Update on Our Nation's Fiscal Health
FLOOR SPEECH OF SENATOR GEORGE V. VOINOVICH
October 24, 2007
The following is a speech delivered today by Senator Voinovich on the floor of the Senate regarding our nation's fiscal health:
Mr. President, I rise today to comment on the sad state of the appropriations process as well as our long-term fiscal health. The new fiscal year began 23 days ago, and here we are debating appropriations bills that haven’t even passed the Senate yet, as government agencies operate on temporary, stop-gap funding. When we Republicans were in the majority, we consistently failed to enact all of the appropriations bills before the end of the fiscal year. We enacted short-term continuing resolutions – or CRs – to keep agencies funded while we wrapped several of those bills into an end-of-the-year omnibus.
After the Democrats won control of the Senate, I sincerely hoped that they would fulfill their promises to manage the budget better. But while the party in power has changed, the results have stayed the same. In fact, the results so far have been even worse. Fiscal year 2008 has already started, and we have enacted exactly zero appropriations bills.
Government-by-CR has consequences. Agencies cannot plan for the future. They cannot make hiring decisions. They cannot sign contracts. As a result, we get more waste and inefficiency from government. We get lower quality services provided to the people. And at the end of the day we get higher spending and less accountability and oversight of the taxpayers’ money.
On September 23, the New York Times reported that our failures could have a devastating effect on cancer research, because scientists are waiting around to hear if they will receive grants for their innovative research ideas. The same article quoted a transportation industry representative as saying that our failure could have major implications for anyone who rides in cars, trucks, trains, buses, and subways. And if you want more examples of how Congress’s failure to do its job on time affects ordinary Americans, I invite you to visit my website where I provide several additional examples.
This is why a bipartisan group of senators agree that we need to adopt biennial budgeting for the federal government, like I had as governor of Ohio, so that Congress can get its work done on time while also conducting the oversight necessary to ensure that programs and agencies are functioning effectively. Senator Domenici has been a leader on biennial budgeting for years, and we should adopt it during this Congress and name it the “Pete Domenici Biennial Budgeting Act” as part of Pete’s legacy to the country.
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Putting aside our short-term failures and focusing on our long-term problems, in January I introduced the Securing America’s Future Economy, or SAFE, Commission Act --legislation that would create a bipartisan commission to look at our nation’s tax and entitlement systems and recommend reforms to put us back on a fiscally sustainable course and ensure the solvency of entitlement programs for future generations.
I also want to commend two of my colleagues, the Budget Committee Chairman from North Dakota and the Ranking Member from New Hampshire, for recently introducing a bipartisan bill that would create a tax and entitlement reform task force very similar to my SAFE Commission. In fact, I saw them on CNBC today talking about it. The only major difference is that Senators Conrad and Gregg would require every congressional appointee to be a sitting Member, whereas the SAFE Commission would include outside experts. I have signed on as a co-sponsor of the Conrad-Gregg proposal and I am pleased to learn that they intend to hold a hearing on the bill in the very near future. I look forward to working with them to get the bill passed and restore fiscal sanity to the U.S. government.
I also want to commend Democratic Congressman Jim Cooper of Tennessee and Republican Congressman Frank Wolf of Virginia, who have introduced a bipartisan SAFE Commission bill in the House. I have been working with Frank Wolf for more than a year on this, and I welcome Congressman Cooper’s decision to join us.
This bipartisan, bicameral group has support from corporate executives, religious leaders, think tanks across the political spectrum from the Heritage Foundation to the Brookings Institution, and former members from both parties, such as former Senators Warren Rudman and Bob Kerrey, and former Congressmen Bill Frenzel and Leon Panetta.
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Our entitlement programs are creaking under the strain of an aging society and runaway health care costs. Our tax code is imploding from the hundreds of economic and social policies Congress pursues through tax incentives and from the dozens of temporary tax provisions that wreak havoc on families and businesses trying to plan their affairs.
Neither our major entitlement programs nor our tax code are sustainable in current form; the appropriations bills that we are debating this week are shrinking as a share of the budget as entitlements crowd out domestic discretionary spending. We must come together and develop a bipartisan consensus to fix these systems, so that our children and grandchildren can enjoy prosperity and increasing standards of living.
I want to share with you some extraordinary numbers that reveal our nation’s looming fiscal crisis. I speak out of concern not only for our generation, but also for our children and grandchildren, who will bear the burden of reckless fiscal policies. Sir Edmund Burke, the father of conservative thought, said that “Society is… a partnership not only between those who are living, but between those who are living, those who are dead, and those who are to be born.” Well, unless we change course, we will break that partnership with those who are yet to be born. This grave situation can be addressed only through hard bipartisan work. And we must begin our work now, for every day we wait the solutions become more painful.
In the simplest of terms, the federal government continues to spend more than it brings in. Running the credit card for today’s needs and leaving the bill for future generations should not be the policy of this country, this Congress, or this administration. It represents a recklessness that threatens our economic security, our global competitiveness, and our future quality of life.
Comptroller General David Walker has said, “The greatest threat to our future is our fiscal irresponsibility.” He added, “America suffers from a serious case of myopia, or nearsightedness, both in the public sector and in the private sector. We need to start focusing more on the future. We need to start recognizing the reality that we’re on an imprudent and unsustainable fiscal path, and we need to get started now.”
Everyone in this great body should heed Comptroller General Walker’s warning. Our commitments to the War on Terror, to securing our borders, to educating our workforce, and to investing in our national infrastructure demand tremendous resources and require long-term financial commitments. At the same time, we cannot ignore the demographic tide that will soon overwhelm our resources. And we need a system for raising the revenues necessary to fund these priorities that does as little damage to the economy as possible. In short, the need for tax reform and entitlement reform has never been greater.
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An historical perspective helps to highlight the gravity of our current situation.
The fiscal year 2007 budget deficit was $163 billion, but that figure hides the true degree to which our fiscal situation has deteriorated, mainly because it uses every dime of the Social Security surplus – as well as surpluses in other trust funds -- to hide the true size of the government’s operating deficit. The Social Security surplus, however, must be reserved for future retirees. As far as I know, you can’t spend the same money twice. But Congress keeps pretending that it can!
If you wall-off the Social Security surplus so that Congress can’t spend it on other programs – as I believe we should do – then the government’s operating deficit more than doubles to $344 billion, not $163 billion. And if you add back the money that the government is borrowing from other trust funds – such as federal employee pensions – then the deficit explodes to $441 billion, almost triple the reported deficit.
But the annual difference between revenues and outlays is not what’s truly threatening our future. It’s the cumulative, ongoing increase in our national debt that really matters. Mr. President, remember in 1992, when Ross Perot ran for President and he showed us those frightening fiscal charts? Well, I have my own charts here, and I call these charts my “Halloween charts.” I call them that because, number one, the government’s new fiscal year starts in October, and number two, because the fiscal picture is terrifying.
Fifteen years ago, when Ross Perot was sounding the alarm, the national debt was about $4 trillion. He showed a chart projecting that by 2007, the debt would increase to $8 trillion. Well, guess what? As of 2007, the national debt stands at almost $9 trillion. Ross Perot’s doomsday predictions turned out to be too rosy! In the more than 200 years that passed between the Declaration of Independence and Ross Perot’s 1992 campaign, the U.S. government accumulated $4 trillion in debt. We’ve now added even more than that in just the last 15 years!
And this Congress has just acknowledged that it will pass right by $9 trillion. A few weeks ago, this Congress voted to allow the national debt to increase by $800 billion dollars, from about $9 trillion to $9.8 trillion.
What does that mean -- $9 trillion? How do we even fathom that kind of number? Well, for one thing it represents two-thirds of our entire national economy – the worst number in 50 years. For another thing, it means that each man, woman, and child in the United States owes $30,000 of the federal government’s debt. Think about that.
But that $30,000 only represents the debt racked up by the government in the past. Because we continue borrowing more than we bring in, that number is increasing every single day. And these numbers pale in comparison with the budget problems looming in our future as the Baby Boom generation begins to retire just 69 days from now, on January 1, 2008. In fact, just last week, the first Baby Boomer applied for Social Security retirement benefits. Reality is setting in that this is not just a far-off prediction. It’s a growing storm that threatens to overwhelm our economy if we do not act now.
And perhaps even more concerning is that 55 percent of the privately owned national debt is held by foreign creditors – mostly foreign central banks. That’s up from 35 percent just six years ago. Foreign creditors provided more than 80 percent of the funds the United States has borrowed since 2001, according to the Wall Street Journal.
And who are these foreign creditors? According to the Treasury Department, the three largest foreign holders of U.S. debt are Japan, China, and the oil-exporting countries, or OPEC. Borrowing hundreds of billions of dollars from China and OPEC puts not only our future economy, but also our national security, at risk. It is critical that we ensure that countries that control our debt do not control our future.
And if, after hearing all of this, you still think that this is a problem that exists only in the distant future, consider recent projections by the major credit-rating agency, Standard & Poor’s. For decades, U.S. Treasuries have been considered the risk-free investment against which the risks of all other investments are judged. In fact, the global financial system is largely based on the notion of U.S. Treasuries as the only risk-free investment out there.
But in just five years that will cease to be true. According to S&P, U.S. Treasuries will lose their triple-A credit rating in 2012 because of the government’s deteriorating long-term fiscal position. What kind of global economic turmoil awaits us five years from now when the U.S. government is considered just as risky as a typical corporation?
And what economic catastrophe awaits our children and grandchildren in 2025, when Standard & Poor’s projects that U.S. Treasuries will be classified as junk bonds? Junk bonds regularly pay an interest rate about three or four percentage points higher than investment-grade bonds. Does anybody have a clue what would happen if the government’s borrowing costs jumped four percent? Interest on the national debt already soaks up almost nine percent of the federal budget. With much higher interest rates that number would skyrocket and interest payments would crowd out even more spending on federal priorities.
Why do we refuse to see the warning signs? A decade ago, who ever would have imagined that a Canadian dollar would be worth just as much as a U.S. dollar? I remember when it was two to one, and now the dollar’s value has fallen by half. A few years ago one Euro was worth 83 cents. Now it’s worth a dollar forty-two. Meanwhile, our trade deficit has gone through the roof, as we Americans are forced to borrow the money we need to buy foreign products.
What is driving this train wreck? Certainly, additional revenues will have to be part of the solution. But this is not a problem that will be solved simply by reaching deeper into the American people’s pockets. Many of my colleagues are familiar with former Commerce Secretary Pete Peterson. He has made it very clear that “The minute you start looking at a tax increase as the primary solution, you’re confronted with tax increases that are clearly beyond anything anyone can imagine.”
Even the Democratic Chairman of the Budget Committee has acknowledged that most of the heavy lifting will have to be done on the spending side. Revenues will be on the table for sure, but the coming storm will require significant changes to entitlement programs.
Here are some numbers to help put it in perspective. Forty years ago, in 1967, Social Security, Medicare, and Medicaid made up 3 percent of GDP. In 2007, their cost has tripled as a share of the economy to 9 percent. The Congressional Budget Office projects that over the next 40 years this figure could double again to 18 percent, a frightening thought when we consider that in 2006 total federal revenues accounted for only 18 percent of GDP.
If entitlement spending continues on this path, we will be required to use every cent of our federal revenue to fulfill these entitlement obligations. Our grandchildren will have no money for national defense, energy security, education, the environment, or our infrastructure. And, they’ll look back at our generation and ask how we could be so reckless with their futures.
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Our nation faces one of the most competitive environments in its history, and the question is, in this new world of global competitiveness, will future generations be able to enjoy the same standard of living that we are experiencing? With the largest national debt in 50 years, will we be able to remain competitive with foreign economies?
When we consider entitlement reform, however, we need to enact fundamental tax reform right along side of it. How do we reform entitlements without knowing how much revenue we can afford to raise? And how do we provide the revenues necessary to sustain an aging society in a manner that doesn’t impede economic growth and increasing living standards?
Congress must view our tax code, entitlement system, and budget process as the three components – or pillars – of the nation’s fiscal foundation, and not as separate problems. Each is linked to the other two pillars, and we must reform all three to raise the necessary revenue to fund the government in an economically efficient manner; to keep our obligations to future generations; and to keep the size of government to a manageable level.
We must enact fundamental tax reform to help make the tax code simple, fair, transparent, and economically efficient. According to the President’s Advisory Panel on Federal Tax Reform, headed by former Senators Connie Mack and John Breaux, only 13 percent of taxpayers file without the help of either a tax preparer or computer software. Since enacting the Tax Reform Act of 1986 – legislation intended to simplify the filing process for taxpayers – over 15,000 provisions have been added to the Internal Revenue Code.
And, it’s not just a matter of saving taxpayers time and effort. This is about saving taxpayers real money. The Tax Foundation estimates that comprehensive tax reform could save Americans as much as $265 billion in compliance costs associated with preparing their returns. Now, that would be a real tax reduction that wouldn’t cost the Treasury one dime!
Mr. President, I have been working on tax reform for years. In 2003, I attached an amendment to the Jobs and Growth Tax Relief Reconciliation Act that would have created a blue ribbon commission to study fundamental tax reform. The amendment was adopted by voice vote, but later was removed in conference.
In the autumn of 2004, I offered my tax reform commission amendment again, this time to the American Jobs Creation Act. The Senate again adopted my amendment. During conference negotiations, the White House contacted me and requested that I withdraw my amendment because the president was preparing to take a leadership role by appointing his own tax reform panel. I enthusiastically agreed to defer to his leadership, and I withdrew my amendment. It seemed to me that the tax reform bandwagon was finally starting to roll.
In January 2005, President Bush announced the creation of an all-star panel, led by former Senators Connie Mack and John Breaux, and that panel spent most of the year engaging the American public to develop proposals to make our tax code simpler, fairer, and more conducive to economic growth. In November 2005, the panel issued its final report. While not perfect in everyone’s mind, the panel’s two plans provided a starting point for developing tax reform legislation that would represent a huge improvement over the current system. The panel’s proposals belong as a key part of the national discussion on fundamental tax reform.
Tinkering with the current tax code won’t get it done. Tinkering is what got us into this mess in the first place. It’s time to rip the tax code out by its roots and replace it with something that works.
The president’s panel had a number of great ideas that we should incorporate into tax reform legislation. For example, we should simplify the code by repealing the ridiculously complex, unfair, and anti-growth alternative minimum tax. We should consolidate all the various tax-preferred savings plans into just two or three plans that average workers and families can understand and utilize. We should scale back the tax subsidies that we use to pursue social engineering and dictate economic policy, forcing Americans who fail to qualify for targeted tax breaks to pay higher rates to make up the lost revenue.
We must create a new tax system that is conducive to job creation and economic growth. We should start by addressing one of the biggest problems with the current code: it rewards moving production activity – and the good-paying jobs that accompany such activity – overseas. It taxes domestically-produced goods – including exports – heavily, and taxes foreign-made goods – including imports – lightly. Such a system sounds absolutely perverse, but that’s what we have in the United States.
In fact, a constituent of mine from Norwalk, Ohio, Tom Secor, who owns his own small business, came to my office and told a story about a business trip he made to China. He said that he saw an editorial in a Chinese newspaper that was discussing all the concerns that Americans have with Chinese competition. The conclusion of the editorial was that the Americans could solve most of their problems with Chinese competition if they would just reform their own tax code! Imagine that: even Communist China knows that the United States needs tax reform to stay competitive, but for some reason we refuse to learn that lesson ourselves!
Some of my colleagues will suggest that we can just increase marginal rates – on high-income taxpayers and businesses – in order to raise the revenue we need. But in a competitive global economy, I can’t understand why we would choose such a self-defeating approach. Higher marginal rates on an already-broken tax system would only discourage economic ingenuity and reduce U.S. competitiveness. Recent economic research concludes that in a global economy workers bear the brunt of higher corporate tax rates, through lower wages and fewer jobs.
I know there is bipartisan support in this chamber to move forward on fundamental tax reform. Some of our colleagues have already taken steps towards developing legislation that would represent a huge improvement over our current system. Others say we cannot get it done before the next election. But whether we can or not, we need to get started now. People forget that former Senator Bill Bradley introduced his first tax reform bill in 1982, but tax reform legislation did not reach President Reagan’s desk until October 1986, more than four years later.
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I have said many times that I am concerned we are running out of time to face reality and do what is right. We can’t wait until after the next presidential election to get started. We owe it to our children and grandchildren to get started on this problem now.
And we need presidential leadership to do it. It is time for the president to keep his promise to reform our tax and entitlement systems, and declare that everything is on the table, no holds barred. He could start by endorsing the approach taken by me, Senators Conrad and Gregg, and Congressmen Wolf and Cooper, and endorse a bipartisan commission or task force to submit legislation that Congress would consider under fast-track procedures. Our proposals would appoint eight Democrats and eight Republicans, including two top administration officials, and would require a three-fourths vote for submitting a proposal to Congress. Thus, any proposal would be guaranteed to be truly bipartisan.
Then, the president could dust off the report that his tax reform panel provided him two years ago, and use that as a starting point for discussing a menu of options. If the president took these steps, I would follow his lead, and so would many others in this chamber from both parties. Ronald Reagan reformed the tax code in 1986, and he is still fondly remembered as the leader who set the stage for years of prosperity at the end of the 20th century. Working on a bipartisan basis, the president has an opportunity to accomplish a similar achievement for the 21st century – a lasting legacy for the American people.
Mr. President, the time to act is now. When you look at the numbers, it is self-evident that we must confront our swelling national debt, and that we must make a concerted, bipartisan effort to reform our tax system, slow the growth of entitlement spending, and halt this freight train that is threatening to crush our children’s and grandchildren’s futures.
Below, please find examples of how the CR is negatively impacting agencies within the federal government:
At the Department of Commerce:
On October 15, the Commerce Department requested $6.8 million in emergency aid to help the Census Bureau meet its budget gap. According to current director, the Census Bureau is facing a budgetary “crisis” and a lack of funds will result in the need to scale back the 2010 Census preparations.
The Bureau has been running on a continuing resolution at funding levels for 2007 since October 1st, with hopes that its 2008 budget will be approved by November 16th. Funding levels requested for 2008, already approved by the President, are 40% greater that those in 2007. The census scheduled to take place in 2010, is expected to cost $11.5 billion.
The need for such a steep increase in funding may result from the Census Bureau’s plan to make greater use of technology for the decennial census to include hand-held computers to collect data.
Without the requested emergency funding, the Bureau expects that certain population groups, such as those in military barracks and dormitories, will not be included in the practice run.
At the Government Accountability Office:
Current Environment. GAO’s ability to effectively serve the Congress in a timely manner will be negatively impacted if it is required to operate for the first 6 weeks of FY 2008 under a continuing resolution. Essentially, a 6 week CR would require it to effectively operate in FY 2008 at the rescission reduced FY 2006 level, which carried into FY 2007 with only a modest increase. GAO’s FY 2007 budget authority is its lowest since FY 2001 and our staffing level is at an all time low. Congress’ requests for GAO work have surged dramatically this year. For example, GAO received 18 percent more requests and mandates midway through this session of the 110th Congress than midway through the comparable period for the prior Congress. Moreover, potential mandates pending at the August recess of the current session reflect an increase of more than 82 percent over the same point in time during the 109th Congress. GOA also has acquired new responsibilities included in recent legislation, such as the Ethics in Lobbying Act and the recommendations from the 911 Commission, which place additional demands on GAO resources. Continuing constraints on its budget authority and staffing resources, along with this surge in congressional requests and mandates, coupled with the new responsibilities has created longer delays in GAO’s responses to requests and growing backlogs of pending requests. A CR at this time places increased pressure on GAO’s already strained resources and could turn the crunch into a crisis.
GAO’s FY 2007 staffing level is already 58 FTEs below the planned FY 2006 level and it expects to lose about 120 staff during the first quarter of FY 2008. To rebuild its staffing levels and address increasing workload demands, GAO developed an aggressive hiring strategy that includes essential actions throughout the year designed to ensure that they attract and attain staff. However, a 6 week CR will require that we not follow through with our full level of planned hiring which will negatively affect its ability to hire staff early in the year to replace the loss of experienced staff. This will also affect their ability to initiate engagements to meet the increased demands from the Congress and to begin reducing the supply and demand imbalances they are experiencing. There are some areas where GAO can recover later in the year once full funding has been received; however, it will be unable to recover from the staffing loss to achieve its planned FTE utilization. Failure to adequately fund GAO will have a “wasting trust” effect over time due to a continual reduction in the level of GAO staff resources.
The contributions of the dedicated and capable staff are especially remarkable in light of the continuing budgetary and FTE constraints it has experienced. Because GAO is a knowledge-based organization, about 80 percent of its budget provides funds to support their staff. The balance of its budget contains many mandatory operating expenses—such as rent, utilities, and contracts for ongoing operations and provides very limited flexibility to make adjustments. FY 2008 compensation costs will be higher than in FY 2007 due to performance-based increases granted in January 2007. The actions to absorb the reduced funding level presented below assume that at the end of the CR period it will receive a reasonable funding level which would allow them to rebuild their staffing level, cover mandatory and uncontrollable costs, and fund key technology upgrades and critical infrastructure improvements. However, if at the end of the CR period GAO does not receive a reasonable funding level, the actions required to absorb the funding shortfall will require more severe actions, such as furloughs or a reduction-in-force.
Necessary actions to operate during a 6 week CR:
· Limit hiring which will further erode its staffing to support the Congress and not adequately address succession planning challenges and skill gaps.
· Reduce engagement travel activity which will impact its ability to conduct original research through on-site visits to obtain and validate information.
· Delay technology upgrades and critical infrastructure improvements which may negatively affect its productivity, effectiveness, and efficiency, and not allow it to address identified management challenges.
· Defer administrative expenses, such as training, awards, and other employee support programs, such as the planned increase in transit benefits, which will negatively impact employee development and morale.
Impact on Service to the Congress. These actions will increase the length of time it takes to staff requested assignments, diminish capacity to conduct engagements, increase the number of pending requests, and increase supply and demand imbalances in areas such as health care and homeland security. This could also adversely impact GAO’s ability to effectively serve the Congress in:
· Providing timely and responsive information to support congressional deliberations,
· Testifying on the Congress’ legislative and oversight agenda,
· Supporting reauthorization activities for pending programs, and
· Identifying improvements in government operations which if achieved could help to shape important legislation, result in statutory or regulatory changes, improve services to the public, conserve federal financial resources, and initiate government-wide reforms.
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