Congress, New President Must Put Our Fiscal House in Order
Great challenges can bring great opportunities, and the current economic crisis is no different. As President-elect Barack Obama considers how best to turn the economy around, he needs to focus not only on today, but also on how to return the country to a more fiscally responsible and sustainable path over time.
[IMGCAP(1)]Our nations short-term budget deficits will unavoidably get worse before they get better, due in large part to the current recession, recent and future bailout packages, and a likely dose of additional economic stimulus that hopefully will be targeted, temporary, and reasonably sized and structured.
As a result, Obama will need to juggle competing demands in a much tougher budget environment than he and his economic team anticipated during the campaign. video platform video management video solutions free video player
Last month, the Congressional Budget Office announced that the unified budget deficit for the fiscal year ending Sept. 30 was about $455 billion, up from $162 billion in fiscal 2007. To these amounts, add another $180 billion from the Social Security surplus that was spent each year on other government initiatives, and you get an idea of our nations true operating deficits.
This fiscal year could bring the nations first trillion-dollar deficit and thats before we feel the impact of the tidal wave of spending associated with the retirement of the baby boom generation. [IMGCAP(2)]
The fact is, most of our federal governments resources are pre-committed. Current official government figures show that for the first time in our nations history, the federal governments total liabilities and unfunded commitments for Medicare and Social Security now exceed the total net worth of all American households!
Regardless of the specific figures, one key point is clear: To create more future flexibility, Obama will have to take steps to better align federal revenues and spending, reform our outdated entitlement programs and tax policies, and bring soaring health care costs under control.
Some ominous parallels exist between our current mortgage-related subprime crisis and the governments finances. Both share a disconnect between who benefits from current policies and who will pay the price, a lack of transparency between the nature and extent of the related financial risks, too much leverage and not enough emphasis on cash flow, and a failure of related oversight and risk management mechanisms despite clear and compelling warning signals.
Yet, as disturbing as the similarities are, there are several important differences. The governments own financial crisis is not as immediate, raising the odds that it will not be taken as seriously as it should. However, the governments challenge is far larger, with much greater potential adverse economic implications than the current challenge.
Most importantly, no one is going to bail out America the way the government is bailing out others. We must start to take steps to put our own house in order.
As President Obama addresses the current crisis, there are steps he and his administration should take toward addressing this looming and even larger one.
First, even as they seek to effectively and equitably implement the new financial assistance bill, get our economy back on track and restore public confidence, they should implement lessons learned from the recent market failures to strengthen related regulatory, oversight and enforcement actions in connection with a wide range of financial services firms.
Second, they should signal to the new Congress their support for the establishment of a credible commission to defuse the ticking time bomb associated with the governments deteriorating finances. This commission should be designed consistent with the best practices of past successful commissions that the Government Accountability Office developed when I was Comptroller General. It should be bipartisan; include elected officials, new administration officials and nongovernment representatives; and engage citizens through field hearings around the country.
The commission should be able to put everything on the table, including entitlement reforms, spending constraints and tax reforms, including increases.
At a minimum, this commission should address the need for statutory budget controls, comprehensive Social Security reform, and round one of comprehensive tax and health care reforms. If it can achieve a predetermined supermajority vote on a set of recommendations, the related package should be guaranteed a vote in Congress after appropriate hearings and subject to limited amendments that meet stated criteria designed to ensure that the fiscal integrity of the package of recommendations is not undermined. Reps. Jim Cooper (D-Tenn.) and Frank Wolf (R-Va.) are pushing a similar proposal that deserves serious consideration.
Third, the time also has come for a fundamental review and re-examination of how the federal government goes about its business. This should include reviewing all major spending programs and tax preferences based on a standard set of criteria. Such criteria would include focusing on what should be the essential roles of government, which programs and policies are delivering positive outcome-based results, and which are intended to create a better future rather than perpetuating the past. This baseline review is much-needed and long overdue. It could be conducted by the Office of Management and Budget or by a new type of Hoover Commission in partnership with OMB.
To facilitate the above review, the government must develop and implement two basic management tools it has always lacked. It needs a forward-looking, trend-based, government-wide, integrated and results-oriented strategic planning framework for the federal government. OMB should take the lead in creating this framework.
The nation also needs a comprehensive set of key outcome-based indicators that will help the government and the public assess where we stand, how we are trending, and how we compare to other major industrialized nations on a range of economic, security, environmental, social and other issues.
America is a great country, yet we are below average for an industrialized nation on a number of key public finance, health care, energy, education and other key outcomes. This concept of key national indicators is the basis for a proposed public-private partnership bill being co-sponsored by Sens. Edward Kennedy (D-Mass.) and Mike Enzi (R-Wyo.).
And most important of all, by creatively applying the unprecedented grass-roots and online networks that got him elected toward the practice of governance once he takes office, the incoming president is uniquely positioned to correct one of Washingtons fundamental flaws.
Regardless of what you think of the recent bailout legislation, and contrary to policymakers assertions, its passage was a demonstration of laggardship not leadership.
Real leadership involves looking ahead and identifying opportunities that can be capitalized on, risks that can be mitigated and crises that can be avoided. All too frequently, Washington has been a lag indicator that doesnt act until a crisis is at our doorstep.
A president who remains connected to the people can change that and lead us in rising to meet the fiscal challenges that threaten the future of our country, children and grandchildren.
Hopefully, President Obama will do so. I wish him all the best in these very challenging times.
David M. Walker is president and CEO of the Peter G. Peterson Foundation and former Comptroller General of the United States.