For the past decade, America’s finances have been handled not by “pay-as-you-go” but by “running up a tab.”
Our political leaders are signing “IOU’s” to finance our government and refuse to build in appropriate safeguards to preserve the taxpayers’ money. Down this road lies disaster.
As co-chairs of the Committee for Economic Development's (CED) Fiscal Health Subcommittee, our work with leaders in business and academia has made clear two things: first, Americans have little remaining tolerance for partisan politics, played at the expense of our collective prosperity; and two, we cannot afford another financial crisis like 2008.
1. Remove the sequester of appropriations, both defense and nondefense, which requires further deep spending cuts beginning on next January 15. These draconian across-the-board cuts were never intended to be put into effect. The threat of the sequester was supposed to force a Congressional budget agreement that never happened. We need to begin to build that agreement now, rather than imposing the mindless cuts that damage important programs and could slow our economic recovery. We also do not need another panic in the financial markets. So at the same time when Congress and the President remove the sequester, they should increase the debt limit to provide confidence to the markets.
2. Agree upon the desired level of our total national debt as a percentage of GDP, which will grow to dangerous levels during the next decade unless addressed very soon. Then enact into law long-term budget savings targets – known as “Savego” – that will get us down to that desired level of debt, to stabilize and eventually reduce this critical ratio. Those “Savego” savings must come in the parts of the budget other than the annual appropriations, which already are capped.
CED stressed that Congress should establish now the dollar amounts of savings to be obtained, starting in fiscal year 2016. The Congress would then have nearly two years – during which the economy can recover and expand – to debate and enact legislation that yields savings and revenues from entitlement and tax reform sufficient to turn around our growing public debtratio to the agreed-upon downward path.
These steps will provide both business and consumers with greater confidence and fiscal certainty, which will result in more investment, higher consumer demand and more jobs. The higher economic growth will also provide more revenues to the federal government, further reducing the public debt burden.
“Savego” will work much like “Paygo” – the “pay-as-you-go” system that helped take the budget from record deficit to record surplus in the 1990s. It is built on the one thing on which all sides of the congressional debate should be able to agree: What is the level of debt that the federal government should notexceed? The Congressional budget conference committee shouldpostpone the longer term non-essential decisions, like the balance between spending cuts and tax increases that cannot possibly be made before its mid-Decvember deadline. Instead, the conference committee should agree on the key question of the limit to the debt, and put this goal on the record. That basic agreement will keep pressure on our policymakers, and send a message to the world financial markets that they recognize that they must come to agreement on these tough choices, and act.
It’s time for our political leaders to sharpen their pencils and get down to work.
Kasputys is chairman & CEO of Economic Ventures. Cutter is a senior fellow and director of the Next American Economy Project at the Roosevelt Institute. They are co-chairs of the Committee for Economic Development's (CED) Fiscal Health Subcommittee.