Committee for a Responsible Federal Budget

Rivlin Warns More Work is Needed on Debt and Deficits

Jul 8, 2013

Former CBO director and CRFB board member Alice Rivlin was interviewed by the Fiscal Times Sunday on the state of our budget and economy. Rivlin emphasized that while short-term improvements have been made in terms of the current fiscal outlook and economic recovery, there are still numerous long-term problems that remain. She was hopeful of the slow, but steady, recovery of the economy but identified current fiscal policy measures as one of the many continued weak points.

The standard forecast of moderate growth in the two-and-a-half percent range for the rest of the year – maybe getting to 3 percent by the end – is right. If nothing bad happens, that’s sort of the standard forecast. It’s perking along; it’s not very rapid. But it does seem to be improving. And there seems to be considerable momentum in the private sector of the economy, considering that federal fiscal policy is so negative.

The Fiscal Times also asks if the short-run improvement is a good reason to put the budget debate aside, as Paul Krugman and others have argued. But Rivlin dispels this myth that the budget problems are now solved:

We knew near-term deficits would come down as the economy improved. They’ve come down faster than anybody expected, but that’s mainly because of two temporary factors: One is that we got a lot of tax revenue in calendar 2012 because of the fiscal cliff and the anticipation that rates would go up in 2013, which they did. So a lot of people pushed income into calendar 2012. And the other was much bigger than anticipated repayments from Fannie Mae and Freddie Mac.  But again, for the longer term, deficits will go up again as the demographics [of retiring baby boomers] come into play, in 2017, 2018 and so forth.

None of us thought there was a need for short-term action. The long-term action is still necessary and the sooner the better with these things. We still need to put Social Security on a firm foundation, and every year that passes makes it a little harder to do that. The liberals would argue that may be true, but it can wait. I think it’s better if it doesn’t wait, because the changes can be smaller if you don’t wait. Senator [Richard] Durbin has floated the idea of a Social Security commission with a fairly short timeline to separate it from the budget discussions. I think that’s quite a good idea; we ought to do it.

One issue that Rivlin was optimistic about was the renewed possibility of comprehensive tax reform that would reduce tax expenditures in the code. Rivlin praised the recent actions of Chairman Max Baucus (D-MT) and Chairman David Camp (R-MI) for making tax reform a priority and for taking up ambitious measures to achieve it.

It’s encouraging that the [Senate and House] tax committees are both talking about serious tax reform. I don’t know where that will go. But the statement from [Senate Finance Committee] Chairman Baucus and [House Ways and Means Committee] Chairman Camp was very much in line with what we said in the Simpson-Bowles and Domenici-Rivlin commission reports: Namely, blow up the tax code and start over, and only put back the special provisions that can really be justified.

Lastly, on the upcoming fiscal deadlines, Rivlin expressed her hope that lawmakers would begin to shift their focus to achieving a compromise. There are plenty of issues on Congress's plate from the looming debt ceiling deadline to the large gap between the appropriations bills, but the greater concern is whether lawmakers will be able to agree on both entitlement and tax reform.

Well, I hope we’ve learned lessons [from the 2011 debacle] and that we will get a compromise of some sort that will not have us threatening to default...The thing that worries me is that if you look at the projections now, non-defense discretionary spending keeps slowing over time to levels lower than we’ve ever seen before. And my worry is we squeeze down the basic functions of government. It’s also very hard on state and local government. And we aren’t thinking through what we want government to do or not do.

We should be concerned that they can’t get together on a lot of things. The budget is a symbol, I think, of the breakdown of the congressional process. But I’m more concerned about their inability to, for example, come together around entitlement reform or tax reform, than about the budget itself.

Click here for the full interview.