“Do you think we are sailing into a sovereign debt crisis?” Without hesitation, Dr. Douglas Holtz-Eakin, former CBO Director and witness before Congress said, “Yes.”
Over the past few weeks, Congress has conducted many interesting committee hearings, a few of which have included former Congressional Budget Office (CBO) Directors. While some from the halls of Congress tried to blame CBO for our country’s economic situation, witnesses stuck to what they knew to be true: In order to fix our country’s fiscal situation there is no silver bullet, instead, it will take the “collective will of the U.S. Congress.”
Dr. Holtz-Eakin, who is now President of the American Action Forum, bases his opinion on “the trajectory of any forecast for the U.S. debt,” which now totals over $21 trillion. Even though he says we’re not on a knife’s edge, he believes it’s more of a “when” not “if” that a debt crisis will happen.
In a related hearing, Unleashing America’s Economic Potential, Dr. Holtz-Eakin built off his statement by providing the real world consequences of our fiscal situation saying our current trajectory is courting a credit downgrade that would have dramatic economic impact. In addition, Dr. Holtz-Eakin said in his written testimony that, “Businesses, entrepreneurs and investors perceive the future deficits as an implicit promise of higher taxes, higher interest rates, or both. For any employer contemplating locating in the United States or expanding existing facilities and payrolls, rudimentary business planning reveals this to be an extremely risky environment.” That assumption certainly applies to the next generation as well.
These statements are far from outrageous, as many government and non-government agencies have been warning Congress of our impending fiscal crisis and its effects for years. There has also been no shortage of solutions from experts like Dr. Alice Rivlin, also a former CBO Director, who testified in one of the hearings. She shared her four principles that would address and prevent a debt crisis from happening. They are: 1) Slow the growth of health care entitlements, 2) get Social Security into long-run balance, 3) reform the tax system to produce more revenue by broadening the base and lowering the rates, and 4) cap the growth of discretionary spending.
If you’re wondering if Congress has attempted any of these, the answer is no. Even the long standing Republican tax platform “broaden the base, lower the rates” (which means taxing more people, but at lower rates) was ignored when passing the Tax Cuts and Jobs Act.
Dr. Rivlin, who has been a long-time economic expert in Washington, has not been shy about her displeasure with Congress and their lack of focus on such issues. In her written testimony, she said candidly, “Although I am glad that the Committee has devoted this series of hearings to oversight of the CBO, I strongly believe you should focus your attention on two far more important budget challenges: The dangers of a federal debt that is projected to rise faster than the economy can grow, [and] The total breakdown of the budget process.”
The former CBO Director called budgeting “perhaps the most important function of a democratic government,” and slammed Congress for “bickering” over short-term funding while giving zero attention to long-term problems like the national debt. To that end, many in the congressional hearings proved her bickering statement right as CBO’s projections and their legitimacy were often called into question. Maya Macguineas, President of the Committee for a Responsible Federal Budget, pushed back against Congress’s attacks saying our, “fiscal situation, and the broken budget process comes from Congress, it doesn’t come from the Congressional Budget Office.”
Through all of the testimonies, questions, and economic uncertainties, one thing remains crystal clear. Congress, and Congress alone must address these economic issues. Congress can no longer stick its head in the sand. CBO and many others know our fiscal outlook is dire and they can do nothing but watch as Congress chooses to ignore our country’s most important problems. Dr. Rivlin is right to call them “the dangerous elephant in this Budget Committee room.”