NEW YORK (January 27, 2010) – In advance of President Obama’s State of the Union Address, Peter G. Peterson Foundation (PGPF) President & CEO David Walker discussed why the President should establish a fiscal commission by Presidential Order now that Congress has defeated the amendment that would have created a statutory commission. Walker also outlined the necessary criteria for an effective fiscal commission. Additionally, Susan Tanaka, PGPF Director of Citizen Education and Engagement, reviewed the latest 2010 Budget and Economic Outlook from the Congressional Budget Office (CBO). Tanaka discussed how the latest outlook from CBO impacts our nation’s fiscal future. “We are encouraged by the latest news reports that indicate President Obama is expected to announce the creation of a commission by Executive Order in his State of the Union address this evening,” said Walker. “Now is time to take action and appoint a commission that puts everything on the table and provides bipartisan solutions that address the nation’s longer-term fiscal challenges. Both Republicans and Democrats need to put aside political agendas and ideological beliefs and do what is in the best interest of the country by supporting an effective commission with the power to bring about real change.” During the call, Walker outlined PGPF recommendations for a presidentially-appointed fiscal commission, including the following:

• A commission should focus on addressing the nation’s fiscal challenges over the next several decades, not simply aim to reduce short-term deficits within the next few years.
• A commission must have real authority and its recommendations should receive a guaranteed vote in Congress.
• A commission should not rule out any potential solutions in advance–all spending and revenue related options should be on the table.
• President Obama should appoint credible panelists to the commission who will rise above narrow partisan interests.
• President Obama should pledge to incorporate the commission’s recommendations into his 2012 budget.
• The President must be prepared to propose legislation based on the recommendations of the commission before members of Congress.
• A real commission must be bipartisan and reflect the will of the American people.

During the call, Tanaka reviewed the latest 2010 Budget and Economic Outlook from the CBO and discussed the nation’s current fiscal outlook. Key points included:

Click Here to Read the Detailed Foundation Review of CBO 2010 Budget and Economic Outlook [1]

• Despite a slowly improving economic picture, latest projections from the CBO show that serious fiscal challenges remain that will, within 10 years, compromise the ability of the federal government to address important public needs.
• With a growing share of the overall budget devoted to Medicare, Medicaid, Social Security, net interest, and national defense, fewer and fewer resources will be left for other federal programs such as education, research and development, and investments in physical infrastructure that could strengthen our future economy.
• While the President is expected to announce a goal of reducing federal deficits to 3 percent of GDP by 2015, advance news of the Administration’s other probable budget initiatives, such as permanent tax cuts, expanded spending commitments–especially health care benefits–run counter to long-term fiscal sustainability.
• Similarly, freezing non–defense discretionary programs would only provide limited savings.
• To address these structural problems, policy makers will have to confront the largest components of the budget. Whatever cannot be addressed through spending changes will have to be addressed through revenue increases.

DETAILED PGPF RECOMMENDATIONS FOR A SUCCESSFUL AND EFFECTIVE FISCAL COMMISSION: The Need for a Fiscal Commission

Since Congress has now failed to establish a statutory fiscal commission, the President should make the right choice for theAmerican people by establishing a commission by Executive Order. Congress should take steps to ensure that the commission’s recommendations will be voted on. The time to act is now.

Our nation is confronted with mounting deficits and debt continuing far into the future under all government projections. These unsustainable fiscal challenges threaten the health of our economy and the welfare of our citizens. Recent events provide clear evidence that the American people want real answers to problems that deeply affect their lives and the lives of their families. A special commission is needed to cut through the partisan gridlock so that we can begin to put the federal government’s finances back in order.

Key Objectives for a Fiscal Commission

A fiscal commission should focus on providing recommendations which successfully address the nation’s fiscal challenges over the next several decades, not simply aim to reduce short-term deficits within the next few years.

Over time, under today’s policies, the gap between spending and revenues will grow progressively wider, seriously harming our nation’s economy and the standard of living for future generations. CBO’s projections show that, under the status quo, debt to GDP is expected to increase to 321% by 2050. That is the real problem–the so-called “structural deficit”–that needs to be tackled. Though the current deficits obviously make matters worse, they pale in comparison to the structural deficit.

In addition, deficits are common and can be useful in times of recession — the commission should not recommend steps in the short term that could threaten the current recovery. But as the economy recovers, we need to implement policies to address serious imbalances in our nation’s fiscal policies.

A commission should put everything on the table in order to tackle these significant structural problems.

Solving this challenge is achievable, but we will need to use all available means to reach the goal. A commission should not rule out any potential solutions in advance — all spending and revenue related options should be on the table. The magnitude of the problem makes this an economic reality, and meeting this challenge will require a comprehensive approach which tackles budget controls, entitlements, health care costs, spending reprioritization and tax reform.

Entitlement reform, for example, cannot and should not be tackled in isolation. Our nation needs to raise more revenue, and our complicated and unfair tax system must be overhauled. These steps are necessary to preserve America’s vitally important social insurance programs and the welfare of our nation and citizens.

A successful commission will require true bipartisanship – many Democrats will need to accept that some spending reforms are necessary; many Republicans will have to acknowledge that the current tax base is simply insufficient. The time to compromise and bridge the ideological differences for the good of the country is now.

A Successful Fiscal Commission

A fiscal commission must have real authority and its recommendations should receive a guaranteed vote in Congress.

Both Republican and Democratic lawmakers need to put aside political agendas and do what is in the best interest of the country by supporting an effective commission with the power to bring real change. Anything else would simply be an excuse for more delay, inaction and debt. The American people deserve more than political posturing.

President Obama should give a special fiscal commission his full support by appointing people who will rise above narrow partisan interests and by supporting the results of the Commission’s work.

A commission must have real credibility so that lawmakers will take its recommendations seriously. The President’s appointees (indicated to be _ of the 18) will be instrumental to the success of the Commission’s work. President Obama should also pledge to incorporate the Commission’s recommendations his budget for 2011 and be prepared to propose legislation based on the recommendations of the Commission before members of Congress.

A real commission should actively engage the American people so that it can accurately reflect their will.

The Commission’s work should reflect the voice of the American people. In order to do so effectively, the Commission should engage and seek input from citizens across the country. Such an effort would enable the Commission to communicate the facts about our nation’s fiscal crisis while simultaneously providing the public an opportunity to voice its opinions and concerns.

About the Peter G. Peterson Foundation

PGPF is dedicated to increasing public awareness of the nature and urgency of key economic challenges threatening America’s future and to accelerating action on them. To address these challenges successfully, we work to bring Americans together to find sensible, long-term solutions that transcend age, party lines and ideological divides in order to achieve real results. For more information, see The Peterson Foundation.