Collision Course: Why the Fight for Fiscal Sustainability Must Continue

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Transcript: 

“Good morning.  I want to thank Third Way for hosting, and I want to thank all of you for this opportunity to address one of the most compelling challenges our generation faces – achieving a sustainable long-term budget outlook.  

“In 2010, I delivered a speech – also hosted by Third Way – where I made the case for a big and balanced deal to put our nation back on a fiscally sustainable path.  Nearly four years later, we still haven’t accomplished that goal.  Instead, we’ve gone from one fiscal crisis to another, kicking the can down the road.  Our economy continues to be plagued by uncertainty, and America’s position as the world’s leading power has been called into question.

“In November 2011, I attended a dinner hosted by Senator Mark Warner of Virginia, along with Democrats, Republicans, business leaders, and economists, to talk about the debt crisis facing our nation. During the discussion, Indra Nooyi, the CEO of PepsiCo, made a clear and compelling point: that it was time for America to ‘get its swagger back.’ 

“She was right then – and she’s right today. We’ve seen the first downgrade of our nation’s credit rating in history and a government shutdown, and Americans are wondering whether we’ve lost our senses and our ‘swagger.’ After all, if we can’t address our own fiscal situation, how can we solve the other complex challenges we have to face? If we cannot fix our long-term outlook, then our economic competitiveness, our national security, and our role as a global leader will be diminished.  America is the best and strongest nation in the world, and we can continue to be – but we have to get serious about the problems we’re facing, and be willing to make the hard choices necessary. 

“Over the past four years, we’ve failed to make those hard choices. The debt we face today is the result of the disastrous 2001 and 2003 Bush tax cuts and the Great Recession turning surpluses into record debt.  But instead of focusing on economic growth in the short-term and ensuring fiscal sustainability over the long-term, the exact opposite has happened: critical investments that would grow our economy have been slashed, and the root problems of our future budget deficits have gone largely unaddressed. 

“If we’re going to restore America’s position of strength, we have to tackle both of these problems. We must invest in a growing economy and put our nation on a fiscally sustainable path. We can do it, and we must do it.

“However, there are some who believe that, because we’re no longer facing a ‘crisis,’ like a government shutdown or a debt limit, we can stop working to restore fiscal sustainability. I’m here today to argue the opposite: it’s at this moment – when we don’t have a crisis breathing down our necks – that we have the best chance to lay the groundwork for the hard decisions we will need to make. If we don’t make those decisions, it’s going to be the most vulnerable Americans who pay the price.  

“Bob Greenstein, head of the Center on Budget and Policy Priorities, testified before the Senate Budget Committee last month, warning what will happen if the pressure on our budget is allowed to continue building.  He noted that ‘The nation can ill afford to neglect funding for Pell Grants, elementary and secondary education, public health, environmental protection, and basic scientific research, as will occur if the funding levels required under sequestration remain in effect.  Failure to make these basic investments will slow long-term economic growth – and hence make our long-term fiscal problems greater – and likely increase poverty and hardship and reduce opportunity.’

“Congress will have a number of opportunities this year to make progress toward our goal of long-term fiscal sustainability – and we can’t afford to miss those opportunities, as we have over the past four years. Before discussing what those opportunities are, I believe it’s useful, first, to discuss what’s happened to get us where we are, and why I feel so strongly that the future of our nation depends on our willingness to take action.

“Since my speech in 2010, we saw bipartisan commissions led by Bowles-Simpson and Rivlin-Domenici call for a balanced approach to deficit reduction combining revenues and spending reforms. Unfortunately, the framework put forward by the Bowles-Simpson commission was rejected, with all three House Republican Members voting no, and its recommendations were never considered by Congress. 

“After the near-government shutdown in April 2011, a default crisis precipitated by the breakdown of talks between President Obama and Speaker Boehner led to the Budget Control Act and the Supercommittee, which had a mandate to achieve a big deal and a strong disincentive for failure.  Yet, the Supercommittee failed, as a consequence, a countdown to sequester began. 

“In January 2013, Vice President Biden and Leader McConnell compromised to avert the ‘fiscal cliff,’ but fell far short of a grand bargain.

“With the sixteen-day government shutdown and another near-default on our debt last October, it became even clearer that the Tea Party-dominated Republicans of the 113th Congress had come no closer to accepting the difficult choices that must be made in order to reach a grand bargain.  After the government had reopened, Sen. Patty Murray and Rep. Ryan reached agreement on topline budget figures for this fiscal year and the next. And, in February, Congress voted to ensure that America could pay its bills through March 2015. 

“I believe we missed an opportunity with the Murray-Ryan budget deal, which is why I voted against it.  It not only failed to address long-term fiscal sustainability, it also failed to take advantage of a moment when Congress had an opening to show the American people that their government can produce solutions to our most pressing challenges – to get that swagger back, as Indra Nooyi said.  It was exactly the kind of opportunity we need to be ready for next time.  And there will be a next time.

“But why is it so important to be ready for serious action when the next opportunity arises? A quick look at the numbers shows why we can’t wait: without action, we will be a nation that can’t invest in its own people. Our budget for next year is $3.8 trillion, but only $1 trillion - or a little over a quarter- of that is subject to the annual appropriations process. Seventy percent of our budget is tied up in interest payments on our debt and other mandatory spending, including Social Security, Medicare, Medicaid, C.H.I.P., the farm bill, veterans’ health, and other programs.  This pressure has been growing over time, according to a Third Way report last July: ‘In the mid-1960s, the federal government spent three dollars on public investments for every one dollar it spent on the major entitlement programs.  By 2012, the ratio was reversed...  And the ratio will be five to one in 2022.’  We should be concerned about this trend for two reasons. 

“First, demographic changes make it mathematically inevitable that a higher share of the budget will be devoted to mandatory spending.  Last year’s Social Security Trustees’ Report revealed how our population is changing.   In 1964, there were four workers for every beneficiary; today, there are 2.8, and in 2064 it will drop to two if nothing is done. The pressures of these demographic trends demand reforms that ask those who can afford to do so to contribute more to accomplish the long-term sustainability that is essential to America’s continued success. 

“And second, rising interest rates, as the economy recovers, will lead the cost of servicing our debt to more-than-double as a share of the economy.  Today, interest payments on our debt stand at 1.4% of GDP, but by 2024 that figure is expected to reach 3%.  That’s more than we spend each year on R&D, infrastructure, and education – in fact more than all domestic discretionary spending combined. 

“Every dollar we spend on interest is a dollar we can’t spend on Head Start, nutrition assistance, job training, infrastructure, innovation, support for public schools and early education, and other investments that help more of our people make it in America.  And those investments are already being crowded out.

“If interest payments are allowed to strangle the discretionary side of our budget, both Democrats and Republicans will watch as federal programs they see as critical are undermined.  For Democrats, we have to ensure that our middle class and those working hard to enter our middle class don’t bear the burden of an increasingly strained budget.

“A report released by the Center for American Progress in December 2012 highlights the consequences of ignoring our long-term fiscal outlook:  ‘Key national priorities such as strengthening the middle class, reducing poverty, and building a world-class infrastructure will remain unaddressed.  Income inequality will continue to rise, confidence in America’s ability to govern its fiscal affairs will continue to fall, and sooner or later we will find ourselves struggling through another economic crisis.’

“Our current outlook leaves little room for America to lead the global economy for the next generation, where the keys to success will be innovation, a skilled workforce, and the efficient movement of goods and services across oceans and continents.  And it’s not a recipe for growing and strengthening our middle class either. 

“Some progress has already been made.  The deficit has been cut in half since 2009 from 9.2% of GDP to 4.1%.  Much of the $3 trillion in savings already achieved have come from higher revenues due to the recovering economy, from the Budget Control Act’s caps and sequester, from the fiscal cliff agreement, and from the slower pace of health care spending resulting from the Affordable Care Act - which is now projected to reduce the deficit by $402 billion over the next decade and by about $1 trillion in the decade to follow. 

“However, by placing so much emphasis on the discretionary side of the budget, this approach achieved short-term savings while forgoing long-term investments.  Not only have we avoided seriously fixing our long-term outlook, we undercut our ability to grow and add to our economy, making it all the more difficult to ensure fiscal sustainability.

“In my opinion, a big deal is the best way for Congress to achieve a fiscally sustainable outlook that can inject certainty into our economy and help us invest in competitiveness, job growth, and opportunity.  If we can, in a bipartisan way, reach a comprehensive agreement, it would be the single most effective action we could take to stimulate our economy, give confidence to markets, and ensure that we have the resources to invest in our people.  Certain reforms that wouldn’t pass on their own could be accepted as part of a broader package where everyone shares the political risks.

“But short of reaching a big deal, we can still leverage opportunities before us to make progress toward the goal that proponents of a such a deal have long sought.  If we’re going to show the world that America is serious about tackling our problems head-on, Congress will have several opportunities this year to work in a bipartisan way to fix structural problems in our budget. 

“One place to start could be comprehensive immigration reform.  When scoring the Senate’s bipartisan bill last year, the Congressional Budget Office found that fixing our nation’s broken immigration system will save $158 billion in the first ten years and $685 billion in the decade to follow.  Those are substantial, structural savings to address our budget shortfall as well as a big answer to our growing demographic shortfall.  The Senate has already acted, and the House ought to do the same this year.  

“We also need to address a number of expiring and expired tax provisions.  Comprehensive tax reform is the right approach – even though it may be more difficult.  But if we can use the tax extenders process to promote the benefits of comprehensive reform, including making our long-term outlook more sustainable, it would be an important victory compared to recent history.  Failure to offset the cost of these provisions could add over $900 billion to deficits over the next decade, according to the Congressional Budget Office.  That’s larger than the remaining sequester cuts. 

“The proposal introduced by Ways and Means Chairman Dave Camp earlier this month was an important conversation-starter.  Chairman Camp’s effort is an honest one that clearly delineates the trade-offs that are required.  The Camp proposal, however, fails to produce the revenue we need to achieve long-term fiscal stability.  I encourage Committee Democrats and Republicans to redouble their efforts to produce bipartisan reforms that will provide greater certainty to our private sector, boost our economic competitiveness, and – yes – contribute to deficit reduction. 

“Later this year, Congress will also have to reauthorize our surface transportation programs and address the massive shortfall in the highway trust fund.  Infrastructure makes our economy more competitive and helps more businesses make it in America so they can move their products to markets at home and abroad.  And investing in infrastructure in a fiscally sustainable way, by fixing the trust fund shortfall and providing dedicated revenue for additional investments, is a win-win proposition for long-term success.  My colleagues, Rep. John Delaney and other Members, have very interesting proposals to deal with both of these objectives. 

“Furthermore, in the next calendar year, Congress will have to address the need to replace the sequester beyond the Murray-Ryan two-year deal.  Returning to the sequester path would impose serious harm not only to wellbeing of the most vulnerable Americans, but to many other critical priorities as well, including defense.  Republicans have been quick to decry savings proposed by the Pentagon, while failing to recognize that they are a result of the sequester they themselves supported.  Democrats and Republicans agree that we need to maintain a robust national defense, but those who voted for the defense sequester cannot simply disown it without offering a productive alternative – and it cannot be done at the expense of domestic spending.  The groundwork for replacing the sequester should be laid before the Murray-Ryan deal expires by achieving savings where possible and identifying areas where Democrats and Republicans can come to agreement.

“These are just a few examples of opportunities we can use to advance the goal of sustainability – and make the argument for why this continued effort will better position America for the future both at home and abroad. 

“In a speech to the Chamber of Commerce in 2010, Dave Cote, CEO of Honeywell – and, at the time, a member of the Bowles-Simpson Commission – issued this stern warning about our nation’s finances:  ‘We have to come together – Democrat and Republican, old and young, business and labor.  Polemics have to be put to the side.  I’ve often said democracies seem uniquely suited to putting up the traffic light after the 4th accident.  We’ve already seen the first accident.  It’s time to act.’

“Four years have passed, and act we must.  Moving forward, we ought to embrace and maximize every chance to set our fiscal house back in order and restore America’s strength.  If we can do that, the world will see that America indeed has its ‘swagger’ back. Other nations are looking to the United States to lead – if we cannot, someone else will. 

“We owe it to our successor generations to summon the political courage, the wisdom, the common sense, and a deep sense of personal responsibility, to show that we are worthy of our offices and the trust of our fellow citizens.  If we do so, the American people will regain their faith and their respect for their government.  They will know with confidence that our nation will continue to lead the world.  And they will experience a renewed optimism that America’s best days are still ahead.”