It’s time to force the difficult debt decisions
WASHINGTON -- One thing the tumultuous wrangling over raising America’s debt ceiling has made clear: America needs to reform the way it makes decisions about fiscal policy, the most basic responsibility of Congress and the President. Washington politicians are playing a dangerous game, and with less than a week to go before the date U.S. Treasury Secretary Timothy Geithner warned a default on American government debt could occur, the parties still seem far from a meaningful deal. Despite bipartisan agreement that the U.S. debt level is unsustainable, it’s clear that America’s political leaders cannot find common ground on the difficult reforms required to tackle the debt. Instead the most likely scenario is a short-term deal that once again punts the tough decisions down the field. Apparently flirting with the economic calamity that would follow a U.S. default has not galvanized sufficient support for a sensible compromise. It’s time to change the rules of the game to avoid this ever happening again. Americans have never been shy in offering advice to Europeans about economic reform. We have bemoaned the tortuous decision-making process in Europe. Washington has long wanted a single telephone number to call on policy issues, and this extends to a single European finance minister. We have suggested that Europe have a common fiscal policy, with the ability to spend the tax money raised in richer areas for the benefit of poorer regions, not unlike New York tax receipts are spent in West Virginia to pay unemployment or to build roads. Lately, Americans have called for Europe to have the ability to issue eurobonds to lower the cost of borrowing for Greece, Portugal, and Ireland. With so much of the world’s economic stability dependent on the ability of policymakers in Washington to get their own fiscal house in order, Europeans will be excused if they wonder why Americans don’t reform their own decision-making before they give gratuitous advice to foreigners. At this late stage in the debt ceiling debate, the financial risks are great. Beyond the disastrous effects that would certainly accompany default, even if a short-term deal is reached, there is a good chance credit agencies will downgrade America’s debt rating anyway, noting the inability of policymakers to agree on meaningful fiscal restraint to curb longer-term debt. The very fact that the United States got this close to the deadline indicates a political paralysis that will continue to plague debate at least until the November 2012 elections. Congress still has to agree on a budget for 2012 and beyond by September 30 of this year or at least agree to extending appropriations for every government agency by that date to avert a government shutdown. Given America’s near-record debt, and without a “grand bargain” on debt reduction, these basic responsibilities will become epic battles. And all solutions that are meaningful are also unpopular. The biggest challenge to any deal is America’s political polarization. Extremists on both sides of the aisle make pledges vowing to eschew compromise, and both sides believe they enjoy wide public support, at least in the constituencies that matter to their re-election. Longer-term solutions require a revamping of the way boundaries are drawn for Congressional districts and reform of primary elections mechanics. But there are some more immediate changes that would force the tough decisions on fiscal balance to be taken now: 1) Require a Balanced Budget: Whether by constitutional amendment or statute, require Congress to pass a balanced budget. Without preferring one political party’s preferences over the other, it should require agreement on balancing revenues and spending. It should also limit “emergency” spending and require a specific plan to offset all emergency spending with future cuts or revenues. 2) Create a Standing Fiscal Commission: This bipartisan group of appointed officials would enforce budget balance. If Congress could not agree on a budget, the commission would provide a set of recommendations that would automatically receive up-or-down votes in both chambers. 3) Create a Wasteful Spending Commission: In order to accept painful sacrifices, taxpayers need assurance that all that can be done is being done to eliminate waste. This group would analyze all programs across agencies and recommend a set of changes to eliminate duplication and waste. The recommendations would receive an up-or-down vote in Congress. 4) Link Revenues with Expenditures: Whenever possible, the debate over taxation and spending should be brought into a single conversation. Taxes linked to specific programs make the trade-offs more apparent, and when a specific program sunsets, so would the corresponding tax. America’s impending default has compelled its opposing parties to start talking about difficult but necessary sacrifices. Unfortunately, the crisis has also revealed that under the current rules politics as usual still reigns. Americans have long offered useful ideas to Europe and the world about how to pursue economic reforms. Now it’s time Americans put their best ideas to use at home. Glenn Nye, a former Member of Congress, is a Senior Resident Fellow at the German Marshall Fund of the United States.
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