"The federal government faces an unprecedented fiscal challenge that risks the future well-being of our children and grandchildren."
That's the warning issued by Maya MacGuineas, president of the Committee for a Responsible Federal Budget and the moderator of a conference of budget experts who gathered at Washington's Mayflower Hotel Tuesday to evaluate the nation's fiscal crisis.
The panelists, who were participating as part of the Pew-Peterson Commission on Budget Reform, generally did not view President Obama's tax and spending proposals as credible and noted that the president does not even attempt to balance the budget in the near future. The fiscal 2011 budget projects that federal deficits will average about 4.5 percent of U.S. gross domestic product a year for the next decade.
"I'd give his budget a B- grade," said Robert Reischauer, former director of the Congressional Budget Office and current president of the Urban Institute, in response to a question from Roll Call's Morton Kondracke on how he would evaluate the budget. "The basic outline is appropriate, but by resorting to the 'magic asterisk' of creating a fiscal commission to resolve the problems, Obama has failed to take the necessary steps to reach fiscal sustainability," he said. [The magic asterisk refers to the footnote that calls for a bipartisan commission to propose tax and spending options to reduce the deficit.]
Panelist Clive Crook, senior editor of The Atlantic Monthly, later told Politics Daily that he would give the budget a D grade.
The three former directors of the CBO --- Rudolph Penner, Douglas Holtz-Eakin, and Reischauer evaluated what steps must be taken to put the federal government on a sustainable path of fiscal spending.
In the face of a federal debt burden that risks reaching two to three times national income, Penner argued for establishing a target debt to GDP ratio of 60 percent and to start taking the steps necessary in 2012 so that the government can reach that goal by 2022. Penner told the audience of about 200 that the troubles in Greece
may provide just the warning shot that America needs.
"Although Greece's debt now exceeds 120 percent of their GDP, which is problematic itself, their real problems arose when they didn't tell the truth about their fiscal situation," Penner explained. "Wait a minute," he said, "that situation describes exactly what the federal government is doing with Fannie Mae and Freddie Mac."
Penner explained that the U.S. government risks damaging its own credibility by not putting the true cost of supporting Fannie Mae and Freddie Mac and their $5 trillion of debt and mortgage-backed securities in the budget. Federal support for these two government-sponsored entities, which were put into conservatorship in September 2008, "appears no where on the U.S. balance sheet." (According to the CBO, the federal government spent $91 billion supporting the agencies in 2009. In December, the Treasury Department announced that it would give unlimited support to the two entities over the next three years.)
Penner was not alone in stressing the importance of presenting credible budget solutions to the fiscal crisis.
John Podesta, President Bill Clinton's former chief of staff and current head of the Center for American Progress, agrees that Obama must propose a credible fiscal policy to deal with the deficit. He recalled successful budget agreements in 1990, 1993, and 1997 and lamented the fiscal deterioration that occurred during the presidency of George W. Bush, with the tax cuts, two wars, and an unfunded expansion of drug benefits under Medicare.
In addition to the federal budget problems, Podesta noted that many states face deficits, and warned that failure to deal with these problems could "lead to reduced income and increased interest rates as we're seeing play out in southern Europe."
"That could be our future if we don't take action now," Podesta warned. Reaching a balanced budget "requires more than a cap on nonmilitary discretionary spending," he added.
Holtz-Eakin, who is the head of the newly founded American Action Network, says that "we are endangering our prosperity and freedom" by pursuing an unsustainable path of spending and taxation. The solution to this problem requires "leadership from the White House" that Holtz-Eakin says is woefully lacking.
In addition to the budget, Holtz-Eakin singled out the budget chapter
in the Economic Report of the President
as "disappointing." The Report
says that "health care reform will solve the problem," which is just not credible, he added.