Steps to Fiscal Responsibility

While avoiding the “fiscal cliff” is essential to near-term recovery and job growth, it is just the first step to restoring sustained prosperity in America. It would be catastrophic if negotiations between the president and Congress succeeded in avoiding the cliff but failed to address the fundamental threat of projected debt rising faster than the economy can grow. 

We must have fundamental tax reforms that raise revenues and entitlement program reforms that slow the growth of healthcare spending and preserve Medicare and Medicaid for those who need them over the long run. 

The “fiscal cliff” is an artificial barrier designed to pressure political leaders to get the nation’s budget on a sustainable path. The worst possible lame-duck deal would be a small one that avoids the cliff and thus removes pressure from policymakers to construct a much larger, multi-year agreement next year. Such a deal would do nothing for long-term fiscal stability.

The disaster in Europe should be teaching us two lessons: Short-run austerity is the wrong prescription for growing weak economies, and countries that allow their debt to rise out of control get into serious trouble. We must avoid the austerity of the cliff but stabilize our long-run debt increase while we still have time to do so in an orderly way. Federal Reserve Chairman Ben Bernanke was crystal clear on these points at his news conference earlier this week. America needs both a short-term deal that avoids the immediate economic damage of going off the fiscal cliff and a long-term deal that restores fiscal sanity.

When asked by the media which was more important, the chairman said “both equally.”

One of the most important elements of the Bipartisan Policy Center’s framework for a lame-duck agreement is a provision that would pressure the 113th Congress through codification of the budget process’ reconciliation mechanism.

The Bipartisan Policy Center’s framework for a major debt agreement has three parts, which could be enacted this month. First, Congress would make a down payment, a set of small, but meaningful, cuts to entitlement spending and reforms that would raise revenue. Second, Congress would establish an accelerated regular-order process that would provide the time necessary to develop major, revenue-raising tax reforms and structural entitlement changes that would slow long-term spending growth, then protect these reforms from procedural dangers like endless amendments and the filibuster. Finally, it would include a backstop, a fallback policy that would go into effect if Congress cannot reach agreement in 2013. A backstop should target the unaddressed drivers of our debt, which include tax expenditures and health entitlement spending.

If, as currently rumored, senior members in the House and Senate in both parties reject this kind of reconciliation mandate, they can doom truly fundamental tax and entitlement reform.

Imagine what a Medicare reform bill or a fundamental tax reform bill would look like after two or three months’ debate on the Senate floor without the time protections of reconciliation or a similar process. 

The Bipartisan Policy Center’s Debt Reduction Task Force, which I co-chaired with former Senate Budget Committee Chairman Pete Domenici (R-N.M.), has always emphasized what Bernanke made clear: We must have a short-term down payment that avoids the cliff; a mechanism that compels action by Congress on taxes and entitlements next year; and a long-term plan that stabilizes our national debt as a proportion of our gross domestic product.

A bad short-term deal that allows policymakers to avoid the harder long-term decisions would be a step backward.  It might make Wall Street happy for a moment or two, but it will mean serious risk to the prosperity of the American people in the long run.