(As Prepared for Delivery)
First, a brief history of this Fiscal Summit.
As recently as a few years ago, there was still a lack of awareness and an abundance of apathy over the unsustainable long-term debt situation in America.
I felt like the Philosophy professor in the old joke. When he asked his class which was worse, ignorance or apathy, a sleepy student from the back of the room called out, “I don’t know and I don’t care!”
After 30 years of a fiscal crusade, it was beginning to put me in a state of clinical depression.
So, our first fiscal summit was about building awareness of the problem.
Today, if anything, the public is ahead of Washington. Our Foundation recently asked Global Strategy Group to conduct a survey of public opinion on fiscal issues. 81% of voters say that the national debt is a major problem that must be addressed now. That includes 69% of Democrats and 94% of Republicans.
94% of Democrats and 85% of Republicans want to see both parties work together to solve our long-term fiscal and economic problems.
Then, in the second Summit we confronted the question: Yes, there is a problem but what are the solutions?
We asked six organizations from across the political spectrum to tell us what they would do about the long-term fiscal challenge.
Not surprisingly, they all agreed that our long-term path is unsustainable. And every group laid out proposals that would keep debt at sustainable levels through 2035. Along with Simpson Bowles, last year’s summit showed us there are many solutions.
This brings us to today. The obvious reality is that we face not simply a fiscal and economic crisis but, at bottom, a political crisis—a polarized and paralyzed politics that makes progress historically difficult.
So, our theme today is how do we build the political and societal will to take action before we find ourselves immersed in a crisis?
Actually, we confront two kinds of economic and financial crises.
One, a sudden, European-style crisis where the markets lose confidence in our ability to manage our fiscal affairs. Interest costs could balloon quickly and exchange rates plummet. No one knows when such a crisis might hit, but on our current course, the risks are unacceptably high.
The second kind of crisis is what you might call a slow growth crisis where interest costs become so large they crowd out growth-oriented investments in math and science education, R&D, and infrastructure that are desperately needed in an ever more competitive, knowledge-based and technological global economy. It is worth noting that interest costs, which buy us nothing and are about the past not the future, are now projected to increase even faster than our ballooning health care costs.
We may be able to defer a sudden financial crisis, but I believe a slow growth crisis may have already begun and, along with it, a vanishing American dream.
As the luckiest of American Dreamers, this son of poor Greek immigrants is eager to see future generations enjoy the American Dream. I have decided to commit much of my resources and all of myself to this long-term structural debt challenge that I consider the transcendent threat to our economic future.
Speaking of the Greeks, they have always specialized in drama. Their current situation vividly illustrates the huge economic, social and political costs of waiting until a crisis to confront major fiscal imbalances. America must avoid a Greek tragedy of its own.
The end of this year and the beginning of next year present special and daunting challenges. Congress must determine the fate of the Bush Tax Cuts, the Alternative Minimum Tax, the dreaded sequestration, the Medicare Doc Fix, temporary payroll tax cuts, and the extended unemployment benefits. These would aggregate about 8 trillion dollars over ten years. In just the next fiscal year, the impact would be $400 billion.
In addition, for the fiscal masochists in the room, we are likely to be hitting the debt ceiling once again—and we can hopefully avoid a repeat of last year’s nail-biter.
All of these events are conspiring to force action on fiscal policy around the end of the year. And I hope that our elected leaders use this opportunity to put in place a longer term comprehensive plan.
It is clear we need to have a thoughtful discussion about timing. We are often presented with the phony choice of either focusing on short-term economic recovery or addressing our long-term fiscal challenges. I believe we can do both. Any measures to boost growth in the short term can be accompanied by a longer term fiscal plan that is not implemented until the economy recovers.
Given the state of our economy, sudden and large revenue increases and spending reductions brought about by these year-end fiscal events could hurt our fragile recovery. What would work is to resolve these year-end fiscal issues as part of a comprehensive long-term fiscal plan that is implemented when the economy is stronger.
A package that addressed the biggest long-term issues, on the entitlement and revenue side, would also build market confidence that we were finally getting our long-term fiscal house in order. This, by the way, would also stimulate the economy.
What would not work is another example of “fiscal manana”—always putting off until tomorrow the long term fiscal decisions we should be making today. I am greatly concerned that kicking the can down the road, this time an 8 trillion dollar can, would send a dangerous signal to the financial markets. Let us not forget that this can we keep kicking is, in fact, a fiscal grenade. One kick too many and it could trigger a crisis.
I would hate to think that it would take a crisis to get America to act. America is better than that. And paying for a crisis, instead of avoiding it in the first place, would be very costly indeed.
I only wish the advocates of stimulus would devote as much time laying out a plan for the long term as they do thinking about the short term.
What seem to be the principal political barriers to making progress on our long-term debt problem? Some would say we also face significant cultural barriers, a culture defined by instant gratification, consuming and borrowing too much, and saving and investing in the future too little. And of course, there is a growing sense of entitlement.
In times past, shared sacrifice has been a kind of political oxymoron. But our national opinion survey indicates that the public is now so concerned that 91% say they are willing to do their part to reduce the national debt if others do their part as well.
There is also the fact that compromise seems to have become a rather dirty word in American politics when, in fact, historically, compromise has been the essence of effective politics. Our very Constitution is the product of a compromise—and one we’ve been improving on ever since.
We see that in today’s ideological rigidities in the politics of revenue increases and entitlement reform. Many Republicans tell us that any tax increase is almost theologically unacceptable. And, in all cases, economically destructive. This, in spite of the happy experience in the 1990s when we combined spending cuts with tax increases, largely on the well-off, and the economy experienced robust growth and even budget surpluses.
There is also the sobering reality that to avoid any tax increases we would have to cut long term spending by almost a third to stabilize the debt levels and by nearly half if we excluded Social Security and defense as many do. Spending cuts of this size would be draconian, and politically unthinkable. I don’t see any viable political plan that does not include additional revenues.
Then, many Democrats tell us tax increases are the answer and, in particular, higher taxes on the wealthy. But it might interest you that the nonpartisan Tax Policy Center has shown that even if we raised the top two income tax rates to over 90%, we would still not be able to generate enough revenue to stabilize the debt.
And then there are the Democrats that tell us that entitlements must be off the table. As much as some would like to believe that entitlements are on solid financial footing, the sober reality is that entitlements account for 100% of the projected increase in long term non- interest spending. Entitlement reform, therefore, must be part of any serious effort to reduce our long term debt.
When it comes to compromise, the public again seems ahead of Washington. In our opinion survey, 87% of respondents believe that to solve the long-term debt problem, Republicans will have to agree to some tax increases and Democrats will have to agree to some spending cuts.
Then of course, there is the serious problem of a fundamental break down in trust. Many Republicans believe that the history of negotiations yields one central fact: the spending cuts never materialize, but the tax hikes do. Many apparently feel “schnookered” as the phrase goes.
In turn, many Democrats seem to believe that, rhetoric aside, the real priority of Republicans is more tax breaks and tax cuts for the wealthy and their corporate friends.
To use a foreign policy analogy, we may need some confidence-building measures that would ensure progress is actually realized. Ultimately, the strongest form of trust is to see leaders from both parties standing together, voicing agreement on a comprehensive package for long-term deficit reduction.
In the meantime, we in the private sector have the urgent responsibility to build a new and strong bipartisan coalition that makes it safer for Washington to do the right thing. At our foundation, we are working to bring together representatives of business, think tanks, and other organizations to join such a coalition.
Obviously, we also need personal commitment from Americans. Our society is aging rapidly, both in numbers and in longevity. I think it is time—and probably past time—for a serious national dialogue about the appropriateness of universal entitlement benefits, especially for those of us who are well-off. Are we really comfortable with borrowing from China to pay full benefits to Pete Peterson?
It is time for those of us who are well off to say what we are willing to do without.
I, for example, have long felt that one way to build confidence for shared sacrifice is for the wealthy to receive fewer benefits and contribute more revenue.
Ideally, increased revenue would be the result of comprehensive tax reform along the lines of what Simpson Bowles recommended. This would include major reductions in tax expenditures and reductions in marginal rates for both corporations and individuals.
Because tax expenditures primarily benefit people with higher incomes, they would end up paying more in taxes despite the lower rates.
This package of benefit reductions and higher taxes for the well-off would be tied to other cuts in spending, affecting the not-so-well-off, too. We need to show the public that fully-shared sacrifice is not the latest political oxymoron.
One point I want to state absolutely clearly: As policy changes are made, they must be made in ways that secure benefits for the most vulnerable, so that no one fears that the social safety net is threadbare. One of the many reasons to avoid a crisis is that, in a crisis, the politics could get brutal and the social safety net could get shredded. That would be unthinkable.
To sum up. We know what the problems are. We know how to fix them. What we need is the will to act. And what better group to advise us then the remarkable group of political leaders and office holders that we have been privileged to attract.
Good luck to all of us. What is at stake is the future of this remarkable country.