The US fiscal situation can be solved(Read article summary)
Our deficits are still being sustained at the moment, and U.S. Treasury bonds are a safe investment. But the nation must address the gap between spending and revenues to avoid a full-blown crisis.
J. Scott Applewhite/AP/File
Although the â€śsuper committeeâ€ť was by all accounts a â€śsuper failure,â€ť the U.S. is fortunate that we are not yet in full blown â€ścrisisâ€ť mode.Â Our fiscal situationâ€“namely, the large and economically unsustainable mismatch between spending and revenuesâ€“is still just a â€śproblemâ€ť that can be solved.Â Our deficits are still being â€śsustainedâ€ť at the moment, and U.S. Treasury bonds still look like the worldâ€™s safest investment, thank goodness.
But weâ€™re on the path to the end of the fiscal sustainability cliff, the edge of which we wonâ€™t see until weâ€™re likely past it, given how full-speed-ahead we seem to be running toward that unknown edge.Â (Think Wile E. Coyote chasing the Road Runner.)Â So itâ€™s time to at least change the momentum, even if we canâ€™t so easily just change direction.
The super committeeâ€™s failure was a political one.Â The super committeeâ€™s task was, and still is, a rather uncomplicated economic one.Â Given the political constraints and what weâ€™ve learned about what doesnâ€™t work (putting decisions in the hands of politicians currently in office), slowing down the race to the edge of the fiscal cliff will require getting the public more involved.
Under current law, $1.2 trillion in spending cuts triggered by the super committeeâ€™s failure would take effect and $4.7 trillion in tax cuts would expire, raising government revenue by significant amounts and lowering future interest costs. According to the Congressional Budget Office, this would bring the budget into â€śprimary balanceâ€ť â€” meaning that revenues would cover all spending except for interest payments â€” by 2014. The national debt would come down somewhat from 67% to 61% of the economy. More would need to be done, but thatâ€™s not a bad start.
There are problems with sticking to the exact policies and timing of current law, including legitimate short-term economic concerns. Nor should the brunt of any deficit reduction plan be placed on those who can least afford it.
To accommodate those circumstances, Congress could make some changes in the mix and timing of policies but still aim to keep the 10-year deficit-reduction total from current law on track.
Government projections assume the $1.2 trillion in savings Congress intended to back up the super committee, and financial markets are counting on them. Repealing the trigger or reducing its impact would further erode congressional credibility and possibly lead to another downgrade of the nationâ€™s credit rating.
There is still time for Washington to get things right before expensive, deficit-financed policies are extended. A commitment to a process that enforces strict pay-as-you-go rules and guides policies toward the deficit reduction in current law would help.
And how the publicâ€™s involvement is needed:
The Concord Coalitionâ€™s deficit-reduction exercises and other public engagement efforts in cities across the country have consistently shown that people of all ages and varied ideologies are willing to make hard budget choices â€” as long as there is shared sacrifice, with everything on the table.
Members of Congress with differing viewpoints should pair up for â€śtwo-by-twoâ€ť fiscal forums in which they present agreed-upon facts and engage with each otherâ€™s constituents about budget options. Such forums would broaden understanding of the key issues and promote civic discourse about solutions.
Back in Washington, members should also pair up in co-sponsoring bipartisan plans to address the deficit, with or without the support of congressional leaders. Efforts such as the Senateâ€™s â€śGang of Sixâ€ť should be revived and expanded. The logical place to start is with the recommendations of the Bowles-Simpson and Rivlin-Domenici commissions.
Congress is now debating the extension of both unemployment benefits and payroll tax cuts.Â Both policies are typically deficit financed because they are intended as policies that will stimulate the demand for goods and servicesâ€“lack of demand being the binding constraint in an economy with high unemployment and other idle resources.Â The current debate is less over the desire of politicians to extend those policies (most on both sides say â€śyesâ€ť) and more about whether these policies can be and should be paid forâ€“if their cost can be offset with spending cuts or revenue increases that take place more slowly over the next ten years and do not â€śneuterâ€ť the stimulative effect of the original policies.Â Yes, this is indeed possible, with some offsets making more sense than others.Â Of course, the Republicans would prefer the offsets be spending cuts, while the Democrats would prefer they be tax increases on the rich.Â So here we are, right back to the same old debateâ€“and the same old (mostly political) â€śsticking point.â€ť
I plan to write a bit more about the payroll tax cut and proposed offsets within the next few days, so please stay tuned.
And if you like what you read/watch here about the Concord Coalitionâ€™s initiatives, please make me happy and â€ślikeâ€ť us (and follow our activities and join us in our efforts) on Facebook, and become a member/get on our mailing list on our website.