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Thank you. I am proud to share the podium this morning with John McCain. He and I have worked on together on many issues in the past – from combating global warming to combating Saddam Hussein. Today, I am proud to be fighting alongside him again – this time for America’s financial future.
This morning’s forum is focused on fiscal sanity. The underlying assumption of course, is that America’s current fiscal and budget process is decidedly insane. That may sound like a stretch. Washington may be detached from reality or lacking in strong leadership – but deranged? Well, John and I are both here this morning to say that is not a stretch. If we continue on our current fiscal course, future generations will ask: Were they out of their minds?
John has focused on America’s short-term financial crisis. I would like to turn your attention to the long-term. How do we avert the economic crisis in the future that will surely come if we don’t get America’s fiscal house in order as the baby boomers retire?
Last month, the Medicare trustees made a shocking finding: currently, the United States government has $72 trillion in unfunded liabilities. That’s right: $72 trillion. With a “T”. That’s a near incomprehensible figure. It is almost seven times our current GDP, and twice the entire net worth of the United States of America.
What does that mean? It means that the commitments to our fellow Americans into the future, in the form of Medicare and Social Security entitlement payments, outstrip our predicted revenue by $72 trillion. It obviously puts those entitlements in jeopardy.
If the federal government were a business covered by ERISA, it would be in violation of the law.
America’s growing annual deficits, exploding long-term debt and skyrocketing liabilities are converging with demographic trends to form the perfect economic storm. Unless we take steps immediately to end our current fiscal insanity, we will face unfathomable, impossible choices – slashing defense and homeland security spending; depriving our children of quality education; reneging on our commitments on Social Security and Medicare; suffering the impact of higher interest rates; raising taxes sky high; or printing money to inflate our way of excessive debt.
And the effects of this fiscal crisis will not be limited to the economic realm. They also will affect our national security. To cover our current budget shortfalls and cover our liabilities, we are forced to borrow more and more from abroad. Like our dependence on foreign oil, our dependence on foreign capital makes us more vulnerable to pressures and events overseas that are out of our control.
If you thought the oil shocks of the 1970’s were bad, wait until the foreign debt shocks of the twenty ‘teens.
We must make the tough choices today that will protect us from having to face these disastrous realities and choices tomorrow.
There are no silver bullets, no quick fixes here. We’re in for a long slog. But like every long journey, this one starts with a big single initial step. And the step we need to take now is to begin to tell the fiscal truth so we can do something about it.
The Medicare trustees told the fiscal truth when they estimated our unfunded liabilities at $72 trillion. They did so by doing something revolutionary for the public sector – but something ordinary for the private sector. They looked beyond the current cash flow – cash-on-hand compared to bills due today – and forecast revenue and liabilities over the long term. The trustees used a method of accounting many of you are familiar with but most policy makers today are not – a method called “present value accounting.”
Put simply, present value accounting looks forward to estimate how much must be set aside today to cover costs of commitments in the future. Business uses this method; our federal government has not. It is time we do.
That is why I have introduced Senate bill 1915, which would require the government to use the present value accounting method in all its budget and planning decisions about revenue or spending, to publish the results for all to see, and then to require Presidential and Congressional action to cut the unfunded liabilities gap. I call S. 1915, the Honest Government Accounting Act.
Telling the fiscal truth long-term is necessary, but not sufficient, of course. We need to build new mechanisms for discipline into the ongoing budgeting system. We need to reform the process. We did so in 1985 with Gramm-Rudman-Hollings, and again in 1990 with the Budget Enforcement Act. Although both failed to tackle the long-term entitlement gap, both did help get our annual deficits under control – for a while.
That is why we urgently need more sweeping budget reform now. The fact is our budget process is broken. It is no longer able to enforce fiscal discipline, as the annual ritual of eleventh-hour, continuing resolutions, omnibus, pork-barrel laden appropriating shows. We expect a $550 billion deficit this year, on top of $3.5 trillion in debt already.
The budget process is being overtaken by a new budget politics. Reflection of partisan gridlock but also partisan pork. On the one hand, too many Republicans have become tax cutters. On the other hand, too many Democrats have become big spenders. But neither side pays the real costs of their tax cutting or big spending.
Alexis de Tocqueville warned, “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” Sure does look like that day has arrived. We must end the bribery and change the dynamic.
We need budget reform that changes the political dynamic. In addition to requiring present value accounting, my legislation would impose tough Pay-Go rules and prohibit in statute the use of the Congressional reconciliation process to pass tax cuts or entitlement spending increases. Reconciliation was passed to enforce budget discussion but now does just the opposite. This would require policy makers to make tough choices, and not sweep them under the rug.
Honest accounting methods and budget process reform may sound like dull stuff. They probably won’t capture the popular imagination – or the popular vote. But they are exactly what America needs now. They are the asphalt paving, the road signs, and the guard rails on the highway back to fiscal responsibility and fiscal sanity.
President Lincoln once said, “You cannot escape the responsibility of tomorrow by evading it today.” We have a responsibility today – to get America’s fiscal house back in order by telling the fiscal truth and then showing fiscal discipline. We can try to run from the financial crisis we are creating – but we can’t hide from it. The perfect economic storm is taking shape, and will soon make landfall in America unless we do something about it. John McCain and I are committed to do something about it. Your presence here tells me you are too. So let us resolve work together to reclaim America’s financial sanity – and secure it for future generations. Thank you.
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