August 29, 2014

Washington Budget Report: Sept. 18, 2012

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Gates, Mullen Warn of Risks to National Security

Former Defense Secretary Robert Gates and former Chairman of the Joint Chiefs of Staff Michael Mullen said Monday that Washington’s fiscal ailments pose a serious threat to national security, but they warned that sharp automatic spending cuts scheduled to start next year were not the answer.

Gates and Mullen spoke at a program on the national security implications of the federal debt, part of the Strengthening of America – Our Children’s Future initiative. Monday’s forum, at the Center for Strategic and International Studies (CSIS) in Washington, included a second panel discussion, which was on bipartisan plans for fiscal reform.

“A nation with our current levels of unsustainable debt, being this far out of fiscal balance, cannot hope to sustain for very long its superiority from a military perspective, or its influence in world affairs,” Mullen said.

To deal with the “abundant fiscal disorder” that afflicts the nation, he said, everything must be on the table, including defense spending. But he decried the “meat ax treatment” that the automatic cuts would mean for both defense and non-defense spending.

Mullen said continued irresponsibility in Washington could mean “huge and poorly targeted budget reductions that would result in “a hollow force” that would be unable to conduct training, maintain its equipment or fight.

Gates, too, offered a grim warning about future risks if elected officials did not act soon to put the nation’s fiscal house in order.

“At some point financial insolvency at home will turn into strategic insolvency abroad,” he said.  “We’re not there yet,” he added, but the longer the government delays dealing with its fiscal problems, the “more painful and potentially more risky” corrective action will be.

The automatic cuts starting in January, Gates said, would offer “a preview” of this damaging scenario. He said the “mindless, across-the board spending cuts” were “a catastrophic way to deal with the budget issue.”

Gates said that as the result of several polarizing trends in government and the media, “we have now lost the ability to execute even the most basic functions of government, much less solve the most difficult and divisive problems facing this country.”

Still, he said, he remained fundamentally optimistic because the country has the “power and means” to deal with its challenges.

Former U. S. Senators Sam Nunn (D-Ga.), Warren Rudman (R-N.H.), Evan Bayh (D-Ind.) and Pete Domenici (R-N.M.) created Strengthening of America, convening  a bipartisan group of former members of Congress for four public forums on the federal debt and related issues in the weeks leading up to the presidential debates.

Nunn and Rudman are co-chairs of The Concord Coalition, which is involved in the initiative along with several other organizations: CSIS, the Bipartisan Policy Center, the American Business Conference, the James A. Baker III Institute for Public  Policy at Rice University, the Hoover Institution at Stanford University, and the Belfer Center for Science and International Affairs at Harvard University.

Leaders of Bipartisan Panels Discuss Reform Efforts

Two prominent bipartisan groups produced comprehensive plans in late 2010 to put the federal budget on a sustainable course. On Monday the group’s four co-chairs explained how they did it – and hoped that elected officials would eventually follow their example.

Most members of the National Commission on Fiscal Responsibility and Reform reached agreement on a bipartisan plan that Co-Chair Erskine Bowles described as balanced and reasonable. “They did it,” he said, “because they thought it was the responsible thing to do, because they thought it was the right thing to do.”

Bowles, a former White House chief of staff, spoke at the second Strengthening of America — Our Children’s Future forum. Others who spoke in the same section of the program were the other co-chair of his commission, former Senator Alan Simpson (R-Wyo.), and the two co-chairs of the Bipartisan Policy Center’s Debt Reduction Task Force:  Alice Rivlin, a former White House budget director, and former Senator Pete Domenici (R-N.M.).

Simpson emphasized that even though there was “a remarkable range” of opinion on his panel, its members were able to develop recommendations for responsible changes in areas such as Social Security and the defense budget.

Domenici said his task force concluded that a broad array of policy changes were necessary because “none of them would do it alone.”

Rivlin said the country faces two big challenges that must be met simultaneously: achieving more rapid economic growth, and putting the federal debt on a sustainable path.

Former Treasury Secretaries Lament Budget Politics

The most difficult obstacles to fiscal reform efforts are more political than economic, as several speakers emphasized at a Strengthening of America -- Our Children’s Future forum last Wednesday.

The country has the strength and capacity to deal with its budget challenges, they said. It is the political will to act that is in question, with many elected officials reluctant to make difficult choices and seek bipartisan cooperation.

James A. Baker III, a former Treasury secretary, said that a grand bargain to put the country on a more responsible fiscal path would require “something that’s become a dirty word” in Washington: “Compromise.”

Another former Treasury secretary, Robert Rubin, noted the example of  the Founding Fathers, who overcame strong disagreements with each other to produce the Constitution through “principled and effective compromise.”

Former Senator Sam Nunn (D-Ga.), one of the former senators who convened the forum series, said the group believes “there are feasible and responsible solutions that we can pursue to protect our children’s future, if we work together.”

But Nunn, a co-chairman of The Concord Coalition, said elected leaders would have to summon more political courage and engage the public in a “genuine dialogue” about the fiscal challenges and the trade-offs involved.

OMB Report Details Automatic Cuts

Last Friday the Office of Management and  Budget  (OMB) released a report detailing the effects of automatic spending cuts scheduled to begin taking effect in January. The cuts are required by the 2011 Budget Control Act (BCA) because the Joint Select Committee on Deficit Reduction that was created by the law failed to agree on a plan to reduce projected deficits by $1.2 trillion and Congress has also not enacted a deficit-reduction proposal.  

The BCA requires automatic cuts -- also called “sequestration” -- totaling $1.2 trillion for FY 2013 through FY 2021, which would mean a cut of $109 billion next year. The cuts would apply to both discretionary and mandatory spending, though partial exemptions for mandatory programs such as Social Security, Medicaid and Medicare would cause the cuts to fall largely on annual appropriations. The cuts are divided evenly between defense and non-defense spending.

In the report, which was required by a law signed by the President last month, OMB estimated the specific effects of sequestration on over 1200 accounts across the federal budget. The sequestration would result in a 9.4  percent reduction in non-exempt defense discretionary funding and an 8.2 percent reduction  in non-exempt non-defense discretionary funding.

The report is a reminder of the severe impact that the automatic cuts will have across the federal budget if they take effect.  It is important for Congress to act on a plan to place our nation on a sustainable path, though automatic cuts with no policy rationale behind them are not a responsible way to budget.

House Passes Continuing Resolution

The House voted 329-91 last week to approve a continuing resolution (CR) to fund the government through March 27 at a level that is consistent with the $1.047 trillion cap included in the Budget Control Act. The Senate is expected to consider the measure this week.

If, as expected, the measure passes the Senate and is signed into law by the President, the CR will avert a government shutdown and delay difficult choices on spending until the election season is over. The CR is necessary because Congress did not complete any of the 12 appropriations bills necessary to fund the government in the fiscal year that begins next month.  

It is encouraging that Congress is on course to avoid another government shutdown, though the practice of relying on continuing resolutions to fund the government for much of the fiscal year is troubling. By funding the government in this way, Congress places much of it on automatic pilot and avoids making responsible trade-offs such as cutting ineffective programs or adding funds to effective ones. Congress should return to the traditional appropriations process where these choices can be made more effectively.