Warning of Higher Taxes
By Walter Alarkon - 04/13/10 06:00 AM ET
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Higher taxes must be considered to rein in the country’s mounting debt, a member of President Barack Obama’s fiscal reform commission told The Hill on Monday.
Alice Rivlin, who headed the Congressional Budget Office and the Office of Management and Budget, said that the highest priority is to reduce healthcare spending but that reforms to entitlement programs and higher taxes should also be considered.
“We have to ‘bend the curve,’ as they say in medical cost increases,” she said. “And Social Security is a rather minor part of the problem, but fixing that would have a lot of confidence-building effects, I think, and we have to take action on the revenue side as well.”
Rivlin is one of 18 members on the debt commission, which is to provide recommendations to Obama and Congress by December on getting the U.S. fiscal house in order.
A former Republican senator who works with Rivlin on budget issues went further.
Former Sen. Pete Domenici (R-N.M) said higher taxes, along with entitlement program reforms and spending cuts that include the Defense budget, will almost certainly have to be a part of a fiscal reform package to rein in the country’s $12.8 trillion debt.
“You’ve got to have taxes and hope taxes won’t destroy the economic growth,” Domenici, a former Senate Budget Committee chairman, told The Hill in an interview.
White House adviser Paul Volcker last week said new taxes, and possibly a value-added tax that is common in Europe, may be necessary to rein in debt.
A day after Volcker spoke, Federal Reserve Chairman Ben Bernanke said Americans could only avoid unsustainable budget deficits by choosing from “higher taxes, modifications to entitlement programs such as Social Security and Medicare, less spending on everything else from education to defense, or some combination of the above.”
House Majority Leader Steny Hoyer (D-Md.) last month also floated higher taxes as part of the mix. He said a “balanced approach” of spending cuts — including fewer entitlement benefits for the rich — and new revenues should be considered.
Domenici described the battle to rein in the debt as a war.
“It’s like we are having a war on our doorstep that is gigantic, and somebody has to lead this parade pretty soon,” said Domenici.
In his budget proposal, Obama has proposed higher taxes for some taxpayers.
Obama’s budget would lead to higher taxes on individuals making more than $200,000 and families with incomes above $250,000 by allowing the George W. Bush-era tax cuts for those people to expire.
But that wouldn’t be enough to rein in the deficits, which would still average nearly $1 trillion for the next decade, according to the CBO.
The ratio of federal debt to gross domestic product would go from about 63 percent this year to 90 percent by 2020.
That level of red ink is unsustainable and is shared by only a handful of countries, including Greece, which is facing a fiscal crisis and is being bailed out by its European neighbors, Congressional Budget Office Director Douglas Elmendorf said last week.
Sen. Chuck Grassley (R-Iowa), the senior Republican on the Senate’s tax-writing committee, tweeted Monday that Obama’s budget is “ ‘Greece-ing’ the slide to American mediocracy.”
The White House has responded to Republican criticisms by noting that deficit levels would come down from roughly 10 percent of GDP this year to roughly 4 percent by 2014, as tax cuts for the wealthy expire, the economy recovers and stimulus spending recedes.
It has also formed the commission of lawmakers and outside experts, which Obama said should consider “everything is on the table” as it crafts a fiscal plan.
The panel includes Rivlin and five other members appointed by Obama, six congressional Republicans and six Democrats in Congress. If 14 of its 18 members agree on a fiscal reform plan, Congress would vote on it in December.
Democratic leaders in both chambers of Congress have pledged to hold votes on the group’s proposals.
Rivlin said Monday that the commission will consider how to slow the rate in health spending, which is among the biggest sources of debt in 2020 and beyond. She praised the healthcare bill Obama signed into law for provisions seeking to stem the increase in health spending, but she said those cost-control mechanisms should be strengthened.
“We’ve got to take much more drastic action now, because the future spending is largely driven by the combination of an aging population, particularly with the bulge of the baby boom and rising per capita healthcare costs,” Rivlin said.
Rivlin said she’s “optimistic” the White House effort will produce something “constructive,” but Domenici is less hopeful.
“I believe that there is a better than a reasonable chance that the presidential commission will not succeed,” he said.
Domenici and Rivlin are co-chairmen of a separate panel organized by the Bipartisan Policy Center that will also produce long-term budget recommendations in December.
Domenici, who was critical of Republicans in the Senate who voted against a similar fiscal commission after expressing earlier support for it, noted that Obama’s panel is made up of politicians, including GOP lawmakers who have argued that any fiscal fixes should focus on excess spending, not new taxes.
“If you just look at the makeup, you have Republicans who have said they’re not for some of the things that we and many others have said must be in the package,” he said.
Domenici and Rivlin said their group would offer a fiscal reform package around the same time as Obama is scheduled to. That could serve as a jumping-off point for future discussions, Domenici said.
“The way it’s going to be is that there will be something there to take the place of a failure on their part,” he said. “It will be ours.”
Jay Heflin contributed to this article.
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