Brookings: Topics - Debt Limit Debate

The Perils of Automatic Budgeting

Philip A. Wallach — Tue, 26 Mar 2013 11:00:00 -0400

In the fall of 1978, the United States Congress finally solved the federal government's budget problems. While the Senate debated a bill making some technical revisions to the Bretton Woods Agreement, Virginia senator Harry Byrd, Jr., offered an amendment that read, in its entirety: "Beginning with fiscal year 1981, the total budget outlays of the Federal Government shall not exceed its receipts." The amendment passed, and the bill was eventually signed into law.

The next year, in a bill increasing the debt ceiling, the overwhelmingly Democratic Congress again enacted essentially the same requirement for balanced budgets beginning in 1981. It did so again in 1980, and then in 1982 struck the reference to fiscal year 1981 but reiterated its "commitment" to balanced budgets. To this day, Title 31, Section 1103, of the United States Code reads: "Congress reaffirms its commitment that budget outlays of the United States Government for a fiscal year may be not more than the receipts of the Government for that year."

Of course, in all but four of the 30 years since, the federal government has indeed spent more than it has taken in — running an average annual deficit of more than $340 billion (adjusted for inflation) and well over a trillion dollars in more recent years. The debt held by the public has grown by more than $10 trillion in that time. Not surprisingly, promising to be fiscally responsible in the future has done nothing to mitigate the government's fiscal recklessness in the present.

And yet precisely that practice remains the essence of our fiscal policy today, as Congress and the president struggle to get the federal deficit under control. Now as then, their prayer is: Lord, make our budget sustainable — but not yet.

Our lawmakers contend that today's budget mechanisms are more effective than Senator Byrd's commitment to balanced budgets because they impose specific (if broad) spending cuts that will occur automatically unless Congress undoes them. There has been little recognition of the irony involved in continuing to make this argument even as lawmakers spent the past several months trying to avoid and then mitigate the consequences of a previously enacted mechanism of exactly the same sort: the sequester adopted as part of the 2011 debt-ceiling fight.

The automatic budget mechanism has long held Washington under its spell. But again and again it has disappointed, and for precisely the same reason that Byrd's balanced-budget language was meaningless: As a people no less sovereign than we, future voters (and, more to the point, their representatives) may not feel obligated to respect decisions made in years gone by.

At first glance, this inability to bind the future — which political scientists call the "commitment problem" — would seem to preclude the very possibility of responsible representative government, at least on matters that require sustained discipline (such as the management of the public debt). If representatives today can always put off hard choices until tomorrow — and especially if their voting constituents want them to — it is hard to see how any sacrifices will ever be made. And yet we know that responsible choices are possible, because our predecessors often made them. Balanced budgets in peacetime were the norm for most of our country's history until after the Second World War. Even in the aftermath of the New Deal and Great Society expansions, the polity has managed a few impressive moments of self-control — reining in runaway spending and reducing the growth of entitlement costs.

So why do most of our attempts to achieve such results through automatic budget mechanisms fail? And what has enabled those occasional fiscal successes? To answer these questions, we must first examine the automatic budget mechanisms employed over the past few decades, seeking to distinguish effective recipes for long-term balance from willful acts of self-delusion.

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Authors

Philip A. Wallach

Publication: National Affairs

Image Source: © Kacper Pempel / Reuters

Warriors Against Waste: Cutting Defense Spending through Reform?

Thu, 24 Jan 2013 09:30:00 -0500

Event Information

January 24, 2013
9:30 AM - 11:30 AM EST

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue, N.W.
Washington, DC 20036

The U.S. Department of Defense has been described as “bloated” by the man nominated to be its next secretary, former Senator Chuck Hagel. Many share this view. However, achieving reforms is more difficult than diagnosing the problem, and estimating how much can realistically be saved is particularly challenging. Yet, rough approximations are needed as Congress and President Barack Obama seek to determine how much more, if at all, the defense budget might be reduced over the next ten years as part of a possible deal to avert the fiscal cliff before its new March 1 deadline.

On January 24, the 21st Century Defense Initiative at Brookings hosted a discussion on the future of the U.S. defense budget, with a particular focus on reforms and efficiencies. Brookings Senior Fellow Alice Rivlin delivered a keynote address on the nation’s broader economic challenge and deficit reduction effort. Following her remarks, a panel discussion addressed topics such as reforms of military compensation processes; weapons acquisition practices; weapons maintenance practices; base infrastructure; information technology systems; and Department of Defense management.

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Warriors Against Waste: Cutting Defense Spending through Reform?

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Mr. Boehner, Tear Down This Debt Ceiling!

Philip A. Wallach — Thu, 10 Jan 2013 00:00:00 -0500

We begin a new year and a new Congress with a sense of déjà vu: as it was in the summer of 2011, our outstanding national debt is up against its legally specified limit. Speaker John Boehner has promised an encore in 2013, but Americans of all political persuasions should hope that this is a promise the Speaker decides to ignore.

In this research note, Governance Studies Fellow Philip Wallach explains our debt ceiling’s origins and development, showing that attempts to bring about effective policy change through threats not to raise the debt ceiling have a long historical record of failure dating back to the 1950s. This includes a little-remembered debt ceiling showdown in 1996 in parallel to the more famous budgetary standoff that led to government shutdowns. In that episode, Republicans demanded large spending cuts but eventually decided that creating a crisis would be politically disastrous, and settled for small concessions.

Wallach considers the strongest arguments for keeping the ceiling in place and shows why they fall short. He argues that debt ceiling brinksmanship represents an abdication of congressional authority over spending choices. Should Congress fail to increase the debt ceiling in a timely manner, the President would be forced to break laws, and would probably choose to fail to carry though many spending obligations. In doing so, he would have no legal guidance, forcing him to act in an autocratic manner fundamentally inconsistent with America’s rule of law tradition. Because Congress has nothing to gain in such a situation, their threats not to raise the debt ceiling ultimately ring hollow, rending debt ceiling brinksmanship an ineffective way to control spending, as the historical record confirms.

Wallach then offers superior alternatives to the debt ceiling that advocates of spending restraint should propose as replacements.

• To replicate the debt ceiling’s attention-grabbing quality, each party’s congressional leaders should be formally required to provide an explanation and plan whenever the country experiences distressingly large deficits.

• We should adopt a modest automatic-spending-control mechanism that would force spending reduction only if unemployment is low, thereby having a chance of passage and successful enforcement.

• We must reform our dysfunctional budgeting process. More government spending should be moved on-budget, forcing a hard look at the tradeoffs between entitlement expenditures and discretionary spending.

• Continuing resolutions should be forced to automatically push us toward balanced budgets, creating a default rule in which current unsustainable levels of spending are not retained simply through inertia.

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Authors

Philip A. Wallach

Image Source: © Kevin Lamarque / Reuters

Lost Opportunity for Jobs and Growth

Alice M. Rivlin — Fri, 28 Dec 2012 12:30:00 -0500

Will 2013 be a great year—the year economic recovery picked up steam and our paralyzed democracy began to function constructively again? Or will it be a year of tragically unnecessary lost opportunity? The choice is up to our newly re-elected leaders and the public they represent.

The pace of economic growth and job creation appears poised to accelerate in 2013. Housing markets are finally reviving with a significant number of new starts and rising home prices in many areas. New life in the housing market is good news for sellers of home furnishings, as well as for consumer confidence and job mobility. State and local governments, whose fiscal woes and layoffs have been dragging down other sectors, have turned the corner and returned to solvency. Some manufacturers have tired of dealing with the strains of out-sourcing and are starting to bring jobs home. America’s much-vaunted ingenuity and entrepreneurial talent gives no evidence of flagging. Even a devastating recession could not squelch exploding connectivity and the social media revolution. Banks and companies are holding plenty of cash they need to put to work. The Fed is guaranteeing rock-bottom interest rates for the foreseeable future. Inflation is subdued. Energy prices are down and domestic production is surging. Most signs point to better times ahead—except for a dysfunctional government threatening to make two disastrous mistakes.

The first mistake would be to overwhelm the positive forces by administering the strong dose of fiscal austerity inherent in the tax increases and mindless spending cuts of the “fiscal cliff.” Austerity is absolutely the wrong prescription for a still-fragile recovery—how many European examples do we need to learn that lesson? Moreover, proving that the U.S. government is so paralyzed by partisan warfare that it is unable to avoid crashing into its own artificial barrier will undermine confidence of consumers, investors, and markets here and abroad. Even though the economic consequences of going over the “cliff” would be small if a deal were reached before most of the tax increases and spending cuts took effect, the psychological fall-out could be dire. Why should anyone believe that failure to avoid the “cliff” would not be followed by another debt ceiling debacle and trench warfare over appropriations when the continuing resolution funding government agencies runs out in March?

Even if the “cliff” crisis is avoided by cobbling together a hasty deal, the more serious mistake would be failure follow-up with policies to keep national debt from rising faster than the economy can grow. Remember that the “cliff” was an artificial crisis designed to force political leaders to agree on a compromise that would stabilize future debt. The fundamental danger to future prosperity is that federal spending, driven by promises made long ago to a rapidly growing number of retirees with rising health care costs, will overwhelm inadequate revenues and force the government to borrow more and more every year.

We have time to fix the debt problem—gradually and sensibly—if we start now. It would be really stupid to get past the artificial problem and ignore the real danger. But to get the real job done the two warring political parties will have to stop blaming each other and hammer out a serious solution together. Getting past the “cliff’ is just the first indication of whether we have elected a set of leaders capable of solving problems.

Authors

Alice M. Rivlin

Image Source: © Mary Calvert / Reuters

Soak the Middle Class! In Praise of Higher Taxes on Everybody

William A. Galston — Thu, 13 Dec 2012 16:56:00 -0500

There’s a great fiscal debate in Washington, and George W. Bush is winning it. In 2008, Barack Obama campaigned on a pledge not to reverse Bush’s tax cuts for the bottom 98 percent of taxpayers, a promise he has worked hard to honor. That locked in 80 percent of the Bush-era revenue losses. During the current negotiations, Obama’s initial offer includes $1.6 billion in new revenue over 10 years, which would leave intact about 60 percent of Bush’s tax cuts. Simply put, this is not enough: President Obama has conceded far too much to the policy framework of his immediate predecessor.

I’m an unrepentant Clintonian, and our current fiscal situation is one big reason why. Republicans unanimously rejected Clinton’s 1993 budget, and Democrats didn’t much like it either. But it was the right thing to do back then, and it remains relevant today. By the late 1990s, the Clinton tax code was yielding a bit more than 20 percent of GDP, roughly what we’ll need to run the government and stabilize the debt during the next decade—unless the American people are prepared to accept Paul Ryan’s budget cuts, which they aren’t. Bowing to that reality, John Boehner didn’t bother to put the Ryan budget on the table as his opening bid in the fiscal cliff talks.

I note for the record that during Clinton’s two terms, federal spending declined from 22 percent of GDP to 18 percent—the lowest since the late 1960s. So much for the Republican talking point that it’s pointless to raise revenues because Democrats will spend them—and more. A combination of tax increases and spending restraints worked well—macroeconomically as well as fiscally—in the 1990s, and with the necessary adjustments, it could do so again.

I think I understand why Obama took the position he did in 2008, and why he has held to it so tenaciously. Democrats have been on the defensive over taxes since the 1970s, and the middle class, whose incomes were stagnating even before the 2008 collapse, were in no position to absorb tax increases. But we can’t put off the day of reckoning forever. At some point, the American people will have to accept the need to pay for the government they say they want. And that can’t happen unless the middle class participates, one way or another. As Democrats like to say, it’s arithmetic.

Of course no one likes to pay taxes. Still, democracy stands or falls on the proposition that the people are capable of governing themselves, which can’t happen unless they can accept the truth. But how can they accept the truth if they don’t hear it? There’s no alternative: democratic leaders must bet on the maturity and common-sense of the people—not everyone all the time—but the majority in the long run. Surely they can understand that solvency means paying for what we want, the vernacular version of Justice Holmes’s dictum that taxes are the price we pay for civilization.

There is, of course, a reasonable debate to be had about how best to time fiscal changes. No one wants to risk strangling a still-fragile recovery. But there should be no doubt about the outlook in the long-run. Given inexorable demographics and immovable politics, we cannot hope to run the federal government on the average level of revenues—18 percent of GDP—that prevailed over the past fifty years. Even with significant adjustments in the big health care programs, we’ll do well to keep federal spending between 21 and 22 percent of GDP over the next decade. The Clinton-era tax code would bring in 20.6 percent over that period.

Few want simply to return to that code, of course, and for good reason. It’s far too complex, and it’s honeycombed with deductions and exclusions that are poorly targeted and inefficient. Instead, we need fundamental tax reform that yields the same level of revenues. That means some combination of a broader base, higher rates for many taxpayers, and new revenue sources. Forcing the income tax to bear the entire burden of increased revenues is almost certainly a mistake, which is why quiet bipartisan discussions about a carbon tax are taking places—not among elected officials, of course, but including a surprising array of policy experts.

But the bottom line is this: while we can and should ask upper-income Americans to pay significantly more, that won’t be enough to get the job done. America’s middle class will have to chip in as well. When Obama warns middle-income families that they face a post-cliff tax increase of $2000, he’s referring to the gap between what they pay under Bush’s tax code and what they would have paid under Clinton’s. (Although many Democrats have been loath to admit it, Bush cut taxes for everyone, not just the “rich.”) But in the long run, one way or another, the middle class will have to pay something more like Clinton’s taxes, or give up benefits they value highly.

If President Obama wants to set the country on a sound fiscal path, he’ll have to force the Republicans to break the Norquist pledge. And then he’ll have to break his own.

Authors

William A. Galston

Publication: The New Republic

Image Source: © Kevin Lamarque / Reuters

How to Solve the Fiscal Cliff? Start With a Gag Order

William A. Galston — Thu, 06 Dec 2012 00:00:00 -0500

Since election day, our polarized political parties have been sparring over the fiscal cliff in public. We’ve been treated to press conferences and campaign-style events, offers and counteroffers. The result has been very little, if any, tangible progress.

This shouldn't be a surprise. Public discussions encourage posturing and allow die-hards to strangle compromise in its cradle. If the leaders of the parties are serious about reaching an agreement (some of their troops are not), they’ll have to shift course and enter into private, face-to-face negotiations, during which they would agree to cease tattling to the press about the transgressions of the other side. President Obama and House Speaker John Boehner will have to take the lead, as they did in the famously abortive “grand bargain” talks of 2011.

It’s understandable why both of them might be reluctant to go down this path again. Last year’s talks produced intra-party conflicts among Republicans that Boehner found hard to manage. For his part, the president reportedly believes that it was a mistake to closet himself with the Speaker and that only constant public pressure can induce the Republicans to abandon extreme positions.

But much has changed for each of them over the past fifteen months. Some of the early Tea Party fervor has cooled, and the House Republicans are more unified around Boehner’s leadership. Despite a brutal campaign, they suffered only modest losses and comfortably retained their majority. Both Eric Cantor and Paul Ryan signed onto his latest proposal, which included $800 billion in new revenues over the next decade. There are still limits on how far Boehner can go: Some conservative Republicans have been vocally unhappy about Boehner's offer of new revenue, and also his treatment of dissidents in committee assignments. Still, he speaks for his party to a greater extent than heretofore.

As for Obama, he was right to think that the mobilization of the public was a necessary condition of success. But he achieved that objective in the 2012 election: The people have endorsed higher taxes on the wealthy, and they are prepared to hold the Republicans responsible for the breakdown of fiscal cliff talks. A continued public campaign will not do much more to strengthen his hand. His task is to convert political gains into policy accomplishments.

Obama believes that the voters endorsed his fiscal views over Romney’s, and he’s right. In a parliamentary system, that would be dispositive. In James Madison’s system, it isn’t. Boehner believes that the voters rejected Democratic assaults on his caucus, reelecting almost all of them, and that he represents a different majority with equal constitutional standing. The president may force the Republicans to yield on the Bush tax cuts for high-income earners. But with the debt ceiling looming, Republicans will have leverage as well in the next few months. Unless Obama can divide and conquer his Republican opposition, he will have to reach an agreement with them on a range of spending and revenue issues.

While their positions are far apart, each side has put its opening bid on the table, and neither is likely to take another step unilaterally. It’s time to negotiate face to face: Only that process can allow the parties to explore options unpopular with their bases, assess one another’s sincerity, and build a modicum of trust. Regardless of which high-level figures are chosen to participate, they should agree to convene three times a week, with intensive staff work between meetings. And they should agree not to litigate their differences in public as long as the discussions continue.

There’s no guarantee of success, of course. Face to face talks are a necessary but not sufficient condition of agreement. In the end, one or both sides may prefer no agreement to accepting the other’s best and final offer.

In wasn’t easy to bridge the partisan divide during the 1980s and 1990s, and the polarizing trends of the past two decades have made it ever more difficult today. Nonetheless, our leaders have a duty to try. And the time to begin is now.

Authors

William A. Galston

Publication: The New Republic

Image Source: © Larry Downing / Reuters

The No Good, Very Bad Outlook for the Working-Class American Man

Jonathan Rauch — Wed, 05 Dec 2012 00:00:00 -0500

If the American economy were an automobile, you would say the transmission is failing. The engine works, but not all wheels are getting power. To put the matter less metaphorically: The economy no longer reliably and consistently transmits productivity gains to workers. The result is that many millions of Americans, in particular less-skilled men, are leaving the workforce, a phenomenon the country has never seen before on the present scale.

Well. That was a mouthful. It certainly bites off more than Washington’s polarized politicians can handle at the moment. In the next few months, they need to worry about the so-called fiscal cliff, the round of automatic tax increases and spending cuts that, if not averted, might start a recession. Plus a politically vexing debt-limit bill, which will need to be passed early in 2013. Plus a recovery that, for many Americans, feels more like a recession. (The median family income fell as much during the first two years of the recovery as it did during the two years of the recession itself, according to the Pew Research Center.) Plus a debt crisis and downturn in Europe. Isn’t that enough?

Read the full piece on The National Journal »

Authors

Jonathan Rauch

Publication: National Journal

Image Source: © Carlos Barria / Reuters

The Fiscal Cliff – A Live Web Chat with Isabel Sawhill

Wed, 28 Nov 2012 12:30:00 -0500

Event Information

November 28, 2012
12:30 PM - 1:00 PM EST

Online Only
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

As the deadline for the expiration of the Bush tax cuts nears, along with the draconian spending cuts required by the so-called “fiscal cliff” imposed by the Budget Control Act of 2011, Americans wonder whether Congress and the White House can clear the myriad economic and political hurdles, enact sound fiscal policy and avert financial calamity. While developing effective long-term solutions will likely take years, Congress desperately needs a short-term compromise to avoid the fiscal cliff next month. What likely elements can we expect in a compromise between Democrats and Republicans? Are concerns about expected cuts to defense spending overblown? What effects will a failure to avoid the fiscal cliff have on the national economy?

On November 28, Brookings expert Isabel Sawhill took your questons in a live web chat moderated by Vivyan Tran of POLITICO. Read a full transcript of the chat below.

9:23 Vivyan Tran: Just a reminder that today's chat with Isabel Sawhill begins at 12:30. Feel free to start submitting questions.

12:30 Vivyan Tran: Welcome everyone, let's get started.

12:30 Comment from Lloyd Thomas: To prevent savage future cuts to Medicare and Medicaid, do we need the threshold for income tax hikes to be far lower than $250,000 ------perhaps $100,000?

12:32 Isabel Sawhill: Your idea is a good one. We are going to need more revenue than we will get from a cut-off of $250,000. The problem is that the president has not prepared the public for a lower threshold.

12:32 Comment from Jared: Obama's touring the country trying to encourage Congress, via their constituents, to make a deal. Think this is an effective strategy?

12:33 Isabel Sawhill: Hi Jared - I do think it's an effective strategy. In the past, the president has relied too much on an "inside game." I think he's learning now to play the "outside game."

12:33 Comment from User in VT: Assuming we reach a temporary deal and don't go over the cliff, what long-term solutions for bringing down the deficit can we expect to be negotiated in Obama's second term?

12:34 Isabel Sawhill: First of all, everything has to be on the table. We need higher revenues and we need less spending, especially on the big entitlement programs such as Medicare, Medicaid and Social Security. I have a six-point plan that was recently published in the Christian Science Monitor. You can read it here: http://www.brookings.edu/research/opinions/2012/11/16-fiscal-cliff-deal-sawhill

12:35 Comment from Alexandra: Have you heard any good "outside the box" ideas for reaching a compromise before January?

12:36 Isabel Sawhill: Hi Alexandra - thanks for asking. I have one "outside the box" idea, which is to provide a temporary super deduction for charitable giving as part of a short-term deficit deal. You can read about it here: http://www.brookings.edu/research/opinions/2012/11/28-deduction-charitable-giving-recovery-sawhill

12:36 Isabel Sawhill: Also see my answer to the last question.

12:37 Comment from Arlington: Can you speak the looming defense cuts that are a part of sequestration. Out here in the defense sector, there's a lot of uncertainty about how these cuts will affect contracts, etc. Are they as draconian as they've been made out to be?

12:38 Isabel Sawhill: They are quite draconian. I am not an expert, but my colleague Mike O'Hanlon has written extensively on the defense cuts. You can find his commentary at http://www.brookings.edu/experts/ohanlonm

12:38 Comment from Dekeysha Cooper: What effects do we plan to see if the fiscal cliff is not looked at before the first of the year?

12:40 Isabel Sawhill: If we go off the cliff, the economy will be thrown into a recession unless we fix the situation relatively quickly. The Congressional Budget Office predicts a drop of 0.5% in the economy if we go off the cliff in 2013 and remain off the cliff. Some other analysts think the effects would be even larger. At the same time, going off the cliff would stabilize the debt and reduce the deficit to much lower levels.

12:40 Comment from Karen DePalma: What does the K-12 public education landscape look like on January 3, 2013, if compromise is not reached and the sequester becomes effective?

12:42 Isabel Sawhill: Hi Karen - bear in mind that as part of the debt ceiling crisis we have already enacted about 1.5 trillion dollars in cuts to discretionary spending over the next decade. It is impossible to say right now how much of the burden will be borne by K-12 education, but it would likely be substantial. If there is a sequester, the cuts will be even deeper.

12:42 Comment from Guest: When will these crises bring us to a real tax reform in the US? I would love to hear a conversation about how to d something really forward-looking -- like replacing the Corporate tax with a VAT and re-tooling the income tax to address income inequality -- rather than a rice/poor rate convo... how likely in our lifetimes?

12:44 Isabel Sawhill: I very much agree with you that a VAT would be desirable. We are the only advanced nation that doesn't have one. Several of us at Brookings have written about the VAT, including myself, Bill Gale, and Henry Aaron. I am not sure we should replace the corporate tax with a VAT, but I agree with you that we need a wholesale restructuring of the tax system.

12:44 Comment from James: Raising taxes on just the wealthy is not the answer. If you were to tax the rich 100% it wouldn't make a dent in the Deficit.

12:45 Isabel Sawhill: Hello James - yes, raising taxes on just the wealthy can't be a complete answer, but it would be a start. And it would make more than a dent in the deficit if we were to tax the rich 100%. Even doing what the president has proposed, which is to raise rates for those with incomes above $250,000 and to limit their deductions to a 28% rate, would raise about 1.6 trillion dollars over the next decade.

12:46 Comment From Nancy: Is it the Middle Class that suffers the most financially if we do go over the fiscal cliff?

12:47 Isabel Sawhill: Nancy - your question is hard to answer because we don't know what all the economic ramifications would be, or how rapidly the cliff would be repaired. But if we have a recession, this does affect a very broad swath of the population. The poor would be affected even more than the middle class.

12:48 Comment From Karl: What does a drop of .5% mean for people, though? In terms of jobs/quality of life, etc.? Will the recession caused by going off the cliff be as bad as the first one.

12:49 Isabel Sawhill: Again, it's hard to predict exactly how people would be affected. Our Tax Policy Center estimates that taxes would go up by about $2,000 a year for the typical middle class household, the unemployment rate would top 9%, and domestic spending programs would be hard hit. And all of that is from a base economy that is not very healthy right now.

What do you think would be the proper percentage of spending cuts vs. revenue increases in a deal that might win support from both Republicans and Democrats?

12:51 Isabel Sawhill: Hi Ron - One thing that's not well understood is that we have already cut spending by $1.5 trillion over the next decade as part of the Budget Control Act of 2011. Given that we have already cut spending so much, I don't think that spending cuts should be more than about half of any new package.

12:52 Comment from MaryAnn: Is there a study that quantifies what the impact would be if the President and congress don't reach a compromise and we go off the fiscal cliff? Is there something that measures the impact on sectors of the economy or income groups?

12:53 Isabel Sawhill: There are at least three studies of the impact. One is by the Congressional Budget Office; one was recently completed by the Council of Economic Advisors; and a third has been done by Goldman Sachs. I'm not sure that they measure the impact by sector or by income group, but you could check on this.

12:53 Comment from Ron: Who came up with the term Fiscal Cliff, and what data did they use to determine if nothing was done, it would send us into a tailspin? My thoughts are that the left put this out to force the right to come up with a hasty resolve to the problem.

12:56 Isabel Sawhill: The term fiscal cliff was coined by Ben Bernanke, chair of the Federal Reserve. The studies use macroeconomic models to determine how a deficit reduction that totals over $600 billion in 2013 would impact the economy. Such estimates are not perfect, but they are probably in the right ball park. You are also right that the left is using the leverage created by the fiscal cliff to extract some concessions from the right, but they did not create the cliff. It is a result of decisions made many years ago, and the fact that Congress has done nothing to fix it in the interim.

12:56 Comment from Jedediah: Why do the Republicans always want to cut spending on entitlement programs they are always ready to get into a war that cost more than any entitlements?

12:58 Isabel Sawhill: Hi Jedediah - The reason that we need cuts in entitlement programs is because they are what is driving up spending and creating an intolerable amount of red ink. However, they could be reformed in ways that would not affect anyone currently retired, and that would preserve current benefits for lower income Americans. Wars are expensive and you are right to question their cost as well.

12:59 Isabel Sawhill: Thanks so much everyone for your good questions.

1:00 Vivyan Tran: Thanks, see you next week!

A Fiscal Cliff Compromise That Could Work For Everyone

William A. Galston — Wed, 21 Nov 2012 00:00:00 -0500

Two entrenched positions define the revenue dimension of the fiscal cliff debate—Republicans’ opposition to rate increases, and President Obama’s longstanding vow not to raise taxes on families making $250,000 per year or less. Each side has reasonable if not completely compelling arguments in favor of its position. Republicans say that a suitably reformed tax code would be more pro-growth than what we have now; Democrats counter that the changes in the code since 2000 have exacerbated the widening gap between the wealthy and the rest of us.

It is possible that one side will feel compelled to surrender—to yield on its core commitment. That’s what Minority Leader Nancy Pelosi and many other Democrats believe: the public’s support for higher taxes on the wealthy will force Republicans to allow rates to rise for the top 2 percent of taxpayers. Maybe so. But if neither side yields and we go over the cliff, both sides lose from their own perspectives. As of January 3, taxes go up on what President Obama capaciously defines as the middle class, and the tax code is less pro-growth from the supply-side point of view.

To be sure, no one believes that non-agreement by December 31 would be the end of the story. After a period of finger-pointing, discussions would resume. But equally, no one knows how the failure to reach agreement before the end of 2012 would affect the dynamics of the negotiations. We can be reasonably sure, however, that national and global markets would react adversely and that businesses, which are already retreating from planned investments in new plant and equipment, would become even more uncertain and risk-averse.

Two years ago, I co-authored a ten-year budget plan designed to stabilize the national debt as a share of GDP while preserving progressive commitments. To meet these goals, we found that the United States will need revenues between 20 and 21 percent as a share of GDP (the level reached at the end of the Clinton administration). This brute fact leaves us with a choice: we could try to meet needed revenue targets by raising rates within the existing tax code or by achieving fundamental reform that simplifies the code, puts all sources of income on a more equal footing, and cuts back on tax expenditures that contribute to neither growth nor fairness. (I’d be happy to throw a carbon tax into the mix as well.)

But we can’t reach that kind of solution—or any kind of comprehensive long-term agreement—between now and December 31. As we learned in 1985-86, tax reform is a long, complex, contentious process, even when all parties are working within the same basic framework. So we need an interim solution that meets the minimum requirements of both sides and sets the stage for broader negotiations next year.

Here’s one version of such a deal. As a point of departure, both sides would accept a cap of $50,000 on itemized deductions. (According to the Tax Policy Center, individuals making more than $200,000 would bear almost all the increased burden.) In addition, Republicans would agree to raise the tax rates on dividends and capital gains, narrowing the gap between today’s very low rates and those that prevailed pursuant to the Reagan tax reform of 1986.In return, President Obama and the Democrats would agree to leave the rates on earned income at current levels. Because this revenue down-payment would be part of a broader framework agreement, it would expire on the date that the broader negotiations included in that agreement are required to reach a conclusion.

Under this scenario, everybody gets something: Republicans can tell their supporters that they held the line on top rates, Democrats can tell their supporters that they increased the tax burden on the wealthiest Americans while holding everyone else harmless, and President Obama can say that he honored his pledge not to sign another extension of the Bush tax cuts.

No doubt many Democrats will say: We won the election, and the Republicans are just wrong, so why shouldn’t we force them to capitulate? That viscerally attractive line of argument overlooks an inconvenient fact: the Republicans retained control of the House of Representatives by a margin not much diminished from the high tide of 2010, and they think their odds of repeating that result in the next mid-term election are pretty good. And besides, they say, they speak for the 48 percent of the country that didn’t vote for Obama. If no deal can work without their assent, why should they yield?

Democrats believe, with some justification, that if going for broke fails, the public will blame the Republicans for continued gridlock and rancor. But wouldn’t it be better for the President and the country to make real and visible progress toward solving our problems?

Authors

William A. Galston

Publication: The New Republic

Cut Spending or Raise Taxes? Follow the Bipartisan Bowles-Simpson Formula and Do Both

Isabel V. Sawhill — Wed, 24 Oct 2012 00:00:00 -0400

Editor’s Note: The following is Isabel Sawhill’s contribution to the Christian Science Monitor’s One Minute Debate presenting three views on the best way to curb the U.S. deficit.

To reduce current deficits and slow the growth of debt so that it stabilizes and then shrinks, the United States will need both spending reductions and tax increases. The next Congress and president should quickly enact such measures, but phase them in to avoid undermining a fragile recovery.

The bipartisan plan spearheaded by Democrat Erskine Bowles and Republican Alan Simpson, who led President Obama’s debt commission, suggested roughly $2 in spending cuts for every $1 in tax increases. That’s a healthy ratio. Since Congress approved a spending cut of more than $1.5 trillion over the next decade as part of the Budget Control Act of 2011, the US only needs about $0.5 trillion in further spending cuts and $1 trillion in tax increases to be consistent with the Bowles-Simpson plan.

Over the longer term, spending cuts must include major reforms to entitlement programs such as Social Security and Medicare. This could include raising the retirement age, linking benefits to income, and raising the proportion of earnings covered by payroll taxes. It also means slowing the growth of health-care costs.

Defense spending can be lowered by reassessing threats and ending two wars.

Other domestic spending has already taken a big hit and can’t be reduced much, if any more, without curtailing growth-enhancing, high-priority areas such as education and infrastructure, veterans’ programs, or public safety.

Tax reform that broadens the base by eliminating or limiting many existing deductions and preferences is essential. Cutting out even half of these preferences along with the spending cuts identified above would put the US on a sustainable fiscal path as long as revenues raised are devoted primarily to reducing the deficit and only secondarily, if at all, to reducing tax rates.

Will the next president propose and the Congress enact such changes? Only if the public is ready to follow their lead.

Authors

Isabel V. Sawhill

Civil Conversations: Restoring Civility to the Debt Discussion

Tue, 09 Oct 2012 10:00:00 -0400

Event Information

October 9, 2012
10:00 AM - 11:30 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

As political discussion has devolved more and more into hyperbole and vitriol over the past few years, solutions to the critical issues that face the nation - including our mounting deficits and national debt - have proven elusive. How to bring this discussion back to substantive issues, as opposed to partisan rhetoric?

On October 9, as part of her Civil Conversations Project, Krista Tippett of American Public Media's radio show On Being moderated a discussion at Brookings with Senior Fellow Alice Rivlin, former director of the Office of Management and Budget and Congressional Budget Office and Pete Domenici, former Republican senator from New Mexico and a senior fellow at the Bipartisan Policy Center. Both renowned for their work on budget issues, they have created a bipartisan alliance, and discussed what they have learned, what is happening below the radar of partisan rancor, and what is at stake as the nation grapples with the debt crisis and political stalemate. Brookings Managing Director William J. Antholis delivered opening remarks. After the discussion, panelists took questions from the audience.

You can follow the conversation on this event on Twitter at hashtag #CCP2012.

Video

Does Journalistic "Balance" Hurt America?: A Q&A with Thomas Mann

Trudy Lieberman and Thomas E. Mann — Tue, 31 Jul 2012 00:00:00 -0400

Thomas Mann, a senior fellow at the Brookings Institution, and Norman Ornstein, a resident scholar at the American Enterprise Institute, are savvy political scientists who know Washington politics well. And they have been regarded as middle-of-the-road guys, centrists, for a number of years in DC. That is why their book, It’s Even Worse Than It Looks, published by Basic Books in May, has startled some media types with its thesis, which argues, in a nutshell, that the core of Washington’s political dysfunction lies with the Republican Party. As they put it in The Washington Post:

"The GOP has become an insurgent outlier in American politics. It is ideologically extreme; scornful of compromise; unmoved by conventional understanding of facts, evidence, and science; and dismissive of the legitimacy of its political opposition."

Along with their criticism of the GOP, Orenstein and Mann had some harsh words for the press. As they wrote in their book:

"Because of the partisan nature of much of the media and the reflexive tendency of many in the mainstream press to use false equivalence to explain outcomes, it becomes much easier for a minority, in this case the Republicans, to use filibusters, holds, and other techniques to obstruct."

CJR’s Trudy Lieberman sat down with Mann to explore where he and his co-author think the media have gone awry. First the politics, then the press:

The Politics

Why is the GOP to blame for political stalemate you describe in your book?
They are now the primary source of the stalemate. At the very beginning of the Obama administration, they made an explicit decision—now well documented—to eschew any policy negotiations with the newly elected president and Democrats in Congress. It’s a strategy of total political opposition—to avoid sharing any responsibility for the performance of the economy and to do nothing that might improve its performance, because that would boost the electoral prospects of President Obama and Congressional Democrats. Their motivation goes beyond differences on the issues. It’s an aggressive, non-negotiable stance, illustrated by the no-new-tax pledge of Grover Norquist, that makes any real constructive policy making impossible.

What’s in it for Republicans?
The worse the economy is, the better their chances of gaining control of the White House and both Houses of Congress and putting in place a radical view of policy that goes well beyond anything Republicans have proposed in the past.

As you see it, is this driven by ideology or the goal to control government?
It’s both. The ultimate objective is ideological, but the means to achieve that objective are very strategic.

Explain a little more about the strategy.
It involves abandoning and denigrating policy proposals you once supported as soon as the other party embraces them; denying the efficacy of governmental actions to deal with the economic crisis; threatening a public default, by holding the need to raise the debt ceiling hostage to non-negotiable demands to cut domestic spending, in the midst of a weak economy; using the Senate filibuster routinely and ruthlessly to deny sizeable majorities an opportunity to put its program into place; delaying or denying the confirmation of presidential nominations even when you approve of the nominee. The list goes on. You do everything you can to inflict political damage on your political adversary.

Are you saying the Republican Party has changed?
The result of all this is the transformation of the Republican Party into a radical party—not really a conservative party—that no Republican president in the modern era would have felt comfortable being a part of.

It’s a democracy—Isn’t it okay for one party to do this?
Of course, it is perfectly legitimate for a party to propose a radical change of policy course. But it is essential that the public have some grasp of what that party is proposing and what its likely consequences would be. Public opinion research suggests that citizens have little knowledge or understanding of either the source of our dysfunctional politics or the nature of the Republican policy ambitions.

In your book, you say that democracy’s ultimate weapon—the ability to throw the bums out—has proved wholly inadequate. Why?
The public can certainly get upset with the status quo and throw incumbent officeholders and parties out of power. Obama was the beneficiary of that in ‘08. The trick is figuring out whom to hold responsible for unsatisfactory conditions in the country. The most common target is the president and his party in Congress. But what if that president’s program has been weakened or subverted by the minority party in Congress? And who does one blame under divided party government, as we have in the 112th Congress?

In other words, Who are the bums?
Some voters think any politician in office is worthy of being punished and any new candidate who claims not to be a politician is seen to have virtues—for example, Tea Party candidates who denounce the system and promise never to compromise have an appeal. But this often leads to less genuine deliberation, bargaining, and compromise, thereby reinforcing the public’s unhappiness with the system.

The Press

Where do the media go wrong, in this scenario?
There is a strong tendency on the part of the mainstream media to avoid taking sides—in other words, to avoid reaching conclusions that put the onus of our dysfunctional politics on one party or another or on one candidate or another. This can be strength in an era in which the partisan and ideological media have grown in size and importance. But it can also be a trap that does a disservice to the citizenry.

Can you explain a bit more?
Reporters admirably embody professional norms favoring fairness and nonpartisanship. But too often even the most talented and dedicated reporters, especially in these partisan times with media watchdogs on the constant lookout for bias, retreat to a formulaic “he says/she says” or “both parties are to blame” that imposes a false equivalence on the underlying reality. Reporters don’t want to be charged with partisan bias, and their editors and producers have strong professional and economic incentives to avoid such charges. The safe response is to insist on “balance,” even if the phenomenon is clearly unbalanced. In their quest to be fair and balanced, they misinform and disarm a public trying to fix our dysfunctional politics.

Can you give a concrete example of this political asymmetry?
Our book contains many such examples. One is the widespread belief that both parties are equally to blame for budget deficits and debt. As the story goes, Republicans won’t raise taxes and Democrats won’t cut spending, especially on so-called entitlements. The reality is different. Almost all Republican candidates and officeholders have signed Grover Norquist’s “no new taxes” pledge and impose fealty to it with political committees, threatening primary challenges. As far as they are concerned, tax increases are off the table. Democrats are willing to deal with everything as long as everything is on the table, and deficit reduction is not used as a cover to achieve broader ideological objectives.

How do reporters and columnists write about this?
They mainly say both parties are equally implicated in the failure to tame deficits—even though recent fiscal policy history and current negotiating positions suggest otherwise.

How have the media, in their drive for balance, prevented the breakthrough discussion you think needs to happen?
To be sure, all of the blame cannot fairly be placed on the media. President Obama has fallen short of a clear and forceful explication of this difference. The silence of the business community on the fantastical nature of the Republican position has been deafening. Most of the nonpartisan/bipartisan groups working on fiscal policy challengers have avoided speaking this truth. But the press has largely mirrored rather than corrected and supplemented the others.

Did this dynamic of media balance play out in the healthcare debate?
Obama’s healthcare proposals were designed to avoid the pitfalls of past failures by negotiating with many of the healthcare stakeholders and embracing ideas that had been the centerpiece of past Republican proposals. These included state exchanges to foster competition in private insurance, subsidies for low income households, significant insurance reforms including guaranteed issue and affordability for those with pre-existing conditions, and an individual mandate to encourage universal coverage. But once Obama was for them, Republicans turned against them. They refused to negotiate on the contents of a health reform plan, and characterized their old plans as socialistic. Whatever Obama’s messaging failures, the press itself failed to inform the public of the disingenuousness of the Republican opposition and the inaccuracy of much of the rhetoric leveled against the Affordable Care Act. It was safer to cover the politics of health reform and avoid making judgments that were tougher on one party than the other.

Does this apply in other situations?
It applies in many situations. You see it in healthcare and on taxes. Reporters should be examining it is plausible to hold to a no new taxes pledge and be responsible to the issues of the deficit and the debt? What the no new tax pledge has done to the Republican Party is to limit its ability to deal with the problem. Instead they say let’s talk around it. What are the implications in the Ryan budget? Do you ever see that laid out in a television show or a major print piece? Once in awhile the Times or The Wall Street Journal will have something. But most of the time you don’t get this.

So how should reporters cover this?
Help audiences understand asymmetrical polarization. Document, and report on it. Who’s telling the truth? Who’s taking hostages?

Can we really expect this to happen?
That was one of the reasons we wrote the book. We have learned our book has led to heated discussions in some newsrooms. We know there are enormous challenges. Our goal is get into the discussion within media organizations.

Is the press innately defensive?
Yes. It’s getting harder and harder to take risks. That’s part of the argument we’re making. In the face of these partisan wars, the press has become even more defensive and looks for safe harbors. One of these is to treat both sides as equally implicated. It was probably easier to cover things when both parties were operating in the mainstream of American politics. When one party has moved off track in such a breathtaking fashion, he said/she said serves to obscure the underlying reality rather than expose it.

What would be ideal for the press right now?
The key thing is not to try to return to some imagined golden age. It’s to try to make sure there is a mix of reporting and writing that is a description of the political and economic reality—and get that to the electorate. It means going beyond the fact checks, whose results seldom make it to the front page and are routinely ignored by candidates, and get to a point in which telling lies is punished and not rewarded in the political arena.

Can the media alone help change the discourse?
The media has to have help from other leaders in society speaking the truth. There once were voices in the business community. You need voices that support the commonweal. The press can’t do it alone.

What are the consequences for democracy if this does not change?
They are enormous. It’s concern for the wellbeing of our democracy that motivated us to write this book. The war between the parties is being waged in a way that does serious damage to the country. It’s not the reporters’ fault but it’s their job to clarify for the public what is happening in our public life—who is responsible, and how we might overcome these problems. They are constrained by professional norms and by the expectations and demands of their supervisors. I want to be clear we’re not attacking reporters.

What’s the fallout for you of this book?
We built some capital over four decades, based on straight shooting, nonpartisan political analysis and commentary. The new reality of American politics compelled us to spend some of that capital. Neither of us has any regrets. Nor do we believe we’ve become partisan in any way. We reached a conclusion we believe is accurate.

This piece originally appeared in the Columbia Journalism Review.

Authors

Trudy Lieberman
Thomas E. Mann

Publication: Columbia Journalism Review

Image Source: Kevin Lamarque

Brookings: Topics - Debt Limit Debate

The Perils of Automatic Budgeting

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Warriors Against Waste: Cutting Defense Spending through Reform?

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Mr. Boehner, Tear Down This Debt Ceiling!

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Lost Opportunity for Jobs and Growth

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Soak the Middle Class! In Praise of Higher Taxes on Everybody

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How to Solve the Fiscal Cliff? Start With a Gag Order

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The No Good, Very Bad Outlook for the Working-Class American Man

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The Fiscal Cliff – A Live Web Chat with Isabel Sawhill

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A Fiscal Cliff Compromise That Could Work For Everyone

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Cut Spending or Raise Taxes? Follow the Bipartisan Bowles-Simpson Formula and Do Both

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Civil Conversations: Restoring Civility to the Debt Discussion

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Does Journalistic "Balance" Hurt America?: A Q&A with Thomas Mann

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