Web Chat: The Federal Budget

On Wednesday, February 9, former congressman William Frenzel, a Brookings budget expert, took your questions in a live web chat on the federal budget. David Mark, senior editor at POLITICO, moderated the discussion.

The transcript of this chat follows.

12:30 David Mark: Hello and welcome to the chat. Let’s get started.

12:30 [Comment From Elaine: ] How do you suggest striking a balance between the need for Homeland Security and the need to reduce the budget deficit? It seems like any project that wanted to be funded in tthe last few years only had to attach “homeland security” to its reason for being, and it would get money. This is for a story for The Fiscal Times today, thanks.

12:31 Bill Frenzel: The homeland will never be secure as long as we have the debt and deficit overhang. If anybody believes that DHS expenditures are all absolutely necessary, I have a bridge to sell them.

12:32 [Comment From Frank: ] There were warnings about the deficit in the 1990s and then the budget was balanced. Can the government do now what it did then?

12:34 Bill Frenzel: We cannot do now what we did then and expect to balance our budget. The problems have worsened. Our population has aged. Healthcare costs are increasing more rapidly. What is required now is a compromise more broad than 1996 involving entitlements, defense spending and taxes, as well as the easier targets, as well as the easier targets of domestic discretionary expenditures.

12:34 Bill Frenzel: And we of course have also had a major recession.

12:35 [Comment From Erica: ] How can the budget process be more efficient?

12:36 Bill Frenzel: The budget process was invented in 1974 and modified only slightly over the years. The problems are different and the budget process, which didn’t work very well when it was invented, works more poorly today.

12:36 Bill Frenzel: We need a process which sets targets for deficits and debt ratios and imposes annual penalties if those targets are not met.

12:36 [Comment From Paul: ] Is there really any room for more spending cuts?

12:38 Bill Frenzel: Yes. There is plenty of room for spending cuts in a budget that consumes 25% of everything the nation produces. The budget cuts, however, cannot all be made in domestic discretionary spending, which comprises only 16% of our total budget. We also have to look at what we have considered to be sacred cows – that is – defense, security, entitlements and taxes.

12:38 [Comment From Sara M.: ] How is Obama’s vision of investing in growth going to mesh with the need for frugality in government?

12:38 Bill Frenzel: No.

12:38 [Comment From Mark: ] What would you recommend to achieve significant saving in the Budget? What you recommend for the DOD budget? The DOD budget has grown roughly 100% in 10 years (counting wartime funding) What do you recommend DOD can do to achieve a 10% cut for DOD over the next five years?

12:40 Bill Frenzel: The DoD needs to be examined carefully and its expenditures need to be reduced now and in the future. But simply suggesting an across-the-board percentage cut is doubtful wisdom. Defense has a complicated budget with a lot of moving parts. It requires experts for analysis and careful decision-making when cuts are made – but they must be made.

12:40 [Comment From Jeffrey T: ] How can we reconcile the need to close the budget gap without threatening economic recovery?

12:42 Bill Frenzel: This Congress and the previous Congress have already decided to begin reductions in domestic discretionary spending. Other major reductions in entitlements, defense, tax expenditures, etc., should be made for budgets yet to come – that is, FY12 and FY13. The Deficit Commission suggested no further cuts until FY13. That would not be soon enough for me.

12:42 [Comment From Wes: ] Do you expect there to be difficulty in passing the new budget? Will both parties be on board?

12:43 Bill Frenzel: There is always difficulty in passing a budget. Last year, neither house did so. The GOP House may be expected to pass a more rigorous budget than the Democratic Senate and the differences will be hard to reconcile. Neverthless, I expect this year’s budget to be passed either on time or close to it in the 2nd quarter of this year.

12:44 [Comment From Jennie: ] Given the current economic sitiation, with so many “hands looking for funds, is there really a balanced budget in the near future? Many states are looking at bankruptcy, so I am doubting it.

12:44 Bill Frenzel: The federal budget will not be balanced in the near future, nor probably into the next decade. However, we can reduce the deficit and reduce our debt ratio long before we achieve the balanced budget.

12:45 [Comment From Mark, Greenbelt: ] How much trouble are we really in with the deficit? Isn’t it more important right now to stimulate the economy, and deal with the debt once the economy is stronger?

12:46 Bill Frenzel: There are different opinions on this subject. My own is that we have stimulated the economy to a fare-thee-well and it is time that we begin trying to reduce the debt and the deficit. The recession was and is a terrible thing. Deficits, debt and default could be much worse.

12:46 [Comment From Jennifer S.: ] Do you have any evidence that there are serious deficit reduction efforts underway on Capitol Hill? Is it possible to bridge the gap between the parties in this polarized atmosphere?

12:48 Bill Frenzel: If it is not possible, the Republic may falter. Despite the difficulty of reconciling Democratic compassion for entitlements and Republican repugnance to taxes, there has to be some sort of a grand compromise. It is not likely to happen in this calendar year, and probably not in the next either, but 2013 — after the presidential election — is about our last hope.

12:48 [Comment From Sally: ] Do you like the idea of capping spending on Social Security, Medicare and Medicaid?

12:50 Bill Frenzel: I do not like across-the-board cuts or caps except as a penalty for not meeting budget targets. Budget decisions are difficult, but each spending item should be examined and each should have to stand on its own feet or perish. Caps are a lazy person’s way to avoid the hard work.

12:50 [Comment From Tom: ] Will Republicans ever agree to revenue increases, perhaps as part of some grand bipartisan bargain? And will the debt limit vote next month really provoke action on the deficit do you think?

12:51 Bill Frenzel: I hope that at some point the GOP and Democrats will agree to a grand compromise involving tax increases, entitlements and defense, but it is extremely unlikely that this could be done in time to be tied to the debt ceiling vote. It is possible that it could be done this year or next, but more likely in calendat year 2013.

12:52 [Comment From Alex Johnson: ] Do you really believe that the United States is in danger of defaulting on debt? Wouldn’t that have serious, and major, global repercussions in an already weak global economy?

12:54 Bill Frenzel: I do not believe the US is in danger of defaulting on debt now. However, we are overly indebted, especially to foreigners, and we are very near to the 60% debt ratio that is the international standard for trouble. We will not default all of a sudden: first, our paper will become less attractive; interest rates will go up; our interest costs will consume the major part of our budget; that is likely to be followed by inflationary problems. Default lies at the end of that lonely, downhill one-way street.

12:54 [Comment From Jennie: ] a recent economic status was held at the university here, one of the questions asked which was noteworthy was: Is there any fear or risk of deflation?

12:54 Bill Frenzel: Deflation is possible but unlikely.

12:55 [Comment From Rachel: ] What is your take on the Fannie Mae/Freddie Mac situation? Isn’t this an example of throwing the baby out with the bathwater–not considering carefully enough the contributions to society?

12:56 Bill Frenzel: One of the contributions is a taxpayer bill of a few hundred billion dollars. Something has to be done to Freddie and Fannie — that’s above my pay grade but it ought to be done soon.

12:56 [Comment From John Binder: ] What did you think of the work of the President’s deficit reduction commission? Do you think any of the recommendations will actually see the light of day as policy? or are they politically untenable?

12:57 Bill Frenzel: They are politically difficult. But if they dont see the light of day, the Republic is in big trouble. The Commission report was not exactly what I would have done, but I consider everyone on the Commission to be an American hero — particularly those who voted for the report and are still serving in Congress. They have shown the way and we can only hope the rest of the Congress and the President will follow.

12:58 [Comment From J. Witkovsky: ] Who do you see as the leading advocates for action on the deficit on the Hill? What do you think of Paul Ryan as the new Budget committee chair on the House side? Can he affect change?

1:01 Bill Frenzel: I think Paul Ryan has established himself as one of the champions of fiscal responsibility in the Congress. He is joined by the Senators who voted for the President’s Commission report: Durbin, Crapo, Coburn and Conrad. They have been principal leaders; in addition Sens. Warner and Lindsey Graham have also done good work. And Frank Wolf, a long-time backer of the deficit commission, is another House champion.

1:01 David Mark: Thanks for the chat, folks.

1:01 Bill Frenzel: Thanks to you!