Ideas. Action. Results.

The President and Congress should address the nation’s looming debt crisis by immediately enacting policy changes, as was recommended by both the Bowles-Simpson and Domenici-Rivlin commissions. A first step can be to create a new budget process to achieve savings immediately and in the future.

In light of President Obama’s emphasis in his budget speech on the use of enforcement mechanisms, we strongly urge that such a process set goals in terms of policy changes, which are under the direct control of policymakers, rather than specific deficit targets (as in Gramm-Rudman-Hollings), which are not under policymakers’ direct control because they are influenced by movements in the economy.

“Once there is a serious spending reduction on the table, that changes the whole psychology… The whole thing could be enforced by adopting a version of the Bipartisan Policy Center’s save-as-you-go idea. This is like the pay-as-you-go rules that restrained spending and debt in the 1990s, only it is much tougher.” David Brooks, New York Times columnist, May 13, 2011

The following plan, “SAVEGO,” was developed by the Bipartisan Policy Center along with Senator Pete Domenici, Dr. Alice Rivlin, Dr. Joe Minarik, Dr. Bill Hoagland, Charles Konigsberg, Steve Bell and others who have been involved in similar process reform efforts during the past 25 years.

“The Bipartisan Policy Center recently unveiled a promising save-as-you-go approach, modeled on the pay-as-you-go concept but aimed at locking in savings, not simply avoiding digging the hole deeper. To get the debt to a set share of GDP — say 60 percent by 2021 — the plan would impose annual discretionary spending caps and required yearly savings in mandatory spending and taxes. This is a smarter, more balanced approach.” Washington Post Editorial Board, May 5, 2011

The most successful past budget process was created in the Budget Enforcement Act (BEA) of 1990, part of that year’s Omnibus Budget Reconciliation Act (OBRA), negotiated by President George H.W. Bush and a Democratic Congress. This process set separate targets for different parts of the budget. Annual appropriations (non-defense and defense discretionary spending) were limited by multi-year caps written into the law. Mandatory spending and taxes were constrained by a “pay-as-you-go,” or PAYGO, limit.

That law also enacted substantial deficit reduction; the discretionary spending caps and PAYGO protected and insured those already enacted savings. Given today’s much larger debt and deficits, however, if the President and the Congress cannot agree on actual budget savings up front, any new budget process must go much farther and actually mandate substantial future savings.

“While pay-go made a major contribution to reducing deficits in the 1990s, it is not adequate to deal with today’s situation, in which deficits will grow in the future without any new legislation. Where pay-go played defense, save-go will compel Congress to play offense and cut projected deficits and debt.” –Senator Pete V. Domenici and Alice M. Rivlin, Washington Post, May 15, 2011

Fortunately, a modification of the 1990 budget process can mandate additional future budget savings:

First, the Congress and the President must choose future debt (and corresponding deficit) targets (e.g., reducing debt to 60% of GDP by 2021) and a path to achieve it.

Second, Congress must specify amounts of budget savings that achieve those targets through:

  • Appropriations spending caps for the next ten years (the Congress may choose to subdivide appropriations into separate categories, such as security and non-security); and
  • A save-as-you-go (SAVEGO) rule with required year-by-year amounts of deficit reduction in the rest of the budget (entitlement programs and/or taxes). We recommend that the Congress create two separate categories: healthcare and other.

Finally, the budget process law will re-create the remedies – the “sequesters” – that will achieve any intended savings that Congress and the President fail to enact.

  • If Congress appropriates too much, overall or in any separate category, there will be an across-the-board reduction in the offending discretionary spending to bring the total back into line.
  • If Congress fails to comply with SAVEGO in any SAVEGO category in any year, there will be across-the-board reductions in entitlement spending and tax expenditures to achieve the mandated savings in that category (marginal tax rates cannot be increased through a sequester).

We recommend that each Congress adopt the necessary savings to meet the spending caps and SAVEGO for the following two years.

We also recommend that healthcare be exempt from sequester if Congress and the President achieve the required savings in the separate healthcare category.

We further recommend that Social Security be exempt from any subsequent sequesters if a law is enacted that the Social Security actuaries deem achieves sustainable solvency.

If the Congress achieves the SAVEGO target in a current legislative year, but the resulting savings are not sufficient in subsequent years, the Congress may achieve the remaining required savings in later legislative years to prevent a sequester.

“To achieve long-term debt stabilization, we must enact a mechanism that would force Congress into a fiscal straitjacket and require savings each year. ‘Save As You Go,’ or SAVEGO, is just that mechanism. This approach to budgeting soberly acknowledges the gravity of our situation and uses automatic, annual processes to force difficult but necessary policy changes.” –