–Respected Budget Group Outlines Key Elements of ‘Credible’ Deal
–Center For Responsible Federal Budget Backs Two Phase Budget Deal
–Budget Group Says Delay Until 2013 Will Only Make Things Harder

By John Shaw

WASHINGTON (MNI) – As Vice President Joe Biden has met with his
deficit reduction group over the past six weeks, a critically important
question has been raised occasionally but never really answered clearly
by anyone.

What constitutes a credible deficit reduction agreement that will
assure markets and put the U.S. on a new fiscal policy trajectory?

The Committee For a Responsible Federal Budget answers that
question in a 15-page policy paper that is both clear and politically
challenging.

“What this country needs is a $4-$5 trillion deficit reduction
package which will stabilize and reduce the debt, make Social Security
sustainably solvent, substantially slow the long-term spending growth of
Medicare and Medicaid, and reform the tax code to raise more revenue
while increasing economic growth. And we need it soon,” it said.

The budget group argues that a credible deficit reduction package
must be “at least” between $4 trillion or $5 trillion, but adds that a
$6 trillion package is required to reduce by public debt to 60% of GDP
by 2021.

The Committee For a Responsible Federal Budget said the $4 trillion
ten year deficit reduction plan supported by the Bowles-Simpson
commission is “the minimum necessary to put the debt, as a share of the
economy, on a downward path.”

But it added: “Even at that level, we would still have to borrow $6
trillion over the coming decade and the debt would remain near 70% of
GDP by the end of the decade.”

The budget group said there is no way that a deficit reduction
package of that size can be assembled and passed by August 2, the
deadline set by Treasury for increasing the debt ceiling.

The Biden talks are seeking a deficit reduction package that can be
developed to coincide with this summer’s vote on debt ceiling
legislation.

The U.S. has already reached its $14.29 trillion debt ceiling.
Treasury Secretary Tim Geithner has said that Congress must pass
legislation increasing the debt ceiling by August 2.

“The first step must then be to agree on a downpayment — which may
be substantially smaller than the ultimate $4-$5 trillion target, but
still must be as large as possible and include the beginnings of real
entitlement reform,” the budget group said.

The Committee for a Responsible Federal Budget said policymakers
must not only agree on a downpayment in the coming weeks but create “a
credible process to find the remainder of the $4 trillion in deficit
reduction, including the critical structural reforms in entitlement
programs and tax reform, within the next six months to a year.”

The budget group added that a credible deficit reduction plan must
have specific policy changes that are written into law and supported by
a bipartisan coalition in Congress so its provisions can not be
unraveled. It must also include triggers or other budget mechanisms to
ensure that it is enacted as intended.

The budget group outlines a host of policy changes that have been
supported by two or more of the major deficit reduction panels that
would secure between $1 trillion and $2 trillion in savings.

These include reducing discretionary spending caps, cutting farm
subsidies, enacting tort reform, eliminating some energy tax
preferences, using the chained CPI for all inflation-indexed programs,
increasing federal civilian pension contributions, and reducing Medicare
payments to drug companies.

The budget group warned policymakers not to use budget gimmicks to
achieve deficit reduction goals, nor to stretch out the period of
deficit reduction or claim savings from reduced war costs for
Afghanistan and Iraq that are already expected to occur.

It also urged policymakers not to defer deficit cuts until after
the 2012 election.

“Elections tend to be about making new promises about tax cuts and
spending increases, and about taking off the table the hard issues such
as entitlements and taxes. Regardless of the results, a post-election
environment could be more rather than less hostile for serious fiscal
consolidation,” it said.

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

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