Committee for a Responsible Federal Budget Annual Conference

On April 2nd, The Committee for a Responsible Federal Budget held its 2008 annual dinner at the Hyatt Regency on Capitol Hill. Through a roundtable discussion, a cocktail reception, and a dinner panel, this event brought together many of the nation's foremost fiscal and financial policy experts from both parties. Video of the dinner panel discussion can be viewed at right. For video of the afternoon roundtable, please click here and for an in-depth summary of the roundtable, please click here.

At the roundtable discussion, led by Former Office of Management and Budget (OMB) Director Leon Panetta and Former Congressman Bill Frenzel (R-MN), the assembled experts discussed the relationship between fiscal policy and the current economic crisis. Participants included two current Members of Congress, the sitting Director of the Congressional Budget Office (CBO) and numerous representatives from both Wall Street and the economic policy community in Washington, D.C. The discussion covered a wide range of topics—including the credit crisis, the recent economic stimulus package, likely regulatory changes and the need for budgetary reforms.

Richard Berner of Morgan Stanley opened the discussion by providing a window into Wall Street’s perspective on the current mortgage and credit crisis. Calling the current crisis “very serious,” he noted that fiscal and monetary policy could cushion some of the impact of the erosion of the capital base, but that the downturn would still be painful. Over the next few hours, responses to these basic premises tended to support his analysis. Lawrence Meyer of Macroeconomic Advisors said his organization felt the stimulus was “very well timed” and would spur economic growth. CBO Director Peter Orszag pointed out that, despite being worth only about one percent of annual GDP, the stimulus would have a concentrated impact because it would be delivered over just three months. Without denying these analyses, however, many expressed doubt about the economy’s ability to rebound. Ed McKelvey of Goldman Sachs said that uncertainty in credit markets “tends to stick around,” and many expressed concerns about the level and type of government regulation that would result. Expressing the greatest skepticism of the group, Bill Niskanen of the Cato Institute questioned even the term “stimulus.” He suggested the rebate might deepen the downturn by taking money from investment and pushing it into consumption, though Meyer pointed out that such an assumption holds only in an economy at full capacity.

David Walker, CEO of the Peter G. Peterson Foundation and recent addition to the CRFB Board, began the discussion of long-term issues by suggesting the same forces that caused the credit crisis could eventually cause a crisis related to U.S. federal debt. He cited similarities such as a disconnect between the beneficiaries and the bearers of debt and a lack of transparency in accounting. During the discussion, many echoed Walker’s concerns, with former Congressman Jim Kolbe (R-AZ) questioning how one could compel a Congress always focused on the next election to address an issue that slowly creeps up over many decades. Congressman Paul Ryan (R-WI) said he believed the next few years would present a unique opportunity to solve these problems, and Congressman Frank Wolf (R-VA) highlighted his own solution: a bill, co-sponsored by Jim Cooper (D-TN), to form a bipartisan commission that would propose a comprehensive solution to the entitlement shortfall. The general mood, however, was one of pessimism, with many expressing urgency that the issue be reframed or repackaged in such fashion as to capture the public mind and force Congress to act.

The roundtable discussion highlighted the complexity of both the short- and long-term economic issues facing the nation. More importantly, it brought together a group of highly influential officials in the private and public sectors who generally agreed that the long-term entitlement funding shortfall must be addressed sooner rather than later. Though thoughts on short-term issues were more wide-spread, there was clear concern about the nation’s economic health. Closing the discussion, Maya MacGuineas, CRFB President, said that despite the pervading pessimism among those in the room, the fact that so many intelligent people express such serious concern for these issues gave her hope in an eventual solution.

The next event of the evening was a cocktail reception. CRFB Co-chair Bill Frenzel welcomed the guests and introduced Senator Judd Gregg (R-NH), Ranking Member on the Senate Budget Committee and co-sponsor of the Conrad-Gregg Commission proposal to create a bipartisan solution to the entitlement problem. Senator Gregg used a chart to show entitlements would crowd out all other spending if not addressed. Arguing forcefully that such change would be necessary, Gregg described his proposal, developed with Senator Conrad, to deal with the entitlements crisis. He suggested the plan had strong support in the Senate, and that the next President, whoever it is, will be likely to sign it. His only concern was a lack of support from the House, and he respectfully requested that those in the room do what they can to actively advocate for it.

OMB Director Jim Nussle followed Senator Gregg’s remarks with his own brief address. Humorous, as always, he made a special effort to thank everyone for all the hard work being done to try to improve budget policy. He praised CRFB as an excellent committee to work with, who has done a good job with the issues. He closed by expressing optimism that there could be real change on long-term issues, and hope that it would occur soon.

At the dinner, CRFB President Maya MacGuineas welcomed the guests and thanked the numerous Members of Congress and public officials who had attended the day’s events, including Congressmen Spratt, Cooper, Ryan and Wolf, as well as Senators Voinovich and Gregg and OMB Director Nussle. She also thanked the board members of the Committee for a Responsible Federal Budget. She thanked Jim Slattery for his work on the board prior to leaving to run for Senate and, on a solemn note, lamented the sad passing of Richard Darman, who had been a leader on fiscal issues for decades prior to his death in January. Darman had given the key note address at the 2007 CRFB annual dinner, and will be missed. Lastly, on a happier note, MacGuineas welcomed David Walker, former Comptroller General of the U.S. Government Accountability Office, to the CRFB board, and asked him to give a few remarks to open the dinner portion of the evening.

Walker began with a rhetorical question: how could he say no to an offer to be a board member of the Committee for a Responsible Federal Budget? He didn’t want to be considered irresponsible, so he accepted the offer. Saying he had Peter Peterson’s proxy for the evening, Walker took a few moments to outline the goals of the Peterson Foundation, of which he was the newly named President and CEO. The Foundation will focus on a few issues of key importance to the Committee: 1) the budget deficit, the savings deficit and the balance of payments deficit, which are interrelated; 2) entitlement reform; and 3) health care reform. He said the goals of the organization would be to activate grassroots support and engage the media in order to create a better future for America’s children.

MacGuineas followed Walker by announcing that CRFB would soon be launching a Fiscal Responsibility Initiative that will focus on the fiscal issues in the campaign. In describing this project, she posed this question: whether or not it is possible for elections to be fiscally responsible, given the low political payoff for speaking hard truths and speaking with nuance. To answer this question, she introduced a panel of experts. Moderated by Mark Halperin of Time Magazine, this panel included Leon Panetta, OMB Director under President Clinton, Jim Miller, OMB Director under President Reagan, as well as Gene Sperling, Jeff Liebman, and Doug Holtz-Eakin, economic advisers to Senators Obama, Clinton, and McCain respectively.

At one point, panelists were asked about what they would like to see the next President say about the deficit in their first State of the Union Address. Holtz-Eakin suggested that reducing the deficit is not an end in and of itself, so rather than talking about deficit reduction, the President should talk about all the important issues related to the budget. Sperling agreed that deficit reduction was only a means to an end, but believed the President must set the tone for fiscal policy. Panetta suggested that because the next President is going to face a number of crises which cannot be dealt with unless the fiscal situation is under control, the President must talk about deficits. Liebman felt that, rather than talking about deficits, the President should talk about controlling healthcare costs, which would result in lower deficits. Miller, finally, suggested the President should suggest institutional changes to reduce pork and stop Congress from overspending.

The questions next turned to Social Security. Holtz-Eakin argued that the obstacles to Social Security reform are fundamentally political, and McCain would work with Congress to ensure reform was passed. Liebman explained Obama’s belief that we should act sooner rather than later and that he prefers using the tax cap, while recognizing the need for bi-partisan negotiation. Panetta explained that candor on Social Security was, politically, “a dead-end approach” so he didn’t expect candidates to talk about the finer details of tax or spending changes before coming to office. Once in office, he proposed the future President employ a bi-partisan negotiation which includes entitlements, discretionary spending and revenues.

Halperin then painted a scenario in which the five panelists would have to balance the budget, together, in five minutes. Panetta proposed instituting PAYGO and applying it to spending and tax cuts, enforceable caps on discretionary spending at an agreed upon level and a major reconciliation bill which deals with entitlements. Miller was skeptical that a bi-partisan group could really reduce the deficit, and didn’t agree with applying PAYGO to tax cuts since they can pay for themselves and increase economic growth. Liebman suggested withdrawing from Iraq would be a good starting point to save money. Sperling suggested that to deal with entitlements you need to start with a commitment to mutual sacrifice, and work together to create a universal pension to remove the private account debate from Social Security. Sperling also noted that, as we are seeking healthcare for everyone, we could use the opportunity to make some painful choices to lower healthcare costs. Holtz-Eakin, finally, suggested that the numbers show there is a spending, rather than a revenue, problem, and we need to undertake serious spending reform.

The question-and-answer portion of the dinner gave the many distinguished members of the audience an opportunity to ask specific questions of the panelists. Author and Political Commentator Bruce Bartlett asked the first question. Referencing an article he had written for The New York Times in the preceding week, he asked if anyone on the panel would support using the tax rebate promised in the stimulus package as a “down payment” on the considerable tax money that would be used to deal with the housing crisis over the coming months and years. The panel responded unanimously in the negative, though Sperling said he thought the stimulus should have dealt directly with the housing crisis. Miller said that, while he did not like Bartlett’s plan, he liked it better than the actual stimulus package. Focusing on a similar issue of future spending priorities, Robert Dugger of Tudor Investment Corporation, who had participated in the roundtable discussion, asked what rule each panelist would follow regarding spending. True to the focus of the evening, Panetta insisted that the question is not what the money will be spent on, but rather “are you going to pay for it?” Borrowing, not spending, is the problem.

Maya MacGuineas asked the next question: She asked the campaign advisors how they navigated the tension between taking a clear stand on issues important to voters and avoiding politically dangerous statements. To the former OMB Directors, she asked how one transitions from running on a dream agenda crated by a campaign team to governing on the nation’s agenda created by the exigencies of the moment. To the second question, Panetta said the key was assembling an economic team early and mapping out a tentative budget to plan your battles. To the first question, Liebman said Obama had approached the issue by illustrating the trade-offs rather than standing on one side or the other. Taking a different approach, Holtz-Eakin said it is important for voters to remember that campaigning is not governing, and requires different tactics. What matters in both, however, is character.

Senator George Voinovich (R-OH) then asked the panelists if any of their candidates had made an issue of the national debt on the campaign trail, to which they all replied in the affirmative. Each stated that his candidate had made fiscal responsibility and debt reduction a priority. Following up, David Walker asked if any of the campaigns would consider endorsing the Cooper-Wolf bill or the Conrad-Gregg bill to form bipartisan commissions to solve long-term funding issues. Sperling said that Clinton would consider a commission on Social Security, but not on Medicare and Medicaid. Holtz-Eakin took a broader view, saying that, while McCain had not taken a position on the legislation, he would not recommend that he support it because it is predicated on Congress being dysfunctional. He said he would rather restore the American people’s faith in their government and see the issue addressed through traditional means.

Peter Orszag followed Walker’s policy question with one of his own: “Give me three specific ideas that will restrain either the growth or the level of healthcare spending.” Liebman replied that Obama supported better disease management, increased insurance competition through reinsurance, information technology use and comparative effectiveness research. He said these measures may not lower cost, but would certainly improve outcomes and cost efficiency. Holtz-Eakin agreed with him about insurance competition, and added to the list an effort to balance the playing field so wealthy Americans aren’t receiving unnecessary subsidies. He would also like to change the Medicare payment system to focus on the beneficiary. Sperling added he would like to see reduced payments to HMOs and better use of information technology.

The final question of the evening came from Chris Edwards of the Cato Institute, who asked, “Where are the Democrats on major tax reform?” Sperling replied that tax reform must satisfy three criteria: it must be simpler than the current system, fiscally responsible and equally or more progressive than the current system. Saying he had yet to see such a proposal from conservatives, he asserted Clinton’s tax plan satisfied all three. Liebman said Obama believed in revenue neutral broad-based middle-class tax relief, as well as simplicity through a tax-return-free system for people with simple returns. Holtz-Eakin answered the question from McCain’s perspective, saying he had a pro-competition tax reform plan that represented real change from the status quo, as demonstrated by the attacks it had received from the Democratic side.

With that, MacGuineas thanked the panelists and the audience, and closed the evening’s activities.

For a complete summary of the roundtable discussion, please click here.

To learn more about the Committee and its work, please go to www.CRFB.org.