In the Nation's Interest

The White House Fiscal Responsibility Summit

CED Research Director Joe Minarik was privileged to have been invited to participate in the Fiscal Responsibility Summit convened by President Barack Obama. The following is a summary of the event and its significance.

The President's Fiscal Responsibility Summit was held on Monday afternoon, February 23. There were approximately 130 attendees, roughly equally divided between Members of Congress and representatives of business, labor, and the policy community.

The summit began with a plenary session in the East Room of the White House, with opening substantive presentations by Mark Zandi of economy.com, giving his view of the macroeconomic picture, and Robert Greenstein of the Center on Budget and Policy Priorities, discussing the budget outlook. Peter Orszag, the Director of the Office of Management and Budget, gave a brief introduction of the Administration's budget program, after which President Obama explained his view. The attendees were then directed to five "breakout" sessions - on Social Security, health care, taxes, budget process, and federal procurement. The groups then reconvened in a final plenary session, where the President spoke and called on selected Members of Congress to comment on their sessions, and on the event in general.

Some commentary has suggested that the event was purely for show, and therefore in some sense insignificant. That conclusion should be tempered. Surely, the word "summit" was to some degree a misnomer for the White House event, because it was not a gathering of decision makers tasked and empowered to change policy before leaving the room. Rather, it was a discussion among people of different minds to try to build the foundation for eventual agreement and compromise.

There were apparent differences of opinion among the participants about the event itself. Some Democratic attendees felt compelled to justify the President's effort to reach out, given the near-party-line votes on the recent stimulus bill. Some Republicans seemed to feel a need to justify their position on the stimulus to a President who had now invited them into his home and offered them fruit juices and soft drinks.

But this summit was never intended to cut a deal. Rather, it was an investment on the part of the President, and also on the part of his guests from the other side of the aisle. It gave the two sides the chance to hear each other acknowledge that the nation has an unavoidable budget problem. It allowed people to learn the extent to which their conceptions of possible solutions are shared. And perhaps after the sharp tones of the final stimulus debate, it helped to cut the partisan tension just a bit. Bipartisanship, at least in Washington, is not another word for fond embrace; it is, rather, a hard bargain that ends with a grudging handshake. In that process, should it occur, this summit will not be seen even as the end of the beginning, but rather as the beginning of the beginning.

On one conclusion there was consensus: The nation has a problem much bigger than deciding how to spend $789 billion. When it comes time to address the looming budget deficit and debt problem, there will need to be compromise between the parties. To achieve compromise, there must be a reservoir of trust. Perhaps the President began to build that reservoir today; perhaps not.

On the substance of the meetings, the President's opening remarks were noteworthy on a few scores. He did underline the long-term budget deficit issue on the nation's blackboard. With some pundits arguing that the financial markets are beginning to doubt the nation's fiscal resolve, and therefore to discount long-term Treasury securities (thereby raising interest rates), this is helpful.

The President added that he would present in his budget realistic estimates of the cost of the war (previous budgets had assumed zero), abating the otherwise-growing impact of the individual alternative minimum tax (AMT), and addressing some average annual cost of natural disasters. Of these, the first two are the most important. Budgeting zero for war costs led to a series of supplemental appropriations bills, or "supps," which always became must-pass vehicles that would carry all manner of spending that would not be approved in the normal process. On the second point, the AMT will not be enforced; it is impossible politically. For a while, keeping the AMT revenues in the budget could have been justified as holding the Congress' feet to the fire to replace that revenue somehow, but that position is now totally unrealistic and the President was right to abandon it. At a lower level of importance, the normal level of natural disaster costs is a smaller element in the budget; only a massive disaster is a truly significant budgetary event, and prospective budget allowances would not assume such truly large costs. Furthermore, there is always the danger that an allowance for disaster costs, in the absence of a significant disaster, will become a slush fund for much more minor events come the end of the fiscal year.

Based on press pool reports and my own session, the summit breakouts were the first preparations for bridge building, not the drawing of detailed plans. In my tax session, for example, participants followed from the opening remarks on the budget outlook by Bob Greenstein, which emphasized the role of health care costs, and talked almost as much about health reforms as they did about tax policy. The Members of Congress were given clear pride of place by the organizers, as was appropriate, and so the outside experts were in a supporting role. The tax discussion emphasized broad themes - simplification, facilitating growth, helping small business - with little discussion of how to achieve those objectives. When it came to the budget deficit, some participants believed that it would be easy to tap the "tax gap" to collect additional revenues, while others - including a former Internal Revenue commissioner attending as an expert - were more cautious. Some said that closing corporate tax loopholes would be easy; others countered that it would be difficult. It fell to the outside experts to raise the tougher ideas, such as CED's proposals for a value-added tax or a fundamental restructuring of the health care system to solve our budget problems. Despite the considerable generality of the conversation and the limited time to engage, many Members of Congress agreed that it was good to meet for some frank conversation on the key issues. There was some measure of consensus on a couple of points. One was the need to do away with expiring tax provisions to provide continuity and certainty. A second was that fiscal policy would be challenged to reduce the deficit without hitting too hard and too soon, and thereby cutting off what is hoped to be an early economic recovery.

According to press reports, the budget process session found the ideological opposites holding to their positions, with little consensus. Some participants want an outside commission empowered to present options for a mandatory up-or-down vote in Congress; others were vehemently opposed, especially if it involved the Congress delegating its constitutional authority to outsiders. One Member of Congress suggested what I would recommend: That the President lock key Members in a room with three bottles of gin (although I would substitute pizza for the gin, in light of rising health care costs).

The press pool reported that the health care session was a series of independent remarks with little ultimate engagement on any particular question. Some Democrats wanted very quick action; Senator Dodd wants a bill through the Senate by Memorial Day. Two Members asked for consideration of the Wyden-Bennett bill, which is similar to the CED proposal. But many Members promoted pieces of an approach - health information technology (HIT), an emphasis on prevention and wellness - without embracing the structural alignment of incentives that is need to ensure that the various pieces are employed productively. At least one participant spoke up for a single-payer ("Medicare-for-All") system, but tellingly, Senator Ben Nelson, a centrist Democrat from Nebraska who would be needed for an all-Democratic 60-vote supermajority, spoke against it. (I had asked to be assigned to the health care group, but was told that too many invitees would have little to say in any session other than health care. I have asked for CED to be represented in an upcoming health care summit, to be held perhaps next week; but as is typical in a new Administration, the planning is last-minute.)

The Administration representatives in the Social Security session reported that the Administration plans to move on health care before Social Security. Several Members of Congress inside and outside the summit have suggested that this approach is backwards, because Social Security is simpler and could be completed more quickly, building trust for a longer and more detailed review of health care. I agree with the sentiment that Social Security should go first. The discussion was mixed on the role of private investment accounts in Social Security reform; the most positive view followed the CED proposal for separate accounts outside of Social Security. At least one participant spoke about eliminating benefits entirely for the upper-income elderly, while at least one more proposed increasing the retirement age.

There was no press pool reporting of the session on government procurement, but based on the comments of participants in the final plenary session, that breakout saw some measure of consensus. Participants from both parties spoke of the need to reduce the frequency of no-bid sole-source contracts, and to strengthen the corps of government contracting officers. There was a suggestion by one participant that there had been consensus that the privatization of government services had gone too far, that it was increasing costs, and that it was increasingly difficult for career civil servants to monitor the private providers.

In his closing remarks, the President committed to deliver staff draft summaries of the breakout sessions to the participants for their review, as a first step toward continuing the dialog of the day.

In closing, the President emphasized that he saw budget consolidation as an essential task for the long-term health of the economy, and fully consistent with the costly near-term steps needed to pull the nation out of recession. He believed that his views even on the stimulus bill were largely in line with those of the Congressional minority, despite apparent contrary views highlighted in the press. Thus, the closing message of the summit was again that bipartisan cooperation was possible and indeed essential. The fiscal responsibility summit may have been a necessary step in that direction. Time will tell whether it, plus what surely will be further efforts in the same direction, will prove sufficient.

Commentaries are the views of the authors and do not necessarily represent policies of the Committee for Economic Development.

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