A Fiscal 'Perfect Storm'

Thursday, April 20, 2006

A CNP Conversation With Leon Panetta and Douglas Holtz-Eakin

March 13, 2006

Summary

Former Office of Management and Budget Director Leon Panetta and Congressional Budget Office Director Douglas Holtz-Eakin raised the alarm on America’s growing budget crisis, speaking at a Center for National Policy event on Capitol Hill on March 13, 2006. Arguing that the America faces a “perfect storm” as the baby boom generation draws on their Medicare, Medicaid, and Social Security entitlements, the program included over 50 Congressional staffers as the Hill begins its mark up of President Bush’s budget.

Event Highlights

“A Perfect Storm”

“What you see, with regard to the budget, is this perfect storm,” said Panetta. “We have a situation where the numbers are taking us to a point where we really are facing huge deficits not only now, but in the out years. The current budget process has about as much restraint as a New Orleans levee.” Panetta served as chairman of the Budget Committee of the U.S. House of Representatives, director of the Office of Management and Budget and as White House chief of staff for President Bill Clinton.

Douglas Holtz-Eakin concurred, saying “Imagine that we roll forward the clock five years from now…imagine a world in which there are no natural disasters which require money for reconstruction, no need for military operations in Iraq or Afghanistan. Imagine a world in which Republicans will hold discretionary spending flat for five years and Democrats are able to roll back the tax cuts of 2001 and 2005. Even in that world, I promise you that we will have an enormous fiscal problem--and that problem is the long term demands of Medicare, Medicaid and Social Security,” Holtz-Eakin predicted. Holtz-Eakin provided unique insights into current policy having served President George W. Bush as chief economist for the President’s Council of Economic Advisors and worked for Congress as director of the Congressional Budget Office from 2003-2005.

“The Policies Don’t Add Up”

“Regardless of whether your persuasion is Democrat or Republican, you’re going to raise taxes,” said Holtz-Eakin commenting on what will happen if entitlement programs grow at current rates. Holtz-Eakin argued that Congress needs to focus on three areas, in order to correct the structural imbalances in the federal budget that are leading toward fiscal crisis: Social Security, health care costs and tax reform.

Holtz-Eakin made clear that the way to restore fiscal responsibility in Washington is through tough policy choices, “This is not in my view a process problem, it’s that the policies don’t add up. We have to get to the point where the policies add up and then the process, in my view, is icing on the cake. We have to take care of the policies themselves.”

“We Need Political Leadership”

“We’re faced with trying to come up with a plan and the political will to dig us out of the hole,” said CNP President Tim Roemer. “We need a plan and we need political leadership. We have not had a single veto of a spending bill under this administration. We’ve had a huge increase in earmarks, we have shadow budgets where hundreds of billions in spending is ‘off-budget.’ We have some very, very difficult problems to present and solve,” said Roemer. “The budget process is only as good as the courage of those who are willing to put together a consensus on the budget and then enforce it,” added Panetta.

Panetta’s “Ten Budget Lessons Learned”

As a former House Budget Committee chairman, director of the Office of Management and Budget and White House chief of staff, Leon Panetta found himself at the center of virtually every major federal budget negotiation in the 1980’s and 1990’s. From this wealth of experience, Panetta prescribes ten lessons regarding the budget process:

   1. Deficits do matter
   2. Deficits are not going to take care of themselves
   3. There are no silver bullets
   4. We govern by leadership or crisis
   5. Everything has to be on the table
   6. All the key players have to be at the table
   7. The budget deal has to be bi-partisan
   8. The budget deal has to be viewed as fair by both sides
   9. There must be a clear path to a balanced budget
10. The budget deal has to be enforceable

“No Tax Cuts Pay for Itself”

Douglas Holtz-Eakin concluded the session responding to a question on whether the Bush tax cuts of 2001 pay for themselves. “They don’t pay for themselves,” said Holt-Eakin. “No tax cut pays for itself.”

###