Fiscal toolbox
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The document summarizes a report from the Peterson-Pew Commission on Budget Reform that compares different fiscal policy tools for controlling government debt, such as targets, triggers, caps, and fail-safes. It notes that these tools have various advantages and disadvantages and that the right approach may incorporate aspects of several plans. The Commission's new Fiscal Toolbox resource compares tools based on their goals, enforcement mechanisms, exemptions, escape valves, and other factors to help policymakers design effective tools for addressing growing debt levels.
Fiscal toolbox
- 1. PETERSON-PEW COMMISSION ON BUDGET REFORM CO-CHAIRS As Policymakers Search for the Right Fiscal Tool, BILL FRENZEL Peterson-Pew Commission’s New Fiscal Toolbox Can Help TIM PENNY CHARLIE STENHOLM June 8, 2011 COMMISSIONERS In recent weeks, there has been significant talk about using targets, triggers, BARRY ANDERSON ROY ASH caps, and failsafes in order to get our fiscal situation under control – in CHARLES BOWSHER particular as policymakers like those involved in the Biden fiscal talks STEVE COLL search for ways to couple a debt limit increase with deficit reduction. There DAN CRIPPEN VIC FAZIO are plenty of tools available to help fix our broken budget, but which WILLIAM GRADISON should we use? The new Fiscal Toolbox from the Peterson-Pew WILLIAM GRAY, III Commission on Budget Reform (PPC) offers guidance in choosing the right WILLIAM HOAGLAND DOUGLAS HOLTZ-EAKIN instrument. JIM JONES LOU KERR “We have lots of tools to choose from here – everything from spending JIM KOLBE JAMES MCINTYRE, JR. limits to balanced budget rules to debt targets,” said CRFB President and DAVID MINGE PPC Commissioner Maya MacGuineas. “As we look at these various tools JIM NUSSLE to control our debt, it's important we use the right ones.” MARNE OBERNAUER, JR. JUNE O’NEILL RUDOLPH PENNER The Peterson-Pew Commission, (www.budgetreform.org), comprised of a PETER G. PETERSON ROBERT REISCHAUER bipartisan group of leading budget experts, has studied process tools like ALICE RIVLIN targets and triggers for over two years and recommended a suite of CHARLES ROBB reforms, including debt and savings targets to spur action, and spending MARTIN SABO GENE STEUERLE caps to enforce a budget deal once it is in place. The Fiscal Toolbox is the DAVID STOCKMAN latest resource from the Peterson-Pew Commission, which compares the PAUL VOLCKER various mechanisms out there on a variety of measures. CAROL COX WAIT DAVID M. WALKER JOSEPH WRIGHT, JR. “No one knows the perfect process changes to control the debt, and every option has advantages and disadvantages,” said MacGuineas. “What we PRESIDENT MAYA MACGUINEAS need to do is take the best parts of each plan to design the tool that will best help policymakers to bring the debt under control.” 1899 L Street NW • Suite 400 • Washington, DC 20036 • Phone: 202-986-2700 • Fax: 202-986-3696 • www.crfb.org
- 2. The Committee for a Responsible Federal Budget Targets, Triggers and Caps Comparison Grid Peterson-Pew Fiscal Commission President Obama Corker- Balanced Budget Sustainable Debt Peterson-Pew Caps Bipartisan Policy Center Debt Stabilization Debt Failsafe McCaskill CAP Amendments Act (Longer-Term) SAVEGO Process Trigger Act (S.J.Res. 10)* (Medium-Term) Stabilize the debt to Stabilize the debt-to- Stabilize the debt Limit federal Eliminate the deficit and Goals GDP ratio to 60% or Limit drivers of the debt Save agreed upon amount GDP ratio to GDP ratio spending limit federal spending below Limits spending Balances the budget and Sets annual savings targets Sets annual savings After a budget plan has Uses rules to force Ensures stable or to 20.6% of limits outlays to 18% of for discretionary spending, targets by statute been put in place, limits action if budget is declining debt to GDP by the end GDP, beginning five health care, and other based on glide path Social Security, health projected to fall short of GDP ratio in of the decade fiscal years after mandatory/revenue Description intended to bring spending, and tax primary balance in second half of (GDP calculated ratification initially crafted to achieve debt to 60% of GDP expenditures to the 2015, or is projected to decade (or average based on a fiscal target (60% by the end of the amount that has been (or found to) rise as a deficit to GDP average of the (in addition, no debt/GDP for BPC’s decade budgeted for share of GDP after 2015 ratio of 2.8%) first 3 of the 4 legislation can increase illustrative plan) previous years) taxes) Prohibition on Across the board 3/5 majority requirement consideration of any Sequestration for Across the board spending to increase the debt legislation that discretionary spending, Enforcement spending cuts and Automatic adjustments Across the board sequestration ceiling increases gross automatic spending cuts Mechanism if revenue increases to Social Security, tax cuts on selected spending or reduces and revenue increases for Targets Not (possibly including expenditures, and health spending and tax 2/3 vote point of (Congress may enact gross taxes health care and for other Reached tax expenditure care spending expenditures order preventing additional enforcement mandatory spending & reductions) spending above to ensure (Additional fail-safes revenue the cap implementation) can be considered) None Exempts Social Specified Courts cannot require Security, Medicare Exemptions from Exempts Social Security if increase in revenue to Adjustments cannot None None benefits, and None Enforcement scored as solvent enforce balanced budget exceed 1% of GDP in means- tested Mechanism requirement a given year programs Majority vote allows Unspecified 2/3 additional spending or mechanism to supermajority Triggers waived after Process suspended if deficits during war and ensure trigger does vote allows two consecutive nominal GDP grows by 3/5 vote for “serious not exacerbate spending cap to Specified Escape quarters of negative less than 1% or a joint military threat to national None economic None be exceeded Valves real GDP growth or a resolution declares it security” downturn or similar measure of would exacerbate an interfere with Emergency economic weakness economic downturn 2/3 supermajority vote national security spending is allows any provision to emergency exempt from cap be waived 1899 L STREET NW • SUITE 400 • W ASHINGTON, DC 20036 • PHONE : 202-986-2700 • FAX: 202-986-3696 • WWW. CRFB. ORG
- 3. The Committee for a Responsible Federal Budget Peterson-Pew Fiscal Commission President Obama Corker- Balanced Budget Sustainable Debt Peterson-Pew Caps Bipartisan Policy Center Debt Stabilization Debt Failsafe McCaskill CAP Amendments Act (Longer-Term) SAVEGO Process Trigger Act (S.J.Res. 10)* (Medium-Term) Debt/GDP and Entitlement Spending Deficit/GDP and Debt/GDP and Deficits and What is Targeted? Debt/GDP and Savings Spending/GDP Savings and Tax Expenditure Debt/GDP Deficit/GDP Spending/GDP Is the Purpose to Force Action or Force and Enforce Enforce Enforce Force Force Force Force Enforce Decisions? Temporary but Is the Mechanism replaced with new Permanent until new Temporary until savings Temporary or Permanent Temporary Permanent Permanent targets once initial budget enacted goal is reached Permanent goal is met Does Enforcement Mechanism Include Automatic Changes to Both Both Neither Both Both Spending Neither Revenue, Spending, Both, or Neither? Are Tax Expenditures Yes Yes Unspecified Yes Yes No No Treated Similarly to Spending? Yes, a requirement for Yes, opportunity for both the President’s Yes, a requirement that Congress to revisit Budget and Is Proposal the President transmits a policies, and the Congressional Budget Accompanied by a budget which holds President to exercise Unspecified Resolution include Unspecified No No Process to outlays at or below enhanced rescission proposals to stabilize Facilitate Success? revenue and below 18 authority, if targets the debt and a fast-track percent of GDP are not met process for legislation that does so * Numerous balanced budget amendments have been proposed in the current Congress. Used here as an example is S.J.Res. 10, which is co-sponsored by all 47 Senate Republicans. For a more detailed list of balanced budget amendments and their provisions, go to http://crfb.org/blogs/scales-tip-among-senate-gop- balanced-budget-amendment. 1899 L STREET NW • SUITE 400 • W ASHINGTON, DC 20036 • PHONE : 202-986-2700 • FAX: 202-986-3696 • WWW. CRFB. ORG