–Former CBO Chief Reischauer: Need ‘Significant’ Changes in Spend, Rev
–Delay Could Lead To ‘Catastrophic Economic Consequences’
–No Magic Bullet, No Painless Fix To Fiscal Mess

By John Shaw

WASHINGTON (MNI) – Last week, there was a veritable torrent of
words gushing from Washington about the U.S.’s serious long-term fiscal
mess.

Political leaders and budget experts offered strikingly grim
forecasts at two high profile fora — the first meeting of the National
Commission on Fiscal Responsibility and Reform and a budget summit
sponsored by the Peterson Foundation.

But arguably no one outlined the nation’s fiscal challenges with
more stark simplicity and urgency than former Congressional Budget
Office Director Robert Reischauer.

In a presentation before the National Commission on Fiscal
Responsibility, Reischauer said the nation needs to begin altering its
fiscal policies soon and decisively to avert “the risk of catastrophic
economic consequences.

“Significant adjustments to our current spending and tax policies
are unavoidable,” Reischauer said.

“If we do not begin these adjustments soon our economy’s vitality
will gradually be sapped, our ability to chart our own course in this
increasingly unstable world will erode, our government’s capacity to
meet crises and address emerging priorities will be constrained and our
dependence on foreign creditors and their influence on our policies will
grow,” he said.

Reischauer said all policymakers should set aside hopes for
painless fixes that are solved by juggling the nation’s budget process.

“The magnitude of the required adjustments is so large that
spending cuts will have to affect programs we care about and benefit
from and revenue increases will have to come from a wide swath of
Americans,” he said.

“In other words, raising taxes on the rich or corporations, closing
tax loopholes, eliminating wasteful or low-priority programs and
prohibiting earmarks simply won’t be enough,” he added.

Reischauer said that policymakers should not waste their time
trying to come up with “silver bullets or new approaches that hold out
the promise of painless sacrifice.”

“There are none to be found,” he said, adding that policymakers
should comb through reports by the CBO, the Government Accountability
Office and various budget groups.

These groups have generated hundreds of ideas to slow spending and
boost revenues. “Use these, selecting the specific measures that — when
combined into a single package — best meet the nation’s economic,
social and political needs,” he said.

Successful deficit reduction efforts in the past, he said, have
assembled savings from discretionary and entitlement programs and have
raised taxes and fees.

He said that it makes sense to break the deficit reduction effort
into “several major efforts over the next decade or two.”

But he said policymakers should start now, adding this would send a
good signal to financial markets that the U.S. realizes it must act to
prevent a fiscal crisis.

Reischauer said that he is skeptical the U.S. will be able to
restrain federal spending to the nation’s historic norm of about 20% or
21% of GDP unless it’s willing to fundamentally reassess its entitlement
commitments.

“In short, to achieve fiscal sustainability, we are going to have
to accept higher tax burdens than we have enjoyed in the past. The
challenge will be to adopt those revenue enhancing measures that are
most compatible with economic growth and equity,” he said.

** Market News International Washington Bureau: (202) 371-2121 **

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