Peterson-Pew Debt Targets and Trigger Central To Presidents Proposal

CHAIRMEN Peterson-Pew Debt Targets and Trigger Central to
BILL FRENZEL
President’s Proposal
JIM NUSSLE
TIM PENNY April 15, 2011
CHARLIE STENHOLM
In announcing his new budget framework, President Obama called for a
PRESIDENT debt failsafe “to hold Washington—and to hold me—accountable and make
MAYA MACGUINEAS
sure that the debt burden continues to decline.” The debt failsafe, or
DIRECTORS trigger, would kick in with across the board spending and tax expenditure
BARRY ANDERSON cuts if by 2014 debt as a share of GDP were not projected to be declining
ROY ASH
CHARLES BOWSHER
by the end of the decade. A number of programs including Social
STEVE COLL Security, Medicare, and low-income programs would be exempted.
DAN CRIPPEN
VIC FAZIO
WILLIAM GRADISON Debt targets and triggers are the central recommendations of The
WILLIAM GRAY, III Peterson-Pew Commission on Budget Reform. Details of how these
WILLIAM HOAGLAND
would work are in the Commission’s two recent volumes, Red Ink Rising
DOUGLAS HOLTZ-EAKIN
JIM JONES and Getting Back in the Black.
LOU KERR
JIM KOLBE
Under the Peterson-Pew Commission’s proposal:
JAMES MCINTYRE, JR.
DAVID MINGE
MARNE OBERNAUER, JR. • Congress and the President would enact annual fiscal targets
JUNE O’NEILL
PAUL O’NEILL
charting a glide path to stabilizing the debt as a share of the
RUDOLPH PENNER economy.
PETER PETERSON • Congress and the President would be held responsible for enacting
ROBERT REISCHAUER
ALICE RIVLIN
a multi-year budget plan that met the annual savings requirements
CHARLES ROBB needed to meet the targets.
MARTIN SABO • If the targets were not met in any year, broad-based spending cuts
ALAN K. SIMPSON
JOHN SPRATT and revenue increases would be triggered.
GENE STEUERLE
DAVID STOCKMAN
We believe this framework should be applied to achieve at least the level
JOHN TANNER
LAURA TYSON of savings achieved in the Bowles-Simpson Fiscal Commission’s plan,
GEORGE VOINOVICH which reduces the debt to about 65 percent of GDP by the end of the
PAUL VOLCKER
budget window, and significantly further thereafter. The framework the
CAROL COX WAIT
DAVID M. WALKER President laid out appears to fall significantly short of these benchmarks
JOSEPH WRIGHT, JR. and will need to be both filled in and expanded to be workable.
SENIOR ADVISORS
ELMER STAATS
ROBERT STRAUSS
1899 L Street NW • Suite 400 • Washington, DC 20036 • Phone: 202-986-2700 • Fax: 202-986-3696 • www.crfb.org
“While targets and triggers will never replace real policy choices, we believe they can
both nudge lawmakers to act and cement a deal to keep things on track,” said Steve
Redburn, project director for the Peterson-Pew Commission. “Triggers work best when
they are not used; when instead, policymakers act to avoid them by agreeing on the
necessary policy changes.”
The specifics laid out by the President of how the proposed debt failsafe would work
assume that it would not kick in until 2014 and would strive for the debt to be shrinking
as a share of GDP only by the end of the decade.
We recommend strengthening this idea in a number of ways:
1. Start immediately – We believe a comprehensive, multi-year budget deal should be

put in place this year. This is particularly important to reassure credit markets and
rating agencies that the Untied States has a credible plan to return the budget to a
sustainable path. Annual targets and triggers should thus also be put in place
immediately, and should apply starting in FY 2012 if the debt and savings targets are not
met. Even if deficit reduction comes gradually to allow for a more robust recovery, there
is no reason to delay enacting a plan and enforcement mechanism.
2. Include multi-year targets and an ongoing failsafe – Though it is not fully clear, it
appears that the President’s trigger activates only once – in 2014 if projections show
average deficits of over 2.8 percent of GDP (or an increasing debt path) in the latter half
of the decade. Yet, it is useful to have annual debt and savings targets to ensure that
there is a reasonable glide path for bringing the debt back down to sustainable levels
and that all the savings are not unrealistically back-loaded. It is also useful for a failsafe
with a trigger to remain as an ongoing enforcement tool, in order to avoid relying on
rosy projections or diverging from debt reduction.
3. Apply trigger to a very broad base of all spending and include revenues - If
Congress fails to put in place a plan to meet the agreed upon savings and debt targets,
automatic spending and tax expenditure cuts should apply to all programs, with as few
exemptions as possible. Some past sequesters have failed, in part, because they have
called for a small number of programs to take deep cuts, instead of the reverse. The
Administration’s proposal rightly looks at “spending in the tax code” (tax expenditures)
as well as ordinary spending, but they weaken their failsafe by exempting Social
Security and Medicare benefits and means-tested programs. We suggest a broader
trigger that looks at both sides of the budget, and reflects the 2:1 spending to tax
expenditure cut ratio proposed by the Bowles-Simpson Fiscal Commission.
______________________________________________________________________________________________________________
Committee for a Responsible Federal Budget │2

4. Achieve at least as much savings as the Fiscal Commission – Finally, the framework
the President laid out falls significantly short of the level of savings proposed by the
Fiscal Commission, which we see as a floor on what we should strive for. We believe a
fiscal plan should have savings of at least $4 trillion over a decade.
It is encouraging that the President has embraced the idea of triggers and a concrete
target debt level. In its current form, however, his proposal is short on detail, and not
bold enough. Delaying this process until 2014 is not an option. We must start
immediately by putting the framework in statute now, and identifying targets and the
annual savings needed to hit those targets starting with the FY 2012 budget.
The Commissioners’ experience lead them to believe that some sort of automatic, fiscal
straitjacket may need to be applied, or at least threatened, in order to get Congress to
address the nation’s fiscal problems. Explicit annual targets as proposed by the
Peterson-Pew Commission can both guide policymakers towards the ultimate goal of a
lower level of debt and hold leaders accountable to the public for meeting those
benchmarks.
In the end, however, only policy changes will dig us out of the fiscal hole we are in.
For the complete Peterson-Pew Commission report and more information, please visit
www.budgetreform.org.
______________________________________________________________________________________________________________
Committee for a Responsible Federal Budget │3

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CHAIRMEN Peterson-Pew Debt Targets and Trigger Central to

We recommend strengthening this idea in a number of ways:

1. Start immediately – We believe a comprehensive, multi-year budget deal should be

Committee for a Responsible Federal Budget │2

Committee for a Responsible Federal Budget │3

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