CAP Action’s Michael Ettlinger testifies before the National Commission on Fiscal Responsibility and Reform. Read the full testimony (CAP Action)
I would first like to thank the commission for the opportunity to appear today. The task you face is both important and daunting.
The task is important because the deficit levels projected for 2015 and beyond will, if nothing is done, eventually bring harm to our nation’s economy and hamper the ability of our government to deliver important public services as interest payments take a greater and greater share of tax dollars. The task is daunting for a number of reasons.
The first is obvious: tax increases and program cuts are difficult to do in a democracy because neither are popular. Designing an approach that can garner sufficient support is a significant challenge, to put it modestly.
In addition to this political challenge, addressing the middle and longer-term fiscal situation is particularly daunting right now in this very fragile economy. It’s imperative to bring the deficit down, but bringing it down too quickly would be a disaster. There is nothing in the commission’s mandate to require rapid deficit reduction in the next year or two and there’s a good reason for that: doing so would seriously cramp our economic recovery and would, in fact, make longer term deficit reduction less likely. It has become a cliché to say “we can’t grow ourselves out of our deficit problem.” It’s true, of course, but it’s also true that we’re not going to “spending-cut our way out of the deficit problem” or “tax ourselves out of our deficit problem.” Each of these components—revenue increases, spending cuts, and economic growth—will have to play a key role if we are to be successful. The consequences of moving towards a balanced budget without an assist from economic growth would be devastating for the country—a grim scenario that we may see in Greece. So getting the balance right between bringing deficits down, but not aborting our economic recovery, is also a challenge.
Finally, in the context of this commission—assigned the specific task of improving the nation’s fiscal situation—it might be easy to forget or ignore the possibility that the cure to our middle- and long-run deficit could be worse than the disease. Yes, there are potentially important negative consequences to deficits. But there are also potentially important negative consequences to underinvesting in our children, to shortchanging our national infrastructure, and to counterproductive taxation. As a matter of arithmetic we can hit whatever deficit targets we want—but if we balance the budget in an irresponsible way we could end up doing net harm to our nation and its economy, balanced budget or not.
CAP Action’s Michael Ettlinger testifies before the National Commission on Fiscal Responsibility and Reform. Read the full testimony (CAP Action)