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DLC | Press Release | June 30, 2010
DLC President Testifies at Fiscal Responsibility Commission

Calls for 'Changing Facts' that Drive Long-Term Deficits: High-Skilled Immigration, Later and More Flexible Retirement, Pro-Growth Policies, and Share

Edward Gresser - (202) 608-1241

WASHINGTON -- Democratic Leadership Council President Ed Gresser today testified on behalf of the DLC before the National Commission on Fiscal Responsibility and Reform. Calling the nation's emerging long-term deficit a problem "qualitatively different" than the peak deficits of earlier years, Gresser advised the Commission to keep all options -- discretionary and entitlement spending, tax rates and tax reform, budget process rules -- on the table as their deliberations begin. But he emphasized that since the longer-term deficit is the consequence of facts about interest payments, retirement, workforce growth and health costs, the foundation of a solution lies in changing these facts through high-skilled immigration; higher retirement ages and more flexible provision of retirement benefits; and pro-growth policies in trade, tax simplification, and support for scientific research and modernized infrastructure. Gresser's testimony is available at http://www.dlc.org/documents/Gresser-testimony-0610.pdf.

Gresser began by observing that this year's deficit, at 10 percent of GDP, easily exceeds the highest New Deal and Reagan-era deficits (respectively 5.9 percent and 6.0 percent of GDP), but is well below the 30.3 percent deficit which financed World War II and the somewhat smaller deficits which financed the Civil War and World War I. Noting that the country's recovery from these earlier deficits -- most recently through the 1990 Budget Summit agreement and the 1993 deficit-reduction bill -- offers lessons for near-term policy, Gresser said that together with withdrawal from Iraq and the phasing out of high-bracket tax cuts, a few policy shifts could bring the budget near balance excluding interest payments by 2015. These included reducing farm-subsidy costs through a WTO trade agreement, enforcing budget caps and pay-as-you-go rules for new spending and tax cuts, and paying for post-2011 Afghanistan and Iraq deployment costs through special taxes.

He then pointed out that deficits are likely to rise again after 2015, with spending nearing 25 percent of GDP while revenue remains at 19 percent. This is principally a consequence of structural facts rather than temporary or semi-temporary policy choices:

  • Built-in interest costs incurred by the last decade's deficits will rise, especially in the absence of a short-term reduction in the deficit;

  • The retired population will grow faster than the work-force, as 1.5 million people turn 65 each year while the work-force grows by only 1.1 million;

  • Retirees have longer life expectancies than in the past, and health costs consistently rise faster than the overall rate of inflation and revenue growth, meaning that Medicare costs in particular rise very rapidly.

Gresser said that standard options to address this long-term deficit, including spending cuts, tax increases and budget rules were important parts of the response and all should be on the table. But pursued alone they would delay its growth but not bring the budget into balance, while steadily raising tax burdens and reducing the government's ability to provide services in national security, infrastructure, education and other fields. Therefore, Gresser said, these policies "need to be combined with an effort to change the facts: to provide more workers and entrepreneurs despite slower population growth, to have fewer retirees despite an aging population, to reduce health inflation despite new medical technologies, and to promote faster growth in GDP despite slower growth in the workforce." His recommendations included:

  • Rethink retirement, with higher retirement ages and flexibility to let people get higher benefits if they retire later;

  • Encourage faster work-force growth, especially through more open high-skilled immigration;

  • Promote growth through trade liberalization, support for scientific research and development, and modernized infrastructure;

  • Tight and permanent budget process reforms;

  • Reinvent government to provide services at lower cost;

  • Commitment to finance all future wars at least in part through taxation;

  • Reform taxation by reducing the complexity of credits, exclusions and deductions, and when using new taxes by ensuring that, like last year's "Cadillac tax" on high-cost health plans, they create incentives to save costs.

The National Commission on Fiscal Responsibility and Reform (at http://www.fiscalcommission.gov) is a bipartisan 18-member panel, created by President Obama through Executive Order last February. The Commission's Executive Director, Bruce Reed, was the DLC's president from 2001 until his appointment in April and is on leave from DLC until the Commission concludes its work on December 1. Under its founding Executive Order, the Commission is mandated to provide two sets of recommendations: first, policies to reduce deficits exclusive of interest payments to zero by 2015; second, to close a structural budget gap predicted to emerge in the second half of this decade.

For more details, please contact Ed Gresser at egresser@dlc.org or (202) 608-1241.

The Democratic Leadership Council seeks to promote debate within the Democratic Party and the public at large about national and international policy and political issues. For additional information, web users may access the Democratic Leadership Council online at www.dlc.org, or contact the DLC's press office at (202) 546-0007.