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What ‘Cliffs’ Lay Ahead for Congress in Resolving Other Budget Deal Aspects?

January 3, 2013 at 12:00 AM EDT
The U.S. may have averted the "fiscal cliff," but many issues remain in the budget deal passed by Congress. Jeffrey Brown explores what remains unsolved with Maya MacGuineas of the Committee for a Responsible Federal Budget, American Action Forum's Doug Holtz-Eakin and Robert Reich of University of California, Berkeley.
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JEFFREY BROWN: From one cliff to the next: Where do we go from here?

Well, to look at the economic consequences of the deal reached this week, we’re joined by Maya MacGuineas, president of the Committee for a Responsible Federal Budget at the New America Foundation. She serves on the Campaign to Fix the Debt, a group pushing Congress to reach a broad deficit deal.

Douglas Holtz-Eakin served on the Council of Economic Advisers under George W. Bush and as adviser to John McCain’s presidential campaign. He’s now president of the American Action Forum, a policy think tank.

And Robert Reich served as Bill Clinton’s secretary of labor. He’s now professor of public policy at the University of California, Berkeley.

Maya, I saw that the Fix the Debt website blog today said the good, the bad and the ugly of the deal. Explain what you saw.

MAYA MACGUINEAS, Committee for a Responsible Federal Budget: Well, the good news is that we didn’t go over the fiscal cliff. And I truly believe that would have been so damaging for the country and the economy and likely put us back in recession.

But what we also didn’t do is fix the problem of the deficits and debt in this country.

JEFFREY BROWN: The problem.

MAYA MACGUINEAS: The problems, right, of that we’re borrowing much too much and our debt is growing faster than our economy. We didn’t take this opportunity to replace the cliff with a big comprehensive plan that would deal with all the broken parts of the budget and gradually, not abruptly, but gradually put the debt on a downward path.

And in this deal that we had, the revenues probably not enough to fix the problems and notably absent were any changes to the nation’s entitlement programs.

And once again, we waited until the 11th hour to do this deal. And the result was the partisanship and the toxic nature in Washington has grown worse. We still have problems to deal with and I’m worried about how we’re going to move forward and really get the changes done.

JEFFREY BROWN: All right, that’s a lot on the table.

Robert Reich, let me turn to you. Give us a brief overview of what you saw was and wasn’t accomplished.

ROBERT REICH, former U.S. labor secretary: Well, I share many of Maya’s concerns. The net revenues coming in from this deal are relatively small, certainly in proportion to the very, very large looming budget deficits we see in the out-years.

That means that most Americans will either have to in the future bear higher taxes, middle-class Americans, or most people will see their services, safety nets, public investments in everything from sewers and infrastructure overall to education, all of that will be cut and may be cut quite dramatically.

The other thing that worries me, Jeffrey, is that there was no agreement on the debt ceiling, which means that we’re likely to see a continuation of this trench warfare we have had in Washington at least since the summer of 2011, with almost no hesitation.

I think that the Republicans in the 113th Congress will use the threat of not going along with a rise in the debt ceiling as a way of extracting even more concessions with regard to spending cuts.

Some of the spending cuts, as I said, particularly with regard to infrastructure and safety net programs, programs for the poor, are very critical for the future.

JEFFREY BROWN: Well, Doug Holtz-Eakin, I guess there’s consensus that there’s certainly more to come out of all this, right?

DOUGLAS HOLTZ-EAKIN, former Congressional Budget Office director: No question. What we got was a mixed bag.

It got us past the cliff. And I agree the biggest thing is addition by subtraction. We didn’t have a recession. That’s the best news. It also for 98 percent of the taxpayers gave them a permanent current tax law and took the uncertainty out. That’s good news.

But from another perspective, it wasn’t very brave. In the end, we taxed rich people to continue spending on the current programs and we kicked down the road cutting any new ones. So it really wasn’t a solution to the debt and it wasn’t a great solution to avoiding a recession.

JEFFREY BROWN: Well, so you start us looking — pick up on something of these things and looking a little bit forward, where Robert Reich started already and so did Maya. But on some of the — like the debt issue, the debt limit issue, that’s the next thing to come, right?

DOUGLAS HOLTZ-EAKIN: The next thing to come is in fact dealing with the debt. The debt limit is a symptom of that. And we are going to have to see both sides come forward with entitlement reforms.

That’s the heart of this problem. It’s been noted for 10 years by the CBO among others that we cannot grow our way out of this, we can’t tax our way out of this. It’s an entitlement spending problem that has to be brought under control.

And we will never solve debt limit fights unless we solve the debt. And so the way to really get ahead of this is for the president to take some leadership and put on the table what he thinks are the right ways to deal with the entitlement problem, and then to have this go through Congress in regular order, and have the House deal with it, the Senate deal with it, and stop the 11th-hour approach to this. Let’s solve problems using the legislative process.

JEFFREY BROWN: Maya, have you seen any signs that that is likely or possible given what we just went through?

MAYA MACGUINEAS: Well, I think everybody’s just kind of catching their breath and recovering for what was a very difficult negotiation.

And we started with talk about really putting in place a lot of the bigger changes that had to get done, both entitlement reform and tax reform, and as we negotiated down, the deal got smaller and things got more toxic, as I said. People need to sort of regroup and think about how we are going to move forward.

We did do one thing, which was the sequester, the across-the-board spending cuts that were going to hit, were extended for only two months. That means there’s another action-forcing moment in two months and what we have to do is we have to get real. We have to have a real conversation about what we’re going to do to deal with entitlements, spending and revenues, tax reform, all of these issues.

We have to be able to talk about them in a less partisan way, a less finger-pointing way, because they are going to be hard. And if we continue to delay, we are going to have no economic stability, which is what we lack right now.

We are going to have more real risk that we’re going to have an economic downturn because of concerns or some kind of fiscal crisis, and that debt ceiling is sitting out there, making us all nervous about how we’re going to resolve this.

JEFFREY BROWN: Robert Reich, let me ask you just about the tax issue again, because the president had come into these negotiations saying he wanted to raise more in revenues. Many liberals now are suggesting he didn’t get enough. And I’m just wondering is there still, do you think, even the possibility of getting more or is that now a done deal and we turn really to the spending issues?

ROBERT REICH: Well, hopefully, there is the possibility of getting more, particularly from the wealthiest members of our society.

Those Bush tax cuts are now pretty much permanent. They are now built into law. They are no longer temporary. It is going to be very difficult to revisit them, but not impossible. I think the president could and should go back and see if it’s possible for the wealthy in this country, who have not been nearly this wealthy ever before, taking home a larger percentage of total income than they have in 60 years, to contribute a little bit more to deficit reduction.

The other point I want to make in response to both Douglas and Maya’s points about entitlement reform is that the real long-term problem is not entitlements per se. The long-term problem is health care costs that continue to go up for this nation, coupled with baby boomers who are going to require more and more health care.

Those health care costs are now 18 percent of total gross national product, the total economy. And those are what we have to deal with and we have got to get control over them. Medicare is not the problem. Medicare costs are going up because health care costs are going up.

JEFFREY BROWN: Doug, do you buy that, that that’s really where the emphasis should be, instead of the — or as opposed to the entitlement…

DOUGLAS HOLTZ-EAKIN: Well, I think there are really three important points here.

First, health care reform means Medicare reform. Medicare drives the practice of medicine in America. It’s a system that rewards quantity over quality. It’s a system that’s fragmented. We pay doctors one way, hospitals another, insurance companies another, and drug companies a fourth way.

It needs to be overhauled, so that it rewards quality and provides coordination. So Medicare reform is health care reform. The second is sort of, how do we get there? And I think it’s important to recognize that this country often has the situation we have, mixed government — that’s more the norm than the exception — and that when we do debt ceiling increases, it is the norm.

Eleven out of the previous debt — 14 debt ceiling increases have legislation to affect the debt or deficit with them. So we should recognize that’s how it’s going to end up. The president should put the legislation he wants on the table and we should go from there. We shouldn’t have this silly notion that somehow we’re just going to raise the debt ceiling and ignore the debt. We should do business the way we have done it in the past.

JEFFREY BROWN: Well, but I’m wondering now — you all three watched the economics of our political system, and we just saw Judy’s piece looking at a new Congress. A lot of people are talking about a broken political system, looking at what just happened.

MAYA MACGUINEAS: It feels kind of broken right now.

JEFFREY BROWN: It does?

MAYA MACGUINEAS: It really feels like we have a political system that is not up to making difficult choices and solving hard problems and compromising, when it’s so much easier to just to pull back and start sort of playing the blame game.

But this is just too important. When we’re talking about health care costs or the aging of society, these are all issues that we know are there, and we’re going to disagree about the perfect way to address them, but you can’t pretend we don’t have to try to fix them.

We do have to fix them. And compromise and being willing to come out of your boxes and work together is going to be key to doing in particular these difficult choices.

So I worry about the political system to step up, but it’s too important not to keep trying.

JEFFREY BROWN: Robert Reich, you got the most distance of the group here, at least from the West Coast. How does it look?

(LAUGHTER)

ROBERT REICH: Well, there’s obviously more kind of paralysis in Washington than anybody has seen in living memory.

And we do have a huge debt and deficit problem. But don’t forget the way the public understands the key issue in front of us is the way our representatives respond. And the key issue, at least in the foreseeable future, the next few years, is not deficit or the debt. It’s jobs, it’s wages.

Tomorrow, we are going to have an unemployment report, but we have got 23 million Americans who are underemployed or unemployed, and their median wage continues to drop. That’s the issue. That’s the issue we ought to be grappling with.

JEFFREY BROWN: All right, well, no doubt to be continued.

Robert Reich, Maya MacGuineas and Douglas Holtz-Eakin, thank you all.

MAYA MACGUINEAS: Thank you.

DOUGLAS HOLTZ-EAKIN: Thank you.

ROBERT REICH: Thanks very much.