Congress in a Glass House
After hearings last month to consider the plight of the Big Three automakers, Congress's warning was clear: no plan, no bailout. It was a tough-love message, but it rang a bit hollow coming from lawmakers who have no plan of their own to avoid a fiscal debacle that could be many times more serious than anything the automakers face.
Although this year's budget deficit, likely to top $1 trillion, can be largely explained by temporary factors, shortfalls of this size will become routine and ultimately unsustainable if nothing is done to close the projected gap between government revenue and spending on federal health-care and retirement benefits.
In these circumstances, it is worth asking what might be demanded of Congress by a special guardian appointed to safeguard the interests of today's youth. A good place to start is the letter written to the automakers by House Speaker Nancy Pelosi and Senate Majority Leader Harry M. Reid.
The two said they would consider assistance to the auto industry under certain conditions. They called for a "documented assessment" of the companies' "current operating cash position" and an explanation of how the automakers "will meet the financing needs associated with the plan to ensure the companies' long-term viability."
The letter demanded "varying assumptions" of expected sales along with "specific measures designed to ensure transparency and accountability." This included "proposals to address the payment of health care and pension obligations." Any loans would be "immediately callable" if long-term benchmarks were not met.
Pelosi and Reid declared that the American people "deserve to see a plan that is accountable to taxpayers and that is viable for the long-term," with "significant sacrifices and major changes to [the automakers'] way of doing business."
These sound conditions should be applied to the federal budget as well. Unfortunately, though, there is no special guardian of future generations to make such demands. That job belongs to our elected leaders. They, too, must demonstrate significant sacrifices and major changes to their way of doing business. After all, they share responsibility for the nation's future just as the Big Three executives share responsibility for the future of the auto industry.
So when Congress turns its attention from bailouts to budgets, it should begin work on a fiscal sustainability plan -- applying the same high standards to the government that it is asking of the automakers. Congress may find a willing partner in President-elect Barack Obama, who recently noted that "as soon as the recovery is well underway, then we've got to set up a long-term plan to reduce the structural deficit and make sure that we're not leaving a mountain of debt for the next generation."
Crafting such a plan would incite controversy over timing and the appropriate mix of spending cuts, revenue increases and borrowing. The basic facts, however, should not be in dispute:
Congress will soon receive two reports that could be used to set the stage for reform. If lawmakers want a "documented assessment" of the nation's "current operating cash position," they should read the Treasury Department's Financial Report of the United States Government, due to be released in mid-December. This often-overlooked annual report details the extent to which the federal government is falling short of meeting the financing needs associated with the nation's long-term fiscal health. Last year's report found that promised Medicare benefits over the next 75 years will exceed dedicated revenue and premiums by $34.1 trillion in net present value. The corresponding Social Security shortfall was $6.7 trillion.
If lawmakers want to assess fiscal policy under "varying assumptions," they can review the annual Congressional Budget Office report on the government's long-term fiscal outlook, also due to be released in mid-December. Last year's CBO report found that even under an "extended baseline" scenario in which spending is constrained and the Bush tax cuts are allowed to expire, annual deficits will reach nearly 20 percent of gross domestic product by 2082. In contrast, this year's "record" deficit will be around 7 percent of GDP. Under an "alternative fiscal scenario," which more closely reflects recent policy, the outlook is considerably worse. Deficits are likely to exceed 20 percent of GDP by 2050.
Any plan should include transparency measures. There must be no scorekeeping gimmicks that hide costs or produce fanciful savings. For accountability, the plan should include realistic benchmarks for spending and revenue, with triggers that can be altered only by a specific vote, and pay-as-you-go rules should be written into law.
Congress is right to insist on a long-term plan for the automobile industry. It should impose similar conditions on itself. The problem is largely a lack of political will to act on information that is already available. The longer this situation persists, the bigger the bailout that future taxpayers will be left to finance.
As Pelosi and Reid told the automakers, "Thank you for your prompt attention to this matter."
The writer is executive director of the Concord Coalition.