Senate Budget Committee Chairman Kent Conrad (D-N.D.) said Thursday that his panel might have to take the lead in solving the nation’s long-term budget problems.
Conrad's comment that solutions “may fall to this committee” came shortly after Sen. Jeff Sessions (Ala.), the ranking Republican on the Budget panel, ripped President Obama’s State of the Union speech for failing to tackle the nation’s budget problems.
Significantly, Conrad, who has announced he will not seek reelection in two years, did not defend Obama when he spoke. He said his panel might have to take the lead on the budget if the White House did not conduct a budgetary summit with lawmakers.
“It may fall to this committee … if there is not going to be a summit, if there is not going to be some kind of negotiation,” Conrad said.
Conrad said after the hearing that his comments were not made as a criticism of the president, though he acknowledged that he is frustrated that no one has embraced his idea of a summit. He said Obama did a good job in the State of the Union of explaining that the solution to the deficit goes beyond the cuts to discretionary spending that Republicans are proposing.
The North Dakota senator called for a White House summit with lawmakers on the nation’s debt crisis shortly after a plan to reduce the deficit produced by a presidential commission failed to get the necessary support to win an up-or-down vote in Congress. Conrad supported the plan.
Conrad said he would be holding discussions with panel members about coming up with a plan for dealing with the budget crisis beyond the five-year budget the committee is traditionally charged with formulating. He also said he is working with Sens. Tom Coburn (R-Okla.), Mike Crapo (R-Idaho) and Majority Whip Dick Durbin (D-Ill.) to put the recommendations of the bipartisan presidential debt commission into legislative form.
But Conrad also noted that he has not yet floated his proposal that the budget committee take on the deficit to Majority Leader Harry Reid (D-Nev.).
Conrad and Sessions made their comments during a hearing with Congressional Budget Office (CBO) Director Douglas Elmendorf, who warned that interest payments on the nation’s record debt could “snowball” and lead to a national crisis.
Elmendorf said even a slight downturn in the national economy could lead to much higher debt payments that could hamper economic growth and sour investors on U.S. debt.
Elmendorf testified a day after CBO projected a record $1.5 trillion deficit for the current fiscal year. It estimates debt held by the public as a percentage of GDP would rise from 62 percent in 2010 to 77 percent in 2012.
Already, Elmendorf said, federal borrowing is crowding out private borrowing and hampering growth, and U.S. debt is entering unprecedented territory in terms of government debt held by the public.
Congress faces a decision this spring on raising the nation’s $14.3 trillion debt ceiling.
As the debt grows, it will be harder and harder to find investors to buy debt because the market will start to lose confidence in the ability of the U.S. to repay its debt, Elmendorf said.
Elmendorf warned that once this percentage reaches 90 percent of GDP, the U.S. will be entering a danger zone where interest payments could “snowball.”
The crisis point could be reached more quickly with small changes to economic conditions.
Elmendorf said that if interest rates were 1 percent higher than CBO assumes, $1.25 trillion would be added to the projected $18.3 trillion debt by 2021. Slowing GDP growth by 0.1 percent would add $310 billion. And inflation just 1 percent higher would increase revenue and spending, but also would drive up interest rates, adding $867 billion to the deficit.
Elmendorf’s testimony prompted senators on both sides of the aisle Thursday to call for a long-term budget compromise this year.
“CBO’s report should be a red light flashing to the nation,” Conrad said. “We can’t afford to wait until the markets lose confidence in the conduct of our financial affairs.”
Sen. Crapo, who also supported the presidential commission’s report last year, said a compromise must be found this year and must include process reforms to lock in budget discipline.
Sen. John Cornyn (R-Texas) said Congress has a six- to nine-month window in which to get things done while the issue is at the forefront of the public discussion.
One of the main points of the coming debate will be the role of tax increases or tax cuts in tackling the deficit.
Under questioning from Conrad, Elmendorf said the consensus among economists is that cutting taxes provides a stimulus to the economy but that the growth effects do not generate enough revenue to make up for the initial loss of revenue due to the cuts. CBO estimated that the tax-cut compromise in December added $390 billion to the deficit this year.
Crapo suggested that more detailed and dynamic macroeconomic analysis of this could lead to a different result.