care, fighting Ebola and ISIS, and a package of “tax extenders,” while relying on budget gimmicks (fake savings) to help pay for shoring up the highway system and passing a “doc fix,” and also sneaking significant new spending into the end of year “CROmnibus” bill. Congress faces very serious challenges this year with upcoming Fiscal Speed Bumps. These moments for policy action if handled recklessly could add $210 billion to the deficit for one year of fixes, but over $2 trillion if Congress did ten years of fixes. To find out more on the upcoming Fiscal Speed Bumps, read our updated blog.
Other members of the panel testified on their views on how to balance the budget. John Engler, former Governor of Michigan and current president of the Business Roundtable, advocated achieving balance through growth and spending cuts. He argued that increasing entitlement spending would crowd out other spending in the budget and that a faster-growing economy can have a large effect on the budget. Dr. Mark Blyth, a professor at Brown University, argued that the US does not have a spending problem, but rather a revenue problem, and even with rising debt, the rest of the world still buys US debt, ensuring low interest rates.
During the Committee questioning of the panel, Chairman Enzi (R-WY) asked MacGuineas about her experience on deficit reduction task forces and what her recommendations for improving the budget process were. She responded with three suggested reforms: adopting a fiscal metric (or goal) that forces the budget process to confront tradeoffs; a shift in focus on the long term that helps us look at predictable issues like aging demographics so that we can preempt them and deal with cyclical issues as they arise; and the need to look at the mandatory spending aspect of the budget which amounts to about two thirds of it. Ranking Member Sanders (I-VT) asked MacGuineas if we should end corporate tax loopholes; she responded that this would help broaden the tax base, and we need to rationalize the tax system while looking at both spending and revenues. Senator Jeff Sessions (R-AL) thanked MacGuineas and CRFB for giving an objective view of where the deficit and debt are and asked her to assert the belief that we are on an unsustainable path and at risk. MacGuineas responded that she “absolutely believes that” and that it is a risk to our nation if debt is growing faster than the economy.
In the conclusions of her testimony, MacGuineas summarizes the reason why we must pursue the goal of putting our debt on a downward path.
Controlling America’s debt is a key part of a comprehensive economic growth plan. We need to grow our economy, keep our businesses competitive, and invest in workers, innovations and infrastructure. We need to ensure the gains from growth are broadly shared. And we need to control our debt for any of these efforts to be effective.
To truly tackle our fiscal challenges we need to reform our tax code, strengthen our entitlement programs and control and better-target our spending.
The hearing was in advance of this week's mark up and future floor debate of Congressional budget resolutions. We recently wrote about what we want to see in a budget resolution. We will be writing and analyzing both the Senate and the House’s budget resolutions when they are released.