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Congress Will Decide to ‘Punt Again’ or Go ‘Off Cliff’ to Fix Budget Deficit

August 22, 2012 at 12:00 AM EDT
Should Congress fail to pass a balanced budget by the end of 2012, America could face serious repercussions. Gwen Ifill talks to the Congressional Budget Office's former director Alice Rivlin and Committee for a Responsible Federal Budget's Maya MacGuineas about why budget reform talks need to shift to policy, not politics.


GWEN IFILL: The nation could be pushed into a major recession next year if scheduled spending cuts and tax hikes kick in, in January.

The Congressional Budget Office said going over the so-called fiscal cliff could have dire consequences. Unless Congress acts, Americans can expect more than $300 billion in tax increases, as Bush era tax cuts expire and nearly $200 billion in across-the-board spending cuts Congress agreed to last year in exchange for raising the debt ceiling.

The CBO said those changes would reduce the deficit substantially, but the economy would also shrink by nearly 3 percent during the first half of the year and unemployment could top 9 percent.

We look more closely at this now, with Maya MacGuineas, president of the Committee for a Responsible Federal Budget, and Alice Rivlin, a founding director of the CBO. She’s now with the Brookings Institution.

Welcome to you both.

Alice Rivlin, what’s the most important thing pushing us toward this cliff, this rhetorical but real cliff?

ALICE RIVLIN, Brookings Institution: Well, the most important thing pushing us is that Congress enacted these cuts in spending, and the lapse in the tax cuts, and they will take place unless the Congress gets itself together to do something about it.

And that’s going to be very difficult. Nothing’s going to happen until after the election. And when they come back, are they going to be ready after all this hostility to sit down together and solve a problem? I hope so, but it’s not guaranteed.

GWEN IFILL: So, is it inertia that’s at the root of this, Maya MacGuineas?

MAYA MACGUINEAS, Committee For a Responsible Federal Budget: You know, this is kind of one of those moments when all our inability to make tough choices is just about to catch up with us.

And this is kind of the — we’re going to have to pay the piper at some point. We have known for so long that we need to deal with our fiscal challenges in this country. And instead of sort of moving forward on the various budget deals that have been proposed, the most recent one that didn’t move forward was the super committee.

The result of that was, well, there’s the sequester. These automatic spending cuts are going to hit. And we do need to cut spending, but this probably is not the right way to do it, abruptly and across the board.

And likewise, on the tax side of the budget, we keep extending the tax cuts without offsetting the costs and really thinking about how to reform the tax code and raise revenues. Now they’re going to expire. And, together, those things would hurtle us off the fiscal cliff and likely put us in a recession. And we shouldn’t make the decisions that way. We need to do them thoughtfully and gradually.

GWEN IFILL: Which would you say is the most damaging part of that formula, the tax cuts or the spending — I mean, the across-the-board tax — spending cuts or the tax cuts being extended?

ALICE RIVLIN: Oh, I think it’s both.

GWEN IFILL: It’s not just one or the other.

ALICE RIVLIN: It’s not just one or the other.

And together they give you a very large impact on the economy. And by the same token, if you think about what would be better, it isn’t just spending. We can’t fix the long-run problem of the deficit by just cutting spending. And we can’t fix it by just raising taxes.

We have got to do some of each, but in a gradual way over time, and in a much more intelligent way than this actually ridiculous thing which is about to hit us.

GWEN IFILL: This blunt-force object heading in our direction.

ALICE RIVLIN: Absolutely.

GWEN IFILL: So explain to me, Maya MacGuineas. Draw the line for me between these numbers and unemployment going up to 9 percent next year. What is the connection?

MAYA MACGUINEAS: So, we know that right now we have too much debt in our economy, and that’s causing a drag on economic growth.

But what you have to do to deal with that is put in place a long-term credible plan to bring our debt levels down, but not so fast that it would disrupt what is a really fragile economy that we’re having right now. The problem with the fiscal cliff is it’s too much deficit saving — and I say that as someone who thinks we need to do a lot to improve the deficit.

GWEN IFILL: You’re getting — hopping into my next question, but we will get back to that.

MAYA MACGUINEAS: But it’s too much, it’s too fast and it’s the wrong way.

It’s not done thoughtfully. We’re not picking and choosing what you would change. It’s basically Congress saying we can’t make the choices, so we’re going to have these across-the-board cuts. And it’s the wrong way to do it.

GWEN IFILL: I have heard both of you however talk about this deficit problem and how important it is to address it. Isn’t there something to be said for erring on the side of cutting the deficit?

ALICE RIVLIN: Yes, but not too quickly, as Maya says, because if you raise taxes fast on everybody, and you cut spending very rapidly, defense, domestic, the whole bit, and in a stupid way, people have less money to spend, and they will spend less.

And that’s the connection with unemployment. Spending will go down, and less people will have jobs.

GWEN IFILL: Let’s indulge in a fantasy for a moment. Congress comes back after the elections and they say we can’t let this happen. What are their options to avoiding the cliff, to stopping short of it?

MAYA MACGUINEAS: Because I think it’s fair to say that the only thing worse than going off cliff is punting. One option is we go off the cliff. We just let these policies hit, the deficit shrinks a whole lot, but it does so in a way that puts us in a recession.

The other option which is one I worry about a lot is they just say, we can’t do all of this. Let’s just get rid of the sequester. Let’s extend all the tax cuts and punt again. That would add trillions of dollars of debt to an already excessive debt level that we have in this country.

And so I think that — the punt is the thing to worry about. What you want to do is replace either of those options with a big kind of budget deal that would be phased in gradually, like Alice just said, thoughtfully, give time for the economy to recover, but put us on a debt level where it’s coming down as a share of the economy gradually.

ALICE RIVLIN: Practically, I think they have to do a combination of punting or kicking the can down the road, and putting in place at least a framework for the big deal.

And why I say framework is that what needs to happen is thorough tax reform and thorough entitlement reform, or at least some, that — and those are very hard things to do. And they won’t have much time before the end of the year.

So what they can do is not punt, as Maya says, completely, but say, we will set aside these drastic things until a date certain, say March 30 or something like that.

At the same time, we will put in place a framework for actually solving the problem, the long-run deficit problem, and agree on ways of doing that, that will actually happen.

GWEN IFILL: We’re in the middle of a big presidential campaign. Theoretically, it’s supposed to be a discussion of major high-toned policy issues. But it’s not always that.


GWEN IFILL: Have you heard either of the major candidates for president or any of their running mates talk seriously about this issue? And are there proposals on the table that leadership would get — would pull us short of the cliff?

ALICE RIVLIN: There are policies on the table already.

We had, after all, the Simpson-Bowles commission, which I was on. And also the commission that Sen. Domenici and I chaired came up with solutions.

GWEN IFILL: But policies that the candidates have embraced?

ALICE RIVLIN: Policies that are available.

The candidates are not taking those proposals seriously because they’re too hard. They involve really difficult choices.

GWEN IFILL: Are you surprised there hasn’t been more campaign conversation about this?

MAYA MACGUINEAS: Well, I think that, like you said, we have a national campaign right now. We have a huge problem that we know is staring us in the face. We have to use this opportunity to have a real discussion about how we’re going to fix it.

And pretty much anybody who looks at it knows that we need to do this as quickly as possible. We won’t get it done before the election, but we have to do it as quickly as possible afterwards.

However, I think the real risk — and we saw a little bit of this about Medicare in the past couple days — is that instead of the candidates saying, here’s how I would fix the problem, here’s a $5 trillion deal, here’s what I would do on Medicare and Social Security and taxes, all the things we need to do, they start throwing accusations, saying, you cut Medicare. No, you cut Medicare.

And the truth is we have to have that real conversation. We’re going have to reform Medicare and these other things, and I hope it doesn’t turn into the normal throwing bombs instead of talking about what we should do and what we will do.

GWEN IFILL: We will be looking forward to that real conversation.

Maya MacGuineas, Committee for a Responsible Federal Budget, and Alice Rivlin of the Brookings Institution, thank you both.


ALICE RIVLIN: Thank you, Gwen.