The Importance of Fiscal Discipline

March 16, 2006

Mr. President, as we debate the Senate budget resolution for fiscal year 2007 and the bill before us now to raise the debt ceiling, I want to talk for a moment about the broader issue of fiscal responsibility and honesty.

Mr. President, we are about to significantly raise the limit on our national debt for the fourth time in the past five years, this time to nearly nine trillion dollars. With deficits as far as the eye can see, we are on an unsustainable budgetary path that threatens not only to severely restrict our government’s ability to provide critical services, but to cause irreparable damage both to our economy and our influence in the world community.

Alan Greenspan articulated our situation clearly in his last months as Chairman of the Federal Reserve Board. Mr. Greenspan said, “our budget position will substantially worsen in the coming years unless major deficit-reducing actions are taken… Crafting a budget strategy that meets the nation's longer-run needs will become more difficult the more we delay.”

Even more troubling, our deficits are worse than they seem. While the Congressional Budget Office has estimated the size of this year’s deficit at $371 billion, that figure does not account for the tens of billions of dollars of emergency supplemental spending that we can all anticipate to address needs in Iraq and Afghanistan. It also does not include the $180 billion we are raiding from the Social Security Trust Fund, nor does it take into account the interest we will need to pay on the additional debt. As Senator Conrad has pointed out, we anticipate the national debt will increase by $654 billion this year.

Six years ago, we were running a budget surplus. While the national debt was five trillion dollars, for the first time in almost twenty years, we found ourselves in a position where we could start to pay off some of that debt. We knew we would soon face the demographic pressures associated with the retirement of the baby boom generation, but we had the resources at our disposal to begin preparing for those pressures.

Now, just six years later, the circumstances that gave us a reason to be optimistic have all but dissolved in a sea of irresponsible fiscal policies, dishonest accounting, and partisan opportunism.

To be sure, not everything that brought us to this point was within our control. The terrorist attacks of September 11, 2001 shook our economy, gave rise to new and unexpected costs, and rightly caused us to shift our national focus to the threat of international terrorism – sometimes, unavoidably, to the detriment of our ability to sufficiently focus on our looming fiscal challenges.

Having said that, much of what led to our current crisis was within our control. The fairness of the multiple tax cuts that Congress passed in the last five years was certainly within our control.

Whether or not those tax cuts were paid for was certainly within our control.

And whether or not we are honest about including the costs of the ongoing military efforts in Iraq and Afghanistan, the need to provide continuing relief for middle-class families from the Alternative Minimum Tax, and the inevitable costs associated with any proposal to address the problems faced by our entitlement programs is certainly within our control.

We must be more responsible and more realistic.

First, we must begin working today to prepare for the retirement of the baby boomers. While the situation is not as dire as some would have us believe, the Social Security system cannot support itself in its current form forever. We need to make tough decisions in order to restore that program to a path of solvency.

In addition, with healthcare costs skyrocketing, we need to take a hard look at Medicare and Medicaid in order to ensure they can continue to provide high-quality care for the elderly and the poor. Again, the problems associated with these programs will only grow with the retirement of the baby boom generation, and we need to act now to avert a full-fledged fiscal disaster.

Second, we must be more realistic about aligning our tax policies with our spending policies. American families understand the simple fact that you cannot spend more than you take in. Yet this fact seems to escape this Administration and the current congressional leadership. Year after year, we see massive spending reductions in vital programs followed up by even bigger tax cuts.

Contrary to what some seem to believe, the tax cuts of the past five years are not going to pay for themselves. While I support many of those tax cuts – particularly those that benefit middle-class families – it is undeniable that they have resulted in lower revenue for the federal government and will continue to do so in the long run. This is especially in light of the fact that they were not paid for, and will therefore add to the national debt and increase the associated interest costs.

Third, we cannot afford to be dishonest about costs we know we will face. The President’s budget contained no funding for the military operations in Iraq and Afghanistan beyond next year. Yet the Congressional Budget Office has said we should expect to pay $312 billion in war-related costs for the period between 2007 and 2016.

Furthermore, we know we will need to provide relief from the Alternative Minimum Tax for middle-class families. The Senate recently passed legislation that would contains a one-year fix of the AMT at the price tag of $30 billion. The cost of providing AMT relief for the next decade is estimated at one trillion dollars. Yet neither the President’s budget request nor the proposal before the Senate includes the cost of providing any AMT relief beyond this year.

And this is to say nothing of how costly it would be to make permanent the President’s 2001 tax cuts, which is something we all know he will try to do. A recent estimate by the Center on Budget and Policy Priorities indicated that the cost of extending the President’s tax cuts through 2016 would be nearly $2 trillion.

This debate is as much about honesty as it is about crunching numbers. How can we expect to be adequately prepared for the looming influx of Americans into the Social Security, Medicare and Medicaid programs if we are not honest about costs we know we will have to deal with – and not just over the long term, but this year?

Yet another troubling symptom of our current misguided policies is the growing percentage of our debt that is being purchased by foreign investors. As Senator Conrad has repeatedly pointed out in recent weeks, the level of debt purchased by foreign investors under President Bush is more than twice the amount purchased by foreign investors under the previous 42 Presidents combined. Foreign investors – whether it be the central banks of foreign countries or private investors – now own nearly half of all publicly issued U.S. debt.

Mr. President, I was astounded by the following statistics. According to the Economic Policy Institute, if foreign lenders keep buying U.S. debt at their current rate, the federal government will owe $3.8 trillion to foreign lenders by 2011, an amount equivalent to 23 percent of expected gross domestic product for that year. We will owe those lenders $181 billion in interest alone.

To provide some context, that amount is two-and-a-half times the size of the entire FY2007 budget for the Department of Veterans’ Affairs.

I realize that we cannot fix all of these problems this week, or even this year. But we can start to bring some sense to our nation’s fiscal priorities by going on record in support of our most critical programs and by embracing fiscal responsibility.

It is why I have consistently cosponsored classic PAYGO proposals, which aim to ensure that both spending increases and tax cuts are fully paid for.

Mr. President, there is much more that is wrong with the government’s fiscal practices and priorities than what I have discussed today. Among other things, I do not believe that our budget goes far enough in supporting rural America; I do not believe it does enough to provide resources to state and local law enforcement; and I do not believe it does enough to promote community development.

More than anything, however, the debate on the Senate floor this week is about our broader priorities as a nation. It is about whether we value candor and responsibility over partisan opportunism. If we do not act soon to reverse our direction, we will have made our decision, and it will have been the wrong one.

Mr. President, I yield the floor.

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