President Obama and House Speaker John Boehner, R-Ohio, should put together a broad framework of a deficit-reduction plan that puts the debt on a clear downward path relative to the economy as a whole as part of their fiscal cliff negotiations, according to the Committee for a Responsible Federal Budget (CRFB), a well-respected Washington-based think-tank that employs Alan Simpson and Erskine Bowles.
The report, entitled “What We Hope to See from the Fiscal Cliff Negotiations,” reflects the CRFB’s concern that, as policymakers publicly state their intentions to hold firm on partisan policy differences, time is running out to address the real problem—stagnant economic growth. In a brief December 11 appearance on the House floor, Boehner called on Obama to “get serious” about spending cuts. “The longer the White House slow-walks this process, the closer our economy gets to the fiscal cliff,” said Boehner. His short speech indicating a new Republican focus on addressing spending cuts still misses the point of the CRFB.
The CRFB report recommends that policymakers address the short- and long-term obstacles posed by the fiscal cliff and rising federal debt by pursuing a gradual and pro-growth deficit-reduction package. Obama, for his part, held no public events on December 11, and expectations now turn to the likelihood of a quick deal hashed out in private by the president and Boehner, likely by week’s end. The agreement would likely allow rates to rise on the wealthy and some specific cuts to entitlement programs in order to avoid going over the fiscal cliff, with the real work to come in 2013.
White House spokesman Jay Carney said that the president believes an agreement is possible prior to the holiday recess. “There is a deal out there that’s possible, and we do believe that the parameters of a compromise are pretty clear. What is required is agreement by Republicans to some specific revenues, including raising rates on the highest earners, and some decisions in the two-stage process that we’ve put forward and I think the Republicans agree on, on how we move forward on spending cuts and broader entitlement and tax reform,” said Carney. “The fact that there could be theoretical ways of reaching that goal that are different from the one proposed by the president may be true, but we have yet to see anything along those lines from our negotiating partners, any specificity at all, or any acknowledgment in any concrete way from Republican leaders even that rates have to be part of this,” he said.
Along with an agreement on a larger debt reduction framework, the CRFB believes lawmakers should address the elements of the fiscal cliff by extending some or all of the expiring policies and repealing or delaying the sequester. The changes could be temporary in order to help enforce further debt reduction, or permanent if a new enforcement mechanism is put in place.
Time constraints make full design and implementation of the report’s recommendations impossible before the end of 2012; to that end, the CRFB is also urging lawmakers to specify a process and timeline through which they will achieve all the agreed-upon savings. And they say a special process must be backed up with an enforcement mechanism to incentivize action and ensure the deficit reduction occurs even if Congress does not act.
Extending the expiring provisions and waiving the sequester would avert a recession, but at the cost of ever-rising debt with serious medium- and long-term repercussions, according to the CRFB. Both Moody’s and Fitch have made it clear that failing to address the federal debt would likely lead to a downgrade of U.S. debt in 2013.