LL: Today you are part of a coalition to put pressure on lawmakers to sign this pledge. Outside of the Tea Party members, realistically how many members do you think will sign this?
PS: Cut, Cap, and Balance is a concept combining many strains of budget reform we hope will have appeal beyond lawmakers who strictly identify themselves with the Tea Party.
It’s important to bear in mind that Congressional Democrats as well as the Obama Administration have identified tens of billions in domestic and defense spending reductions they could live with, while the “Balance” part of the pledge, the Balanced Budget Amendment (BBA) to the U.S. Constitution, has its modern roots in various proposals spanning close to four decades. More than a few Democrats in the House and Senate – among them Steny Hoyer and Max Baucus – have voted for past versions of a BBA.
Is it a stretch to think that these and other Democrats will suddenly flock to Cut, Cap and Balance? Perhaps, but I don’t think it’s crazy to expect that both sides of the aisle engage each other more fully on the issues behind this pledge if, as they all claim, the debt limit is such a serious matter. To our members, those issues are not items to be relegated to “test votes” that the parties can use against each other in the next election.
LL: Based on the schematics of the House, Tea Party members are not necessary to pass a debt ceiling deal. As long as GOP House Leadership can get the moderates on both sides of the aisle to agree, (as they did with the passage of the 2011 budget), they can pass something.
What is your hope with this rally? To influence the moderates?
PS: Over 100 House Members have already gotten behind Cut, Cap, and Balance, several dozen more than the number who belong to the formal Tea Party Caucus. I expect that number to grow much higher after today, considering that the Republican Study Committee (RSC), which is backing Cut, Cap, and Balance in the House, has more than 175 Members.
Our aim is to ensure that grassroots pressure from the dozens of organizations in the Cut, Cap, and Balance coalition can rally (and in some cases prod!) self-described “fiscal conservatives” (even if they may otherwise be political moderates) to become a force that Congressional leaders, the “Gang of Six,” etc. must reckon with, not just placate with a few more promises of spending restraint down the road.
LL: Can you give me specifics on The Cut, Cap, Balance Plan in terms of how much in spending cuts are you looking for?
PS: The plan that’s been developed in Congress through the RSC sets a goal of cutting the Fiscal Year 2012 deficit in half. To NTU, that’s a goal worth aiming for.
According to the Congressional Budget Office’s projections, the Fiscal Year 2012 budget deficit will come in at about $1.1 trillion – roughly $400 billion lower than this year. Most of this drop is attributable to CBO’s prediction that the economic recovery will take greater hold and the expansion will generate more federal revenues.
Knowing this, RSC proposes $381 billion in additional cuts, much of which could come from the Spending Reduction Act (HR 408). This bill lists several dozen ways that would wind down federal expenditures, like terminating subsidies for Amtrak and the Market Promotion Program.
Some of them, such as defunding implementation of the health care reform law, would likely be contentious.
But this legislation does fall short in several respects. For one, it fails to aggressively tackle defense spending, which must be part of the solution. Late last year the National Taxpayers Union teamed up with the left-of-center U.S. Public Interest Research Group to identify over $600 billion in spending cuts that transcend ideological divisions. NTU also supported a Democratic amendment from Reps. Barbara Lee and Pete Stark during recent House debate over the national defense reauthorization bill that would have trimmed Defense Department outlays back to their Fiscal Year 2008 levels.
In the end, cutting next year’s deficit in half could entail scaling back outlays to about $3.275 trillion – significantly higher than in Fiscal Year 2008 ($2.98 trillion) but lower than the $3.52 trillion of 2009. This is no easy feat, but it’s hard to argue the sky would fall.
LL: What specifics can you tell me about spending caps?
PS: For purposes of this pledge, the goal is to bring expenditures down to the postwar historical norm for revenues as a share of our economy, about 18 percent of Gross Domestic Product (GDP). The idea is that the caps would eventually allow federal budgeting each year to begin from a position of rough parity with revenues.
One bill in Congress, HR 2041 from Rep. Kingston, would start at a 23% of GDP share in 2012 and work down to the 18% level in five years. By way of perspective, federal spending as a share of GDP this year is close to 25%. If Congress failed to stay under the limits, automatic cuts would occur according to the amount each major category of the budget (“direct”, or entitlement spending, security-related spending, and non-security discretionary spending) contributed to the deficit.
HR 1848 from Rep. Mack uses a somewhat different formula to reach 18% over six years. Under both pieces of legislation, Congress could only override the spending limits with 2/3 “supermajority” votes.
Of course, as we saw with the weakening of past statutory spending caps like the Gramm-Rudman-Hollings legislation in the mid 1980's, it takes a constitutional amendment to enforce long-term budget discipline.
LL: Senator Bob Corker (R-TN) is trying to have his Cap Bill passed and is one of the senator behind a balanced-budget amendment. The countdown to default is on. Are you optimistic Congressional members will have a change of heart now and pass these two pieces of legislation?
PS: NTU has supported enactment of a Balanced Budget Amendment since 1975, when the situation was alarming but not at the level it is now.
Back then, the national debt hadn’t even reached $1 trillion; now, it’s beyond $14 trillion.
One reason the BBA endures as a reform is that history only strengthens the case for it. In good times and bad, the federal government has run deficits during 44 of the past 50 years, amid constant denunciations that a BBA was “unnecessary” or “dangerous” or a “poor substitute for political will.”
There’s a more recent illustration in NTU Foundation’s BillTally studyof the first 100 days of this Congress.
The study found that if all House bills introduced to cut the federal budget became law, spending would go down by $298 billion. This is almost two-thirds more, adjusted for inflation, than House Members in Newt Gingrich’s 104th Congress managed to come up with during the same period in 1995.
Yet, the cuts generated in the Gingrich Congress would have erased about three-fourths of the 1995 deficit; today’s cuts under the new GOP majority would only slash less than one-fifth of the 2011 deficit.
In short, Members of this House are working much harder to reduce spending but would achieve less. When facing a mountainous debt of this size, we need effective, durable tools like a BBA that are up to the job of conquering it.
LL: If the Congress passes a short term debt ceiling, how much will this short term patch so to speak cost the American Taxpayer?
PS: Senate GOP leaders have said that without entitlement reform, any short-term deal on the debt must be matched dollar for dollar by spending reductions. Some say that this would allow fiscal conservatives to make steady gains toward spending discipline. But since temporary extensions would only make incremental changes, it’s also difficult to know if markets would be all that reassured.
If public rhetoric of Republican leaders is to be believed, a long-term debt increase would only occur if there’s agreement on several trillion dollars of spending cuts over the next decade. In order to bring the budget back into balance by the end of that period, the word “several” would need to be “seven.” According to CBO, our government will likely overspend by $7 trillion between now and 2021.
Is this achievable? Yes, but only with a concerted effort that includes defense and entitlement reform. In February,NTU testified before the House Committee on Government Oversight outlining how it can be done.
LL: McConnell said the talk of tax hikes is "absurd" and a non-starter in the debt talks. Should tax hikes be put on the table?
PS: We fear that increases in tax rates could backfire in the mid- and long-term, by depressing the economic growth that could keep revenues at more stable levels and aid in deficit control. Beyond the economics of the situation, skeptics cite the packages enacted in 1982, 1990, and 1993 as reason to oppose tax-hiking budget deals. The spending cuts do not materialize, at least not as prominently as promised, while the tax increases take effect much sooner.
Still, there are also positive examples to follow. In 1997 Bill Clinton signed into law a significant capital gains tax reduction along with legislation that slowed the growth rate of parts of the federal budget. The stock market boomed, leading to higher capital gains realizations as well as government revenues. These two pieces of legislation, combined with post Cold War defense draw-downs helped to usher in a brief era of budget surpluses.
Another potentially helpful is reforming the system itself. Our most recent study on tax system complexity cited an analysis from PricewaterhouseCoopers on corporate tax systems around the world.
The United States ranked an embarrassing 124th out of 183 countries for total tax rate (one being best) and 66th for hours spent complying with the law. All told, we calculated that the value of time alone spent on dealing with the federal personal and corporate income tax was $227.1 billion. A fairer, simpler system with lower rates could free up much of this deadweight loss for productive activities, in turn getting the economy growing again, which is a natural revenue raiser.
LL: Entitlements needs to be overhauled. What kind of entitlement program changes would you like to see?
PS: We now have to make up for a lot of lost time in reforming Social Security, Medicare, and Medicaid, made all the worse by a spending spree under Republicans as well as Democrats that has left us in a terrible position to deal with the entitlement explosion.
Rep. Paul Ryan’s plan to gradually transform Medicare to a “premium support” system, allowing individuals more control over their health insurance dollars, has some backing from thoughtful Democrats like former CBO Director Alice Rivlin. It could be one starting point (not necessarily the end point) for an adult conversation on how to fix it.
Some 15 years ago NTU’s research affiliate developed a “National Thrift Plan” incorporating means-testing for Social Security and other benefits, limited cost of living adjustments, revised benefit calculation formulas, and measures to encourage more personal retirement savings. That plan envisioned a transition involving several decades so that, to paraphrase its architects, America could grow up before it grows old.
Congress can lead by example. Recently we endorsed legislation from Senator Sherrod Brown that would link lawmakers’ eligibility for a generous Congressional pension to the retirement age for Social Security.
Now there’s an idea that ought to be able to earn bipartisan support – even if Members of Congress are dragged kicking and screaming by their constituents into doing so!
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A Senior Talent Producer at CNBC, and author of "Thriving in the New Economy:Lessons from Today's Top Business Minds."