By David M. Walker - 02/14/12 11:19 PM EST
President Obama submitted his fiscal 2013 budget proposal to Congress a week late this year. Some might have expected that the delay was due to the president wanting to include some major new proposals. Sadly, other than some new debt-financed “investment” proposals, that does not appear to be the case. The president’s budget proposal is largely a reprise of the recommendations he gave in the fall to the so-called “supercommittee.”
On several occasions, including in his latest budget proposal, the president has called for a “balanced” approach to addressing our nation’s economic and fiscal challenges. He has described a balance between addressing both our short-term economic challenges and our large structural deficits, and a balance between tax increases and spending reductions as a means to address our nation’s deficits.
The president also rightly suggests in his budget that we need to enhance economic growth, improve our competitive posture and address unemployment and under-employment. We can do so through targeted investments in research and development and critical infrastructure. However, unlike the 2009 stimulus, these steps need to be properly designed, effectively implemented and not oversold. And they must be coupled with a clear, credible and enforceable plan to address the structural deficits that threaten our nation’s future position in the world and our standard of living at home.
Additional short-term steps could include payroll tax relief for employers and a temporary tax reduction for businesses that repatriate offshore earnings in exchange for a clear and enforceable commitment to invest in America and create additional jobs domestically. Meaningful structural steps could include specific and enforceable debt-to-GDP targets over time that would be achieved through tough budget controls, social insurance reforms, additional healthcare reform, defense and other spending reductions, and comprehensive tax reform by dates certain.
Achieving these structural reforms will require both significant spending reductions and additional revenues above historical levels of gross domestic product. However, a “balance” between spending cuts and revenue increases is wholly inappropriate. Given the nature of the challenge and relevant economic, cultural, political and moral considerations, a ratio of three parts spending reductions to one part revenue, excluding interest, would be more appropriate.
In addition, it’s essential that any restructuring include comprehensive tax reform that will make our system simpler, fairer and more competitive, while generating more revenues. Patchwork fixes on our current broken tax system won’t work.
Regardless of what I or others think about Obama’s specific budget proposals, it is time to get serious regarding our nation’s budget and deteriorating financial condition. After all, the president failed to keep his promise to cut the deficit in half by the end of his first term — and by a wide margin.
Believe it or not, Congress has not passed a concurrent budget resolution in more than 1,000 days and counting. It has only passed all required annual appropriations on time four times since 1952! Even when the Congress passes the budget and the related appropriations bills on a timely basis, less than 40 percent of federal spending is actually controlled, and this percentage declines further under the president’s proposed budget. These practices must end. We need to recapture control over the federal budget.
Federal Reserve Chairman Ben Bernanke recently testified, “Unfortunately, even after economic conditions have returned to normal, the nation will face a sizable structural budget gap if current budget policies continue.” He continued by saying, “Even the possibility of unsustainable deficits has costs, including the increased possibility of a sudden fiscal crisis. As we have seen in a number of countries, interest rates can soar quickly if investors lose confidence in the ability of a government to manage its fiscal policy.”
It is imperative that this year’s general election campaign focus more attention on the tough choices that must be made to prevent a debt crisis from reaching our shores. Ross Perot helped to make this happen 20 years ago when he first ran for president. He didn’t win, but he did help to “wake up” the public to the importance of fiscal responsibility, which encouraged then-President Clinton and the Congress to make it a priority. The results were both positive and clear for all to see. We need to learn from history and do it again in 2012.
Walker, a former U.S. comptroller, is CEO of the Comeback America Initiative. He posts video commentary about fiscal issues at www.fiscalIQ.net/myth.