Major changes to spending, tax and entitlement programs will be needed to head off a financial crisis, members of the White House fiscal commission said Tuesday during its first meeting.
“If we don’t face up to these deficits and rising debt, we will have a tremendous economic crisis,” said the panel’s Democratic co-chairman, Erskine Bowles. “We do need an economic plan.”
“I think it’s clear it’s going to take dramatic changes on the spending side of the ledger, and it’s going to take changes on the revenue side of the ledger,” said Sen. Kent Conrad (N.D.), one of six congressional Democrats on the commission.
The outlines of the debate to come started to take shape Tuesday, as several GOP members of the panel warned against relying only on new taxes to close deficits, calling instead for changes to entitlement programs and spending cuts. Democrats, meanwhile, said they would protect those entitlements.
Senate Majority Whip Dick Durbin (D-Ill.) said both sides — conservatives and “bleeding-heart liberals” alike — will need to cede ground.
“If this commission is going to make an historic contribution to America, the styptic heart of conservatives on this commission need to open their minds to the safety net in our country and the troubling plight of many working Americans,” Durbin said. “And the bleeding-heart liberals on this commission have to open their mind to what it takes to inspire competition and economic growth in our economy and make real sacrifices to strengthen our nation.”
In his testimony, Federal Reserve Chairman Ben Bernanke warned the higher levels of future debt projected by economists would threaten the economic recovery and result in higher interest rates, more taxes and less economic growth. Bernanke urged the commission to produce a fiscal reform plan soon.
“This goal can be achieved by bringing spending, exclusive of interest payments, roughly into line with revenues,” Bernanke said. “Unfortunately, most projections suggest that we are far from this goal, and that without significant changes to current policy, the ratio of federal debt to national income will continue to rise sharply.”
President Barack Obama has asked the 18-member bipartisan commission — which includes six Democratic lawmakers, six GOP members of Congress and six people selected by the president — to produce a reform plan by December. Democratic congressional leaders in Congress have pledged to bring up the proposals for floor votes later that month. For the commission’s final package of recommendations to receive votes in Congress, 14 of the 18 members must vote for it.
The full commission will meet monthly while Congress is in session. Bowles said members will meet weekly in smaller groups to discuss specific issues, including mandatory spending, discretionary spending and taxes.
The level of debt is expected to grow from roughly 60 percent of gross domestic product this year to 90 percent by 2020, which the Congressional Budget Office (CBO) says would be “unsustainable.” Bernanke and former CBO directors told the commission that rising federal health costs and the retirement of the baby boom generation are the major reasons for large deficits in coming decades.
Obama and the co-chairmen of the commission said Tuesday that “everything will be on the table” as the commission crafts its plan, including changes to entitlement programs and spending cuts that will be unpopular with Democrats and tax increases that Republicans won’t like.
“I’m not going to say what’s in, I’m not going to say what’s out,” Obama said. “I want this commission to be free to do its work.”
Lawmakers on the panel said they approached their task with “an open mind, but not an empty mind,” as Rep. Jeb Hensarling (R-Texas) put it.
He argued against relying on tax increases, noting that tax rates would skyrocket — to nearly 90 percent for the highest income tax bracket — if the budget were balanced through changes to the current tax code.
“Although I believe most of us believe in a balanced budget, I truly believe that the deficit is the symptom; spending remains the disease,” Hensarling said.
Rep. Dave Camp (R-Mich.) said taxpayers in a struggling economy would have a hard time accepting a value-added tax on goods, which is used in European countries, to cut deficits.
“Given the national unemployment rate, stuck at almost 10 percent, and the precarious position of American families and employers, it’s difficult to imagine asking them to pay, on top of everything else and when they can least afford it, what amounts to a national sales tax on everything they buy,” Camp said.
Democrats on the commission said they would protect the entitlement programs that help the middle class and seniors — Social Security and Medicare — from any deficit-reduction plan.
Rep. Xavier Becerra (D-Calif.) said the panel should seek to restore opportunities to the middle class in a fiscally responsible way.
“To me, the largest deficit we face is a jobs deficit,” he said. “If you put Americans to work, America will work.”
Former Sen. Alan Simpson (Wyo.), the commission’s Republican co-chairman, told the group to expect attacks from both sides.
“None of us will gain from this, but we sure all do have skin in the game, and that’s our children and grandchildren,” he said. “Anything we actually do will be met by howls of anguish ... The extreme left and extreme right will savage our final product.”