A dozen budget wishes for Congress

This week saw the start of budget negotiations between the House of Representatives and Senate. But as Republicans and Democrats sit down together less than a month after a government shutdown, will the two sides be able to find common ground? Global Public Square asked 12 commentators, analysts and policy makers for their take on what Congress should be discussing – and what an agreement should include. All views expressed are the writers’ own.

Create a national infrastructure bank – Fareed Zakaria, CNN

If Republicans and Democrats could stop posturing, they would find that they could support a simple, powerful program that would reduce unemployment, make America competitive, privatize an important realm of economic activity, and get rid of earmarks. It is a national infrastructure bank to rebuild America's decaying infrastructure.

America's infrastructure is in a shambles. Just a decade ago, we ranked sixth in infrastructure in the world according to the World Economic Forum. Today we rank 23rd and dropping.

Currently, the United States government funds and operates almost all American infrastructure. It’s a quasi-socialist approach.

In much of Europe and Asia, things work very differently, with much greater participation by the private sector – in raising money, investing, and operating roads, train, and airports. An infrastructure bank would create a mechanism by which you could have private sector participation.

The government helps by issuing bonds. But interest rates are so low that these bonds wouldn’t cost that much. And think about it, this is the time to use those low interest rates to borrow money and repair the bridges that are crumbling, the highways that need resurfacing, the airports that need expansion. As anyone who owns a house knows, delaying repairs is a foolish and expensive strategy. Ultimately we will have to do these things; except then the bill will be higher and so will interest rates.

A national infrastructure bank would choose projects that make sense, using cost-benefit analysis not pork and patronage as its guidelines. That means no more earmarks. And a major infrastructure project would put people to work in an industry that is still battered by the Great recession.

It’s a win-win. Actually it’s a win-win-win. Democrats and Republicans do well, but so does America.

Fareed Zakaria is host of CNN’s Fareed Zakaria GPS, every Sunday at 10 a.m. and 1 p.m. ET.

Put the sequester on hold – Thomas E. Mann, Brookings

Years of singular focus on the problem of budget deficits and debt have warped the policy making process in Congress and done more harm than good.  Annual deficits increased sharply and then declined, a textbook response to a serious economic recession and then gradual recovery.  Automatic counter-cyclical stabilizers combined with some additional stimulus in the form of tax cuts, transfers to states, and direct spending helped limit the damage to the economy and the loss of jobs.  But since 2011, fiscal policymaking has been a drag on the economy – forcing the Fed to assume virtually full responsibility for keeping the recovery on track.

The damage has come directly from immediate spending cuts, which have reduced demand (and consequently growth and jobs) in the short term but done nothing to address our projected long-term deficits, which are entirely a consequence of an aging population and increased health care costs.  The indirect costs of hostage-taking, super committees, grand bargains, sequesters, government shutdowns and threats of default have been even worse.  Economic confidence, trust in government, and our reputation around the globe have suffered as a result of the spectacle in Washington.

So my hope from the budget conference is modest.  Turn off the destructive sequester for a year or two, without insisting that all of it be paid for in the same time period. Set realistic spending caps, mandatory spending adjustments, and revenues consistent with that objective.  Drop the threats of another shutdown or debt ceiling standoff. Demonstrate that the regular order still has some currency in Congress.

Thomas Mann is a senior fellow at Brookings and co-author with Norman Ornstein of ‘It’s Even Worse Than It Looks.’

Jobs, jobs, jobs! – Rep. Frederica Wilson (D-Fla.)

While the nonpartisan Congressional Budget Office shows the federal budget deficit falling over the next several years, our jobs deficit – nearly 12 million officially unemployed and tens of millions more underemployed or out of the labor market – is still dragging our economy and destroying human potential.

We need a grand bargain for jobs and wages.

Over recent years, several factors – from outsourcing to technological change to government budget cuts – have conspired to make it harder for Americans to find work that provides a living wage. This means not only massive pain and suffering but also slower economic growth and greater government debt. With millions of Americans out of work or underpaid, our businesses can’t find customers to purchase homes, cars, college tuition, or even meals at restaurants. With fewer people earning reasonable salaries, fewer people are paying taxes and more people are reliant on government assistance.

By getting people trained, working, and earning good salaries, we can build the tax base and responsibly reduce our budget deficits.

Budget conferees should start by cancelling the sequester cuts that are set to destroy up to 1.6 million jobs for teachers, police, medical researchers, national security personnel, construction workers and others across the country. A “Grand Bargain for the People” would also include training programs to close the skills gap and needed upgrades to infrastructure, education, and energy systems. The American Jobs Act of 2013, a set of bipartisan pragmatic proposals that I introduced this year with support from 75 cosponsors, is a template.

For an economy suffering from weak consumer demand, cutting Social Security and Medicare would just make our budgetary woes worse. The only responsible solution is to return Congress to its rightful focus: Jobs! Jobs! Jobs!

Give our military resources it needs – Rep. J. Randy Forbes (R-Va.)

The number one Constitutional priority of every member of Congress is to provide for the national security of the United States. As sequestration continues into a second year and the U.S. military faces its most serious readiness crisis since the Vietnam War, reversing these disastrous cuts and providing our military with the resources it needs to execute its missions should be the paramount objective of any budget negotiation.

The effects of sequestration can be seen across the services, from Army units cutting back on realistic training to Air Force pilots receiving fewer hours in the cockpit. Four precent of the Army’s brigades are currently combat ready and the majority of Air Force combat units are only months away from being designated as unprepared. Today, only one aircraft carrier strike group is available for deployment in an emergency, dramatically restricting our options in potential crises around the globe.

Sequestration has accomplished what no adversary could ever dream of achieving against the United States military. As our military’s readiness approaches the “hollow” levels last seen in the aftermath of Vietnam, it is incumbent upon the Administration and Congress to set aside partisan differences and provide the men and women who wear our nation’s uniform with every tool they need to deter and, if absolutely necessary, win America’s wars. No serious budget negotiation can be undertaken without making its highest priority the reversal of sequestration’s impact on our national security.

Fix the budget process – Donald Marron, Urban Institute

Odds are slim that the budget conference will deliver anything big on substance. No grand bargain, no sweeping tax reform, no big stimulus paired with long-term budget restraint. At best, conferees might replace the next round of sequester cuts with more selective spending reductions spread over the next decade.

Those dim substantive prospects create a perfect opportunity for conferees to pivot to process. In principle, Congress ought to make prudent, considered decisions about taxes and spending programs. In reality, we’ve lurched from the fiscal cliff to a government shutdown to threats of default. We make policy in the shadow of self-imposed crises without addressing our long-run budget imbalances or near-term economic challenges. Short-term spending bills keep the government open – usually –  but make it difficult for agencies to pursue multiyear goals and do little to distinguish among more and less worthy programs. And every few years, we openly discuss default as part of the political theater surrounding the debt limit.

The budget conferees should thus publicly affirm what everyone already knows: America’s budget process is broken. They should identify the myriad flaws and commit themselves to fixing them. Everything should be on the table, including repealing or replacing the debt limit, redesigning the structure of congressional committees, and rethinking the ban on earmarks.

Conferees won’t be able to resolve those issues by their December 13 deadline. But the first step to recovery is admitting you have a problem. The budget conferees should use their moment in the spotlight to do so.

Donald Marron, the Urban Institute’s director of economic policy initiatives, has served as acting director of the Congressional Budget Office and a member of the Council of Economic Advisers.

Invest in basic research – Bhaskar Chakravorti, Fletcher School, Tufts University

Hooray!  It’s time for budget negotiations. Again.

My plea to our lawmakers is: please read the Science Coalition’s timely report that illustrates how federal investment in basic research “sparks” economic growth. It’s time to reverse the March sequester, which will cut federal spending on R&D by $95 billion by 2021. About 10 percent of the sequester cut for this year will cut R&D in essential areas: defense, energy, agriculture, homeland security and health, affecting key entities such as the National Institutes for Health and the National Science Foundation. Military research budgets will have to be cut almost 10 percent.

I know these statistics have a hard time competing against the electoral calculus. It takes bold leadership for Congress to take the long view. Historically, such leadership has happened when there has been a clear and present danger to the nation. Post-Cold War threats – terrorists, Wall Street bankers, Angela Merkel, apparently – do not hand us the galvanizing “Sputnik moment.”

While I hate framing arguments in terms of U.S. competitiveness, it is time we take note of China’s R&D ascendance, which will cause re-location of talent, capital and business away from the U.S. over time. China was expected to achieve R&D-spending parity with the United States in 2027. Recently, that forecast was brought forward to 2022. At this rate, the country’s real innovativeness will catch up as well. And if China’s rise is not enough of a threat, how about cancer? We haven’t beaten that one either.

So, can we please talk about sequestering the sequester?

Bhaskar Chakravorti is senior associate dean of International Business and Finance and founding executive director of the Institute for Business in the Global Context at The Fletcher School at Tufts University.  He is the author of ‘The Slow Pace of Fast Change.’

Reform Social Security and Medicare – Diana Furchtgott-Roth, Manhattan Institute

My one wish for budget negotiations is long-term reform of Social Security and Medicare. Let seniors keep current benefits, but alter the programs for those who retire in 2023.

Young people are bearing the burden of paying for rapidly-growing Social Security and Medicare programs – even though the programs will go broke before the young can use them. Passing on these costs to the young, who have higher unemployment rates, more debt, and fewer assets, is the height of unfairness.

The Congressional Budget Office projects Medicare costs to rise from 3.6 percent of GDP in 2012 to 5.6 percent in 203. Social Security costs are due to rise from 5.1 percent in 2012 to 6.2 percent in 2035. The retirement age for Social Security therefore needs to be gradually raised, and the indexing of benefits changed to reflect a more accurate level of prices in the economy rather than wages.

Medicare, a tougher nut to crack, needs to be reformed through ccompetition, which has lowered prices for Lasik eye surgery and cosmetic procedures.

One way to inject competition into Medicare is premium support, which works like the popular Federal Employees Health Benefits Program. Seniors should be allowed to choose from a variety of government-approved competing health insurance plans, at different prices with different levels of service. Richer seniors would pay more.

Plans could include high-deductible options carrying lower premiums combined with health savings accounts, or more traditional managed care or fee-for-service plans.

Social Security and Medicare cannot keep their promises to future seniors and the young are being asked to shoulder an increasing share of the costs, without hope of a return. Effective budget negotiations must include alternatives.

Diana Furchtgott-Roth is senior fellow and director of Economics21 at the Manhattan Institute.

Drop the high stakes showdowns – Robert Kahn, Council on Foreign Relations

Absent a surprising turn towards bipartisanship, it’s hard to see much coming out of the Congressional Budget Committee negotiations that began this week. The hard deadline is January 15, 2014 when funding for the government expires. My hope is that neither side will want another shutdown, and at a minimum Congress will provide funding for the remainder of the fiscal year and extend the debt limit past the November elections.

Meanwhile, the costs to the economy from our crisis-driven fiscal policy continue to mount, measured by increased uncertainty, reduced investment, poorly targeted fiscal consolidation, and most recently pressures in U.S. money markets and other financial markets that rely on U.S. Treasuries for security and liquidity.

We need a change in the way we negotiate these budgets and the debt limit, one that moves away from these high stakes showdowns. Let’s have serious debates about the budget but find other sources of leverage than the full faith and credit of the government. Any agreement that showed an ability of Congress to compromise, and provided some degree of automaticity to the debt limit extension, even for a period of time (perhaps modeled on the so-called McConnell rule that allows for the extension of the debt limit unless prevented by a Congressional supermajority) would be an important achievement. This would provide a much-needed breathing space for the economy that has been battered by fiscal policy uncertainty and deep consolidation the past several years.

Robert Kahn is the Steven A. Tananbaum Senior Fellow for International Economics at the Council on Foreign Relations.

Major tax reform – Michael R. Strain, American Enterprise Institute

My wish list for the current round of budget negotiations is pretty easy to spell out: Structural reforms of Medicare, Social Security, and Obamacare to significantly slow their spending growth in the decades to come; major tax reform for households, including family-friendly reforms and severe curtailment of popular tax breaks like the exclusion for employer-provided healthcare and the mortgage interest deduction; corporate tax reform which significantly lowers the corporate rate (down to zero, ideally); and an increase in discretionary spending on socially valuable infrastructure, basic research, and other public goods.

Of course, if you think that will happen, then, to borrow from the metaphor, I’d like to sell you a major health insurance reform policy with the promise that if you like your current plan then you’ll get to keep it.

Since we won’t come close to a grand bargain, let alone to solving all our long-term budget problems, I’ll be happy if the current round of budget negotiations moves us in the right direction.

It is possible, though not probable, that chained CPI’s (Chained Consumer Price Index for All Urban Consumers) day has come. As a more accurate and lower measure of inflation, chained CPI would both slow the growth of Social Security spending by trimming cost-of-living adjustments and slow inflation adjustments to tax brackets, raising tax revenue without explicitly increasing taxes. It is also possible, and probable, that the GOP will be able to trade relief from this year’s sequester cuts to discretionary spending for entitlement spending cuts in future years. Conservatives should support such a trade, provided of course that there is an enforcement mechanism for the future cuts other than “we promise.”

Increasing discretionary spending this year by decreasing entitlement spending in the future is a good deal, as is using chained CPI. Conservatives and liberals alike should declare this “humble bargain,” if enacted, a success.

Michael R. Strain is a resident scholar at the American Enterprise Institute

Invest in high quality preschool – Harry Stein, Center for American Progress

“It’s the economy, stupid.” Bill Clinton’s 1992 presidential campaign famously displayed that sign. Budget negotiators should have the same sign in their offices. The economy is growing too slowly, and we need more jobs. Leaders from across the political spectrum actually agree on a few smart policies to boost the economy. The budget talks are an excellent opportunity to implement those ideas.

Our economy is still recovering from a terrible recession. More than 7 percent of Americans are unemployed. 46.5 million Americans are living in poverty. The typical middle class family is doing no better today than in 1989 – over two decades lost to economic stagnation.

Rebuilding the economy starts with strengthening the middle class and laying the foundation for long-term prosperity. Modernizing our deteriorating infrastructure and delivering high-quality preschool to all children are two of the best investments we can make in our future. Both these policies create middle-class jobs now – when we need them most – and yield positive returns for generations to come. Business leaders agree. The U.S. Chamber of Commerce supports both infrastructure investment and early childhood education.

Unfortunately, misguided austerity stands in the way of this growth agenda. The automatic spending cuts known as “sequestration” not only leave no room for new investment, they actively harm the economy, costing an estimated 800,000 jobs by the end of next year.

We don’t need more austerity. Congress has already cut deficits by about $2.5 trillion over ten years – not including sequestration. Ten years from now, the national debt is projected to be lower as a share of our economy than it is today – even if Congress repeals sequestration.

Republicans and Democrats both want to grow the economy. They even agree on some of the solutions. Budget negotiators should build on this common ground to put the economy first.

Harry Stein is the associate director for fiscal policy at the Center for American Progress.

Slash farming ‘welfare’ – Vincent Smith, Montana State University

The current Farm Bill costs taxpayers about $20 billion a year in farm-oriented conservation and straightforward subsidy programs, of which $2.5 billion goes to private crop insurance companies. About 80 percent of the rest flows to the largest 15 percent of U.S. farms, whose owners are typically more than ten times wealthier than the average U.S. household.

If prices for major crops like corn and wheat moderate towards their long run trends, the Senate and House proposals for a new farm bill will substantially increase the federal subsidies that flow mainly to very wealthy farmers. The new programs, which all potentially violate U.S. trade commitments, would cover “shallow losses” and one of those would also substantially increase federal payments to insurance companies.

So what should happen in a new farm bill? The current “welfare for doing nothing” Direct Payments program and a related shallow loss program known as ACRE should be terminated, reducing the budget deficit about $5 billion a year. Crop insurance subsidies should be rolled back to pre-2001 levels (when farmers paid about 50 percent of the full cost of their crop insurance) and capped at $40,000 per farm, saving about $3 billion a year.

One area where spending clearly needs to be increased, by about $1.5 billion a year, is on publicly performed agricultural research, which has very substantial payoffs for U.S. consumers and farmers, and agricultural productivity throughout the world.

Implementing these reforms, with no cuts to nutrition programs, would reduce  farm bill spending by about $5 billion a year ($50 billion over ten years), 25 percent more than the nutrition program cuts currently included in the House Farm Bill proposal. Such changes would also be fairer, and increase the competitiveness of U.S. farmers in global markets.

Vincent H. Smith is a professor of economics at the Department of Agricultural Economics, Montana State University.

Tackle short and long term together – Mark Gertler, NYU          

In the short run, fiscal drag due to the budget sequester is costing the economy anywhere between a half to one and half percent output growth per year. In the long run, failure to address entitlement spending, particularly Medicare, will lead to an unsustainable path for government debt.

I would hope (dream?) that budget negotiations follow textbook economic theory by attacking both problems simultaneously.  For the short run, return government spending to pre-sequester levels and provide a modest level of additional stimulus by raising infrastructure spending (the latter being something that most economists would agree with).

For the long run, take serious steps to reform Medicare and Social Security, by taking such measures as increasing the retirement age, introducing means-testing, and incorporating a chain-weighted index for Social Security benefits. The long run fiscal consolidation should include revenues as well. Reform the tax code but also bring marginal rates to the vicinity of Clinton era levels.

Mark Gertler is the Henry and Lucy Moses Professor of Economics at New York University.