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Our National Debt: The Choice between Leadership or Crisis
This paper is part of an initiative from the Peterson Foundation to help illuminate and understand key fiscal and economic questions facing America. See more papers in the Expert Views: Fiscal Commission series.
Leon E. Panetta
I often tell the students at the Panetta Institute that in a democracy we govern either by leadership or by crisis. If leadership is there and willing to make the tough decisions associated with leadership, we can avoid or certainly contain crisis. But if leadership is not there, then we will inevitably govern by crisis. Too often in recent years, Washington has largely governed by crisis. No area better reflects the pressure of constant crisis than the federal budget.
The total national debt including trust funds is at $33 trillion and has exceeded record levels as a share of the economy; interest rates are exploding at a sixteen-year high; Social Security and Medicare trust funds are approaching insolvency; the budget process is broken with Congress having failed to pass a budget resolution by its statutory deadline in over twenty years; the appropriations process has failed to pass all of the appropriations bills by October 1 since 1996, requiring continuing resolutions to avoid a government shutdown; and neither political party has been willing to agree on a budget that contains both entitlement and discretionary savings and new revenues sufficient to put the nation on a sustainable path to reducing debt over the next five to ten years. In the absence of any fiscal discipline, the Congressional Budget Office believes that the growing debt is unsustainable and economists believe it will lead to an urgent economic crisis in the United States within the next decade.
Is this economic crisis inevitable? Not if both parties are willing to establish a bipartisan fiscal commission that can bring together both Democrats and Republicans to consider all areas of the budget and the tax code and make thoughtful recommendations that both sides can agree upon. Commissions in and of themselves cannot replace the need for political will and leadership. And yet, history has shown that they can help facilitate the necessary conversations to support meaningful policy improvements.
Throughout history, policymakers have turned to commissions when confronted with difficult decisions related to the economy, oversight, government waste, military base consolidation, budget deficits and debt, national security, energy and federal lands policy, homeland security, healthcare, great power competition, trust fund solvency and the structure of the tax code. There have been hundreds of commissions, task forces, and similar committees established over the years — some through executive action, some through legislation and some through other processes. While a number of these commissions have failed to reach agreement or effectuate change, many commissions have succeeded. Here are some examples:
- Commissions that recommend changes implemented in full.
The Base Realignment and Closure Commission (BRAC) established in 1988 by Congress made decisions over military base closures to move away from a haphazard process influenced by parochial congressional interests. Rather than follow the normal legislative process, the BRAC commission recommendations were sent to the president for approval and then to Congress where the recommendations could only be rejected by a joint resolution of disapproval. In other words, an up or down vote on all the recommendations. Over the five rounds in 1988, 1991, 1993, 1995 and 2005, BRAC closed or consolidated over 350 installations enabling efficient defense savings and resource allocation. The 1974/75 Quadrennial Social Security Advisory Council recommended technical changes to Social Security’s indexation formula that were enacted in 1977.
- Commissions that facilitated bipartisan negotiations.
In 1983, the Social Security trust funds were within months of running out of reserves and being unable to pay benefits. The National Commission on Social Security Reform, often called the Greenspan Commission after commission chair Alan Greenspan, was appointed by President Reagan to recommend changes to avoid the near term insolvency and close the program’s 75-year funding gap. The commission was comprised of a bipartisan group of fifteen individuals appointed by the president and the congressional leadership — including members of Congress, experts and representatives from labor and business.
After a series of fits and starts, the Greenspan Commission released recommendations based on proxy negotiations between President Reagan and House Speaker Tip O’Neill. Based on their work, Congress enacted a package of revenue, benefit, and eligibility changes that ultimately extended the life of the trust fund by 50 years.
In the aftermath of the deadliest terrorist attack in U.S. history, the 9/11 Commission served as an effective vehicle for the deliberation of numerous bipartisan recommendations aimed at bolstering national security, decreasing the likelihood of a subsequent attack. The office of Director of National Intelligence was established as a result of bipartisan legislation reflecting the commission recommendations.
- Commissions that developed and socialized policy solutions.
The National Commission on Fiscal Responsibility and Reform, often the call the Simpson-Bowles Commission after bipartisan co-chairs Alan Simpson and Erskine Bowles, was established by President Obama amidst mounting concerns about the long-term fiscal health of the United States. The bipartisan commission included eighteen members, divided between senators, representatives, and presidential appointees.
The Simpson-Bowles Commission’s final report The Moment of Truth proposed $4 trillion of ten-year debt reduction from a combination of defense and non-defense discretionary caps, revenue-boosting tax reform, healthcare savings, spending cuts, user fees, excise taxes, and a balanced Social Security solvency package. The report was supported by eleven of eighteen commissioners, including five Democrats, five Republicans and one independent.
Although the Simpson-Bowles proposal was not enacted in full, the plan helped to shape the national discourse on fiscal policy and was the basis of high-level negotiations between President Obama and congressional Republicans. Many of its policy recommendations were enacted, including roughly $1 trillion of savings under the Budget Control Act while others periodically resurfaced in subsequent budget discussions and proposals.
The 1983 Grace Commission, the 9/11 Commission, the 2005 Tax Reform Panel, the 2011 Joint Select Committee on Deficit Reduction all introduced numerous policy ideas that were ultimately enacted into law…often years later.
- Commissions that elevated public discourse around important policy issues.
The problem today is that neither political party is interested in having a public discourse around the tough decisions on spending and taxes that must be made to effectively reduce the debt. The Republicans want to make huge cuts in non-defense discretionary spending but are unwilling to focus on the two-thirds of federal spending in entitlement programs and oppose defense cuts or taxes. Democrats are willing to raise taxes on the wealthy, but do not want to touch any entitlement spending particularly Social Security or Medicare, and hesitate to pay for any new spending programs or defense assistance. Every major budget agreement in the past included entitlement savings, caps on defense and non-defense spending, and taxes. We need an honest debate on the realities of the budget crisis. The 9/11 Commission helped raise public awareness on some of our nation’s national security vulnerabilities. The 2010 Simpson-Bowles Commission raised awareness to the nation’s unsustainable long-term fiscal outlook and the need to look at all areas of the budget and tax code for solutions.
The success of a given commission in the end depends on numerous factors, from the design of the commission and public opinions surrounding the commission to the ideology and personalities of those appointed to the commission as well as luck and random chance. Commissions can succeed or fail for any number of reasons: the quality of members, whether they are willing to work together to reach agreement, and whether they can build trust with each other.
Having been a part of commissions, I believe that some of the keys to success depend on the following:
- No leaks and a safe space for negotiations.
Negotiators must be able to discuss, deliberate, and opine without fear that ideas will be leaked before policies have been fully considered. Commissioners need to be able to engage in open and frank discussions without political reprisal or open attack from special interests. Of course, transparency is critical for fostering public trust and supporting democratic outcomes. But first, you have to agree on recommendations. Then it is important that those recommendations be fully vetted by the public before being voted on by the Congress.
- Both sides have to be willing to compromise.
Commissioners must be able to identify areas of consensus, make compromise, and negotiate trade-offs. In the negotiations at Andrews Air Force Base in the 1990s, the agreement was that if the Democrats would propose $250 billion in spending savings the Republicans would propose $250 billion in taxes. It worked because both sides were willing to deal with their sacred cows.
- You must be willing to engage experts and stakeholders.
These are complex issues and commissions must be able to incorporate diverse viewpoints from those that understand the issue, are impacted by the issue and must answer to their supporters. Engaging stakeholders, subject matter experts, and elected officials can bring credibility and pragmatism to the process and ensure different views are considered.
- It is important to brief the president and congressional leadership as to the progress of the commission.
It is important not to bypass the elected leadership of the nation. That means that a process of regular briefings be set up to inform the president and congressional leadership of the progress of the commission. Those briefings provide a two-way street that allows the commission to also consider the views of those who will be critical to approving the commission report.
- A fast-track process for approval and set of enforcement tools to ensure the commission recommendations are implemented.
The BRAC process is the most effective at forcing an up or down vote on recommendations. Otherwise, a commission report could get bogged down by legislative hurdles and amendments that would undermine passage of the recommendations. In addition, any set of tough budget recommendations has to be backed up by strong enforcement tools such as “pay-go” which would require any new spending or tax cuts be paid for, and procedural tools to protect limits on spending. With interest rates at a sixteen-year high, the national debt approaching record levels, and major trust funds within a decade of insolvency, a bipartisan fiscal commission is needed now more than ever. Although its success is far from guaranteed, it represents perhaps the best chance to put the country on a more sustainable fiscal path.
Leadership or crisis defines the state or our democracy. For over 200 years, this nation has faced crises — from a Civil War to World Wars, from depressions to recessions, from political scandals to natural disasters — somehow, we have always found the right leadership to guide us through these crises. Democrats and Republicans need to rise above partisan dysfunction and divisions and collectively confront the nation’s pressing fiscal challenges. Obviously, neither party is prepared right now to embrace the tough and difficult budget decisions that need to be made. But if, in the least, they can agree on empowering a bipartisan commission to tackle this challenge, perhaps they can forge a path toward a new era of fiscal responsibility that can ensure long-term economic stability and prosperity for future generations. That would be leadership.
About the Author
Unanimously confirmed in 2011 by the U.S. Senate as the twenty-third Secretary of Defense, Leon E. Panetta has had a fifty-year career in public service at the highest levels of government. As Secretary of Defense, he established a new defense strategy and expanded service opportunities for women and others regardless of race, creed, color or gender. As Director of the CIA, he successfully led the operation that brought Osama bin Laden to justice.
Secretary Panetta began his public service career in 1964 as a First Lieutenant in the U.S. Army, receiving the Army Commendation Medal, and then served as a legislative assistant to U.S. Senator Tom Kuchel. In 1969, he was appointed Director of the Office for Civil Rights at the Department of Health, Education and Welfare, where he was responsible for enforcing equal education laws.
Elected to Congress in 1976, Secretary Panetta represented the California Central Coast district for sixteen years and created the Monterey Bay National Marine Sanctuary. In 1993, he was sworn in as Director of the U.S. Office of Management and Budget for the Clinton administration and later was appointed White House chief of staff, working to achieve a balanced federal budget.
In 1997, Secretary Panetta returned to his home town of Monterey to establish and co-direct The Panetta Institute for Public Policy, a non-partisan, not-for-profit study center that seeks to inspire men and women to lives of public service.
He chronicles his life in public service in his best-selling memoir Worthy Fights, which was published by Penguin Press in the fall of 2014.