October 23, 2014

Key Questions Voters Should Ask Candidates About Our Nation's Fiscal Future (Fall 2012)

With the federal budget running annual deficits in excess of one trillion dollars, and many official and unofficial sources warning that current fiscal policies are not sustainable, it is vital that voters in 2012 demand realistic solutions from the candidates.

The fiscal challenges ahead are not a simple matter of too much “pork” or too many tax “loopholes.”

Our nation is undergoing an unprecedented demographic transformation against the backdrop of rising health care costs and falling national savings. It is an ominous combination for our economic future.

The retirement of the baby boomers, which began  in 2008, is ushering in a permanent shift to an older population -- and a permanent rise in the cost of programs such as Social Security, Medicare and Medicaid, which already comprise 42 percent of the federal budget.

There is no plan to pay for it all other than running up the national debt. Some say that our political system only responds to a crisis. If that turns out to be true, we’re in big trouble.

Current budget projections are dominated by two factors: demographics and health care costs.

The Trustees of the Social Security and Medicare trust funds project that the number of Americans aged 65 and older will increase by almost 80 percent by 2035. In contrast, the working age population will grow by only 12 percent. This alone will strain the economy and budgetary resources.

Demographic change, however, is only part of the problem. For the past 40 years health care spending has consistently grown faster than the economy. If the same growth rate continues over the next 40 years, Medicare and Medicaid will absorb nearly as much of our nation’s economy as the entire federal budget does today.

No one can say exactly when a crisis will hit, but by the time it does the economy would likely be burdened with a debilitating amount of debt -- leaving painful benefit cuts and steep tax increases as the only options. Doing nothing now to avoid this would be an act of fiscal and generational irresponsibility.

Key Questions Voters Should Ask Candidates

The following questions provide a framework for ensuring that candidates address some of the toughest choices they will face concerning the federal budget if they are elected. Background information is given to provide context and to help with follow-up questions, which should be asked whenever a candidate’s answer appears incomplete.

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At the end of 2012, numerous tax cuts are scheduled to expire. At the same time, automatic spending cuts triggered by the 2011 bipartisan agreement to raise the debt limit are scheduled to begin (the “sequester”). Such sudden deficit reduction would be harmful to the economy and thus has been referred to as a “fiscal cliff.” What would you do to ensure we enact deficit reduction but in a more economically responsible way?

This year features a large number of expiring tax provisions, including the 2001 and 2003 tax cuts and the 2010 and 2011 payroll tax holiday. The Congressional Budget Office estimates that the provisions set to expire by year’s end would increase the deficit by $5.4 trillion over just 10 years if renewed.

The Budget Control Act of 2011, enacted as an agreement to increase the debt ceiling, put in place a trigger requiring $1.2 trillion of automatic spending cuts if a bipartisan congressional “super committee” did not come up with a plan to achieve such deficit reduction.

Because the super committee failed, the first automatic sequester, cutting spending across-the-board by $109 billion, is scheduled to go into effect in 2013. The cuts would be evenly divided between defense and non-defense spending.

Candidates should have specific plans for handling expiring tax cuts and spending provisions. The plans should not assume that all expiring provisions will simply be extended and not paid for. Expiring provisions should be subject to the same scrutiny as any other federal program that adds to the deficit.

Given the deterioration of the fiscal outlook since many of the tax cuts were enacted, the negative policy consequences of indiscriminate across-the-board spending cuts, and the fact that we have failed to prepare for the costs of the baby boomers’ retirement, Congress should ensure that any resolution of the fiscal cliff reduces economic harm, does not simply postpone hard choices for a later date without a plan in place to deal with them, and does not set the nation up for further fiscal damage.

With the nation remaining in a weak recovery, some short-term measures to support the economy may require deficit-financing. But this should not preclude development of substantial and credible long-term deficit-reduction plans. Such plans, in fact, could build public confidence in U.S. fiscal policy that would help the recovery. And eventually such deficit-reduction work will increase national saving, hold interest costs down, signal to world financial markets that we are serious about getting our fiscal house in order, and reduce U.S. dependence on foreign lenders.

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Do you support the comprehensive approach that the National Commission on Fiscal Responsibility and Reform (Simpson-Bowles) recommended and its $4 trillion deficit-reduction target? If not, what would your target be and which areas of the budget, if any, would you exempt from deficit-reduction efforts?

In December 2010, the Simpson-Bowles commission reached a bipartisan majority in favor of recommendations that would reduce projected federal deficits by about $4 trillion over the next 10 years. The commission estimated that this would bring the deficit down to a sustainable 2 percent of GDP by 2015, with steadily dropping deficits after that.

Critical to this unusual bipartisanship was that the plan requires broad sacrifice. It puts all parts of the budget in play. Major elements of the plan are sensible reforms that would be phased in to produce lasting savings after the economy recovers. These include cost-saving reforms in Social Security, Medicare, farm subsidies, retirement programs for government workers, other domestic discretionary programs and defense. The plan would also reform the tax code to bring in more revenues by broadening the base of taxation while lowering rates.

The $4 trillion target is ambitious but achievable. While it would not balance the budget over the next decade, it would move us toward a more sustainable course that, if continued, would provide even greater benefits in subsequent decades. A smaller target -- such as the $1.2 trillion to $1.5 trillion goal that Congress gave to its “super committee” on deficit reduction -- would not stabilize the federal debt, which is about $16 trillion and projected to continue growing faster than the economy.

Because the projected gaps between future government revenue and expenditures are so large, nothing should be left off of the negotiating table. Exempting some parts of the budget would mean even higher taxes or bigger cuts elsewhere. In addition, exemptions would undermine the concept of shared sacrifice that will be needed for the public to support politically difficult reforms.

Broad fiscal reforms should come as a package. Suggestions that some policy changes -- tax increases or Medicare reforms, for example -- should be postponed until other reforms are enacted are counter-productive. They can lead to endless arguments about why some policy changes should precede others, and there would be understandable fears that some of the delayed changes might never take place at all.

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Could you identify some areas where you see particular opportunities for bipartisan cooperation on fiscal reform?

Neither political party has the strength in numbers or the public credibility to force its own agenda through Congress. That means any serious budget reform efforts will require compromise and a willingness to deal with the other party. Thoughtful political candidates should have at least a few specific areas where they can suggest credible ways to move forward in a bipartisan manner. Those who can offer voters nothing more than complaints about the other party are unlikely, if elected, to get anything done.

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Do you think discretionary spending programs should face steeper cuts than other parts of the budget? If so, what are some specific examples of the programs that should be cut the most?

In the last few years of budget debates, much of the attention has focused on domestic discretionary programs that Congress approves on an annual basis. While there is room for cuts in many domestic spending programs, these programs only account for 18 percent of the federal budget. They provide many of the basic services that people associate with government: building roads, enforcing the laws, running the court system, protecting the environment, dealing with emergencies, financing medical research, and so on. In total, these programs cost $646 billion in 2011. Thus, even eliminating them would have only closed half of the $1.3 trillion deficit. Moreover, they are not a major source of growth in projected federal spending.

Budget caps enacted last year are designed to restrict the growth of these programs to about 2 percent a year through 2021. The CBO estimates that this will lower projected deficits by $778 billion. About 83 percent of the $1.2 trillion of automatic spending cuts in the sequester are also scheduled to come out of discretionary spending. Defense spending alone would be cut by $492 billion over ten years -- in addition to the $445 billion in defense cuts that CBO estimates were already included in caps from the law raising the debt limit.

Further cuts can be made, but candidates should be as specific as possible about the programs they would reduce or eliminate. And no matter how specific they are, fixating on cuts in domestic discretionary spending alone is a smokescreen for inaction on other parts of the budget.

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Do you believe military spending can be brought down to where it was before the wars in Afghanistan and Iraq? If so, how quickly could that be done? Can substantial savings be achieved without jeopardizing national security?

U.S. military spending has more than doubled since the 9/11 attacks, creating a flood of money that even top defense officials acknowledge sometimes enabled the Pentagon to avoid setting priorities and carefully matching resources to the challenges that it could expect to face most in the future. Last year Adm. Mike Mullen, then the chairman of the Joint Chiefs of Staff, said the rapid growth of the military budget over the past decade “hasn’t forced us to make the hard choices.”

Widespread accounting problems in the Department of Defense have created many financial vulnerabilities. The Congressional Budget Office reported this year that the Pentagon usually underestimates the cost of developing and buying weapons by 20 percent to 30 percent.

The TRICARE program provides health coverage for military retirees, including those under the age of 65, that is far more generous than what is generally available in the private sector -- yet Congress has repeatedly blocked reform efforts. The Pentagon also spends large amounts of money on things that have little if any impact on national security, often at the insistence of members of Congress focused on protecting local economic interests.

So voters should expect political candidates to offer realistic plans to improve efficiency, establish logical priorities and save tax dollars at the Department of Defense. Those who cannot identify opportunities for reform there aren’t looking very hard.

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What are some examples of programs that you consider clearly wasteful or subject to widespread fraud and abuse, and how much savings would you expect to recover by reforming or eliminating these programs?

Candidates and elected officials like to talk about eliminating waste, fraud and abuse. Unfortunately, there is no line-item in the budget labeled “waste, fraud and abuse” and consensus is often lacking on what belongs in this category.

What some people call waste may seem to others like valuable government services. With everyone denouncing waste, fraud and abuse in the abstract, it is important for candidates to be as specific as possible in identifying problems and the corrective actions that they think are appropriate. Are they relying on reasonable sources of information that can be verified, or are they simply passing along gossip and speculation? Are they focusing on small-budget items or on areas where reforms would produce significant savings of tax dollars?

Policymakers should of course take the opportunity to cut truly wasteful spending where they can find it. But even substantial improvements in efficiency and enforcement would not be enough to solve the government’s budget woes. More will have to be done. 

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Members of Congress have been discussing the possibility of changes in the tax code that would eliminate many of the tax preferences that now favor specific categories of individual taxpayers, companies or industries. Would you support this approach and, if so, what are some examples of the tax preferences that you would support eliminating? Would you favor using the money it produced to lower overall tax rates, reduce deficits, or both?

The exemptions, deductions, credits, and preferential rates within the federal income tax are often referred to as “tax expenditures” because they are essentially hidden spending programs administered through the tax code. They total roughly $1 trillion a year in foregone revenue. Cutting back on these tax preferences would simplify the tax code, and many economists and public policy analysts say it would make the economy run more smoothly and efficiently.

Some politicians like to label these tax expenditures “loopholes” -- because it sounds like the tax-side equivalent of “waste, fraud and abuse.” But the biggest gains in tax dollars would come from reducing or doing away with some of the most popular tax breaks, such as the deductions for home mortgage interest and charitable contributions. The political challenge is that these tax preferences have come to be thought of by those who receive them more as “tax entitlements” than as tax inefficiencies. Ideally, candidates should acknowledge this in discussing possible tax reform, and they should be as specific as possible about the changes they would support.

Some of the money from such reforms could be used to reduce overall tax rates, which would have economic benefits and help ease the sting some people would feel from lost tax breaks. But some members of Congress have ruled out using any new revenue from tax reform to reduce deficits -- a position that favors today’s taxpayers at the expense of those who will have to pay higher taxes tomorrow.

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What should be done to improve the U.S. health care system? If you oppose much or all of the 2010 Affordable Care Act (ACA) , what would you put in its place to improve health care quality, expand insurance coverage and curb the rapid rise in costs?

The United States spends far more per capita on health care than do other industrialized countries, often with no better results. Rising health care costs are a major factor in projected federal deficits. We will not be able to bring the deficit under control unless we can find a way to control the growth of health care spending. Attacking this problem needs to be a top priority.

The 2010 legislation called for some major changes in the U.S. system, some more popular than others. On cost control in Medicare, one goal was to encourage new methods for improving the inefficient fee-for-service model, which creates incentives for excessive treatments and provides little motivation for economizing by patients or their doctors. Whether candidates would like to keep the ACA or replace it, they should specify how they would encourage and reward greater efficiency and effectiveness.

Candidates should also acknowledge that some of the less popular features of the legislation -- such as new taxes, reduced payments to providers and mandatory insurance coverage -- are intended to make the more popular ones affordable. The more popular features prohibit certain restrictions imposed by insurance companies and expanded coverage with subsidies for individuals to purchase insurance in an “exchange” if they do not have coverage through their employer. If the unpopular provisions in the 2010 law are dropped, the popular ones should be dropped as well unless some other method is found to pay for them.

If a new President and Congress were to repeal the health care law, Congress would need to quickly pass new cost-control measures that would be at least as strong as those approved in 2010. Candidates should clearly explain what they have in mind should that happen.

Candidates who support the ACA must acknowledge that the law did more to expand coverage than it did to control costs. According to CBO and the Chief Actuary of Medicare, some of the Medicare spending cuts used to pay for expanded coverage in the new law may not be sustainable over time without further efforts to keep underlying health care costs from growing as fast as they have in the past.

In short, we still have work to do in health care reform and candidates should not only acknowledge this but offer some potential solutions.  

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Do you believe Social Security reform is necessary and, if so, what changes would you support?

The 2012 Report from the Social Security Trustees warns that “Social Security cannot sustain projected long-run program costs under currently scheduled financing,” adding that “legislative modifications are necessary to avoid disruptive consequences for beneficiaries and taxpayers.” The trustees also caution: “Lawmakers should not delay addressing the long-run financial challenges facing Social Security...”

Social Security is now paying out more than it takes in and consequently draws on general government revenues to help pay promised benefits. This requires the government to cut other spending, raise taxes or borrow the money from those who are willing to lend it to us. With 10,000 aging baby boomers a day signing up for it, Social Security is expected to require more and more general revenue in the future.

Candidates should not add to public confusion over the Social Security Trust Fund by treating it as a panacea for financing the program’s benefits. When Social Security cashes some of the bonds in the trust fund, this is simply a government accounting matter; the government must still find the money somewhere to pay for the benefits that it pays out each year. Voters should be wary of any candidate who claims that no changes are needed in Social Security, or who says any changes can be delayed for many years because the trust fund still has plenty of bonds in it.

Bipartisan panels and others have suggested an array of possible changes to improve Social Security’s outlook; some proposals would reduce benefits for future recipients while others would raise additional revenue from the system’s payroll tax. Many proposals would make the program more progressive, trimming net benefits for higher-income households (through lower benefits and/or higher taxes) while increasing benefits for lower-income households --strengthening the “safety net” features of the program.

Candidates should be specific about which changes they would favor or reject. Because so many specific proposals are already available, voters should be skeptical of candidates who say they would need further study or more blue-ribbon reports before they could suggest possible Social Security reforms. Moreover, most reform proposals would phase in changes gradually so that those in retirement or nearing it would not be affected, and younger people would have time to adjust.

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Addressing our $16 trillion national debt will require sacrifices from everyone. What specific examples of federal spending or tax provisions that benefit your state or district would you support eliminating or reducing?

There is no quick way to eliminate or even reduce the deficit. However, any credible deficit-reduction plan will require a commitment to the principle that everything must be on the table. This will require tough choices, explicit trade-offs and bipartisan cooperation. Policymakers must abandon the ideas that we can solve our fiscal problems by just cutting spending, just raising taxes, or by only focusing on programs that benefit someone else's state or district.

Politicians often talk tough on spending without mentioning what programs they would cut. This is a convenient way to avoid hard choices. Vague calls to crack down on “pork” or “waste, fraud and abuse” are not enough. Similarly, targeting only certain spending categories for scrutiny is problematic. All parts of the budget must be subject to scrutiny.

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The Concord Coalition is a nonpartisan, grassroots organization dedicated to fiscal responsibility. Former U.S. Senators Warren B. Rudman (R-NH) and Sam Nunn (D-GA) serve as Concord's co-chairs.

 

 

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