November 1, 2014

New Hampshire Forum: Weighing the Prospects for Fiscal Reform

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If Congress were to simply follow the budget path laid out in current law, the federal government might escape some of its widely anticipated fiscal problems over the next few years. But that is a big “if,” as became clear Friday at a forum at the University of New Hampshire School of Law.

In the keynote speech, Mark Zandi, chief economist for Moody’s Analytics, said he was more optimistic than many economists about the nation’s prospects and the likelihood that Washington would move the country onto a more sustainable track.

Robert L. Bixby, executive director of The Concord Coalition, offered a more guarded assessment of the nation’s fiscal problems and noted the possibility that elected officials could stray far from the promising budget path laid out by current law. “The catch is following through,” he said.

The forum was sponsored by the law school, the Whittemore School of Business and Economics, the New Hampshire Business and Industry Association, and Concord. It was part of “Next-Generation Matters,” a series of conversations in New Hampshire about the country’s economic future.

Despite this year’s political squabbles over increasing the federal debt limit, Zandi said, elected officials in both parties see the need to reduce projected deficits by about $4 trillion over the next decade. “So we have an agreement on the goal,” he said, “and I think that’s real progress.”

This year’s debt limit agreement included nearly $1 trillion in spending cuts. And while the congressional super committee failed to find at least another $1.2 trillion in deficit reduction, a back-up “trigger” mechanism is supposed to result in automatic cuts that start in early 2013.

So while more work is needed, Zandi said, the government is at least on track to achieve a little more than half of the deficit reduction that is widely considered necessary over the next decade.

He also pointed to some positives in the American economy, including consumers reducing their debt and many businesses doing well. But as insurance against another recession, he said, it would be wise for Washington to continue the payroll tax cut and extended long-term unemployment benefits.

In what Bixby called “the scary part of the program,” he expressed concern about extreme partisanship and “political dysfunction” in Washington.

He agreed that Congress had taken some helpful actions this year but emphasized that elected officials had done nothing on the difficult areas of tax and entitlement reform. As in the past, they have focused on cuts in discretionary spending and “there is only so far you can get with that,” Bixby said.

Entitlement reform is crucial, he said, because otherwise rising health care costs and the aging of the population threaten to swamp the federal budget. More borrowing would mean higher and higher interest costs as well – at rates that would likely be well above today’s low levels.

In the question-and-answer session, one audience member suggested that the deaths of baby boomers 20 years from now would ease the government’s financial burdens. The remark prompted the two speakers – both baby boomers – to note that they exercised regularly.

“I am 52,” Zandi said. “I represent the largest single-year age group. And I’m running every day, buddy.”

A video of the program is available at:

http://www.concordcoalition.org/act/event/2011/1129/next-generation-matters-outlook-2012