Three CRFB and Fix the Debt Board Members Testify Before Congress
On September 8, three CRFB and Fix the Debt board members – Mitch Daniels, Judd Gregg, and Alice Rivlin – testified before the Joint Economic Committee on the key drivers of and problems caused by the national debt. They all talked about the vital importance of tackling entitlement reform and improving the tax system, urging Congress to act soon to make the national debt sustainable, while also discussing other important issues on this topic.
CRFB co-chair, former Office of Management and Budget director, former Indiana governor, and current president of Purdue University Mitch Daniels spoke about the importance of restoring public confidence in the government by resolving the debt crisis soon.
If national leadership continues to allow our drift toward a Niagara of debt, until solemn promises are broken as they would then inevitably be, today’s sense of betrayal will seem tame. When today’s young Americans learn the extent of the debt burden we have left them, they may question the premises of our self-government, with good reason. When tomorrow’s older Americans finally understand how they have been actively misled about the nature and the reliability of our fundamental social welfare programs, it may be the last straw breaking the public confidence on which democracy itself depends.
CRFB board member, founding Congressional Budget Office director, and Brookings Institution senior fellow Alice Rivlin addressed the debate about whether the federal government should take advantage of low interest rates to fund investments with borrowing. She explained that while spending on investments may help the economy, it must be coupled with measures to control the debt over the longer term.
To grow faster we need a substantial sustained increase in public and private investment aimed at accelerating the growth of productivity and incomes in ways that benefit average workers and provide opportunities for those stuck in low wage jobs. At the same time we need to adjust our tax and entitlement programs to reverse the growth in the ratio of debt to GDP.
Opponents of undertaking a major productivity-increasing investment program argue that we can’t afford the additional spending because government is already spending too much and the debt burden is already too high, so any additional spending must be fully “paid for” in the near-term. Proponents, by contrast, argue that we should borrow as much as we need for investment at current low interest rates and worry about the debt burden later. Both are wrong. Investment in future growth is essential to a prosperous future, but must be undertaken simultaneously with actions to reduce the growth of future debt. Faster growth alone will not reduce the debt to GDP ratio in a society that has already committed itself to benefits for a growing older population--benefits that will increase more rapidly than revenues even at hoped-for higher rates of GDP growth.
Fix the Debt co-chair and former Senate Budget Committee Chairman Senator Judd Gregg spoke about the importance of budget process reforms, explaining that the budget is currently produced along partisan lines and has "little practical impact in enforcing discipline on federal spending or tax policy." He offered many recommendations for reforming the budget process in a way that produces a more fiscally responsible final product:
- Reconstituting the Budget Committee with "senior members of the committees most affected by the product" in order to increase the "likelihood of agreement from these powerful committees and reduce the forces that are naturally at odds with the effort in producing and enforcing the budget."
- Making the Budget Committee a bipartisan committee, dividing membership "equally between the parties with the chairperson being from the majority" in order to "require both parties to take responsibility for producing a budget or face blame for failing to do so."
- Requiring the budget to set "short-and medium-term fiscal goals for the deficit and debt as a percentage of GDP," and to "set targets for spending and revenues as a percentage of GDP that are consistent with the fiscal goals for the debt and deficit."
- Prohibiting appropriation bills from moving "to the floor without a budget resolution," which should also "apply to omnibus appropriations."
- Imposing consequences for not adopting a budget resolution, such as reducing spending on accounts and major entitlements "by five percent from the prior year" and increasing payroll taxes "by five percent."
- Creating a separate budget item for "the largest areas of federal entitlement spending" and giving the Budget Committee authority "to ensure that reforms are made in these programs to reach the spending goals necessary to achieve the target debt to GDP ratio."
- Coordinating "spending on capital investments among all the committees of jurisdiction."
- Connecting the number of votes required to waive points of order for budget violations to the size of the violation, "with 67 two-thirds majority votes required to waive large violations."
- Establishing a process that will produce comprehensive bipartisan outcomes on "complex and politically charged problems like healthcare spending, entitlements, and major tax reform," similar to the Base Realignment and Closure (BRAC) Commission.
In response to a question from Chairman Dan Coats (R-IN) on tackling all our necessary problems, Rivlin said promoting economic growth, tax reform, and entitlement reform all need to be thought about and worked on together. She indicated that out long-run debt problem cannot be solved on the spending side only. More revenue will be needed, but it needs to be done in a more pro-growth way. In responding to a question from Coats on principles to use in evaluating government effectiveness, Daniels said that you would be amazed how much government you never miss and that there are lots of interest groups behind every dollar of spending, but the rest of country might not notice.
Ranking Member Carolyn Maloney (D-NY) questioned the panelists about financing infrastructure spending. Rivlin replied that public investment is important. Gregg noted that while infrastructure is critical we should have a separate budget for it so it can be evaluated and paid for because although it makes sense to borrow for investment, we are borrowing too much for regular expenses right now. Senator Amy Klobuchar (D-MN) pursued a line of inquiry that led to Gregg to note that there is large value to changing how debt, deficits, spending and revenue are treated in the budget process with Gregg suggesting that the metrics should be targets as a percent of GDP. To Gregg such a change would make it easier to reach a sensible fiscal goals.
In summing up the hearing, Chairman Coats said that is hard to think of three people that could have given us a better analysis and that it is disturbing that this topic is not being talked about in the presidential campaign.
Watch the recorded hearing here:
Read the full text of the prepared testimonies here: