Event Summary: Restoring Fiscal Sanity - While We Still Can

In a break from the polarized atmosphere in Washington, a diverse and bipartisan group of policymakers and research analysts gathered a mere stone's throw from the Capitol Building to discuss the U.S. fiscal situation, which most everyone agreed was fast approaching the danger zone.

Senators John McCain (R-Ariz.) and Joseph Lieberman (D-Conn.), both moderates within their respective parties, reached across the political aisle and denounced current fiscal policies and urged strong measures to restore fiscal balance.

"There is one thing that unites Republicans and Democrats: fiscal irresponsibility," McCain said. "Sadly, it's the great unifier."

Currently, the United States faces deficits of more than half a trillion dollars a year over the next decade, and some economists believe that current economic policies and the retirement of the baby-boom generation could make the situation even bleaker.

McCain and Lieberman spoke as part of an event entitled "Restoring Fiscal Sanity," which takes its name from a book recently published by the Brookings Institution arguing that large federal deficits have the potential to slow economic growth, reduce household incomes, raise interest costs, and impose enormous burdens on future generations. The book provided three options for balancing the budget, each designed to appeal to a particular political philosophy:

  • A "Smaller Government Plan" that advocated less spending by scaling back business subsidies, restricting entitlements, passing financial burdens on to the states, and reducing federal "pork."
  • A "Larger Government Plan" that relied on tax increases to sustain government activity and the implementation of new spending initiatives in order to balance the federal budget by 2014.
  • A "Better Government Plan" that called for improved government efficiency and effectiveness through a combination of compromised spending cuts and revenue increases that would make government more efficient through the reallocation of expenditures.

McCain is known as a political maverick whose frequently strays from the Republican party line, and this morning he again found fault with his own party. He reminisced about the conservative and fiscally responsible values espoused by Republicans under President Reagan during the 1980s.

"Sadly, that party is no longer," McCain said. "The party that was the guardian of the treasury is now the true tomb raider."

McCain's independent-minded politics has prompted many political professionals to urge him to run as John Kerry's vice presidential running mate. After listening to McCain's remarks, Lieberman couldn't resist the temptation.

"I wish he would switch parties," said Lieberman, who recently co-authored a Washington Post op-ed with the Arizona senator on the situation in Iraq.

(McCain did not address the possibility today, but in recent weeks he has emphatically rejected that idea that he would join the Democratic ticket.)

Lieberman recently sponsored the "Honest Government Account Act," which hopes to promote greater fiscal responsibility by requiring stricter budget rules and providing additional transparency to the budget process.

"Our budget process is broken," Lieberman said. "It's being taken over by budget politics." He warned that the a fiscal doomsday would "soon make landfall in America unless we do something about it."

McCain denounced the tax-cut bill recently passed by the Senate as a "giveaway." The bill includes $170 billion in tax cuts aimed at such groups and interests as cruise-ship operators, foreign dog-race gamblers, NASCAR track owners, bow-and-arrow makers, and Oldsmobile dealers.

After the Senators' remarks, a panel of experts discussed the current fiscal situation—which most everyone spoke about in a doom-and-gloom manner—and proposed potential ways out of the mess. The rare partnership between nine philosophically divergent think tanks (the Brookings Institution, Progressive Policy Institute, New America Foundation, Concord Coalition, Committee for Economic Development, Committee for a Responsible Federal Budget, Urban Institute, Heritage Foundation, and the Center on Budget and Policy Priorities) didn't go unnoticed and attested to the severity of the problem at hand.

"What could bring such a group of contentious, theologically diverse groups together?" asked Will Marshall, president of the Progressive Policy Institute. "We are all stunned by the complete and utter breakdown of fiscal responsibility in Washington?Now is the time to put our fiscal house in order."

Potential solutions included replacing the payroll tax with a tax on consumption (as proposed by the New America Foundation's Maya MacGuineas), avoiding drastic tax hikes and, instead, using tax policy as a way to foster long term economic growth (Heritage's Stuart Butler), and rolling back President Bush's tax cuts (Progressive Policy Institute's Paul Weinstein).

Brookings Senior Fellow and former CBO Director Alice Rivlin simply urged panelists and audience members to use Restoring Fiscal Sanity—which she co-edited—to see that fiscal balance "can be done. We can get to balance in ten years, but it will require action on both revenue and spending sides?It worked in the 1990s, it can work again."