Why We Need to "Go Big"
Richard Kogan at the Center for Budget and Policy Priorities has released a new report that argues that it may be a better goal for an upcoming budget deal to stabilize the debt as a share of the economy, rather than "Going Big" and coming up with a deal that will put the debt-to-GDP ratio on a downward path. Kogan agrees that a rising level of debt is a threat to the economy, but argues that stabilizing the debt, even at its current high levels, should be our current goal. As he says:
Nevertheless, by stabilizing the debt for the next decade, an additional $2 trillion in savings would give experts and policymakers time to figure out how to slow the growth of health care costs throughout the U.S. health care system without impairing the quality of care. An additional $4 trillion of deficit reduction over the next decade would, in contrast, result in a declining debt ratio (as Figure 1 shows) but would require policymakers to make decisions today on policies, particularly in health care, where desired solutions remain elusive.
There are major unknowns in the health arena. Health care cost growth has slowed appreciably over the past two years. Experts don’t yet know whether this slowdown is permanent or only temporary, and the answer will affect both the magnitude of the long-term fiscal problem and the extent to which further slowing of health-care cost growth is required.
More fundamentally, we currently lack needed information on how to slow health cost growth without reducing health care quality or impeding access to needed care. Demonstration projects and other experiments to find ways to do so are now starting, some of them government-funded and others being undertaken in the private sector. By later in the decade, we should have substantially more knowledge of what works and what doesn’t.
There's no doubt that stabilizing the debt should be the first step over the next few years, but stopping there would not be ideal. There are a number of reasons why "going big" would be preferable to "going medium":
- Economic Projections: The largest uncertainty in budget projections is always in the economic projections, and there is a good chance that we could be overestimating economic performance. For example, CBO does not attempt to predict when a recession will occur, so it projects steady economic growth over the next ten years. It is quite possible that there would be a recession by 2022; otherwise, we would be in the middle of the longest expansion in U.S. history by far. In general, CBO has been revising downward its economic projections in recent years, which could cause a much worse fiscal outlook as we have seen in the past decade. If the debt path was only stable, it would take only a slight downward revision to throw it off track.
- Budget Projections: It's very possible, indeed likely, that CBO will be wrong about certain projections in the budget. It is difficult to predict with great certainty the budget outlook for the next few years, let alone the next decade. CBO may find that they are underestimating the growth rate of health care spending, the number of people receiving benefits in a variety of programs, or the share of compensation going to taxable income is lower than they anticipated. Obviously, they could be doing the opposite as well, but prudent budgeting is wiser, especially in the current fiscal environment. If we were only to stabilize the debt, an unexpected surprise in CBO's projections would push debt unequivocally back up.
- Breathing Room: It is important to keep the budget flexible. We could have an unanticipated emergency such as a natural disaster or recession that presents a drain on the budget. In these cases, it would be wise to do what was necessary to combat the challenge, but a stabilized debt path would quickly turn upward, perhaps to dangerous levels. Putting debt on a clear downward path would provide space for lawmakers to overcome unforeseen emergencies without risking our fiscal standing. Merely stabilizing the debt at a high level may leave little margin for error.
- The Politics of Going Big: This is a point we have made frequently. Doing a medium-sized plan would take most, if not all, the low-hanging fruit off the table and may still require another bite at the apple if things go wrong. Then, the only solutions left would be painful policies that would be politically difficult to enact by themselves. Going big can make a plan more successful by allowing both palatable and unpalatable policies to be enacted together in a package that is much easier to swallow as a whole.
On the topic of health care cost containment, it is difficult and we do expect health care reform to be a work in progress as this decade goes on. But just because we may learn new ways to control health care costs in the upcoming years does not mean we should hesitate in putting policies in place that we believe could be successful in reducing health care spending. We have discussed some of these ideas (see here, here, and here) in the past. These may not be fundamental reforms to the way health care is delivered and financed, but they would certainly help.
Stabilizing the debt is a useful benchmark for early negotiations, but ultimately a deal needs to go beyond that. Deficit reduction is hard, and the opportunity for both Democrats and Republicans to come together on this issue might not always be there. Lawmakers have a real opportunity to act on fixing the budget as a result of the approaching fiscal cliff. We urge policymakers to "Go Big" in their approach.