Economist Alice Rivlin: Congress shouldn’t dwell on raising the debt ceiling

The House is set to take up a measure on Wednesday to disapprove President Obama’s request to add $1.2 trillion to the $15.2 trillion federal debt.

Conservative GOP members such as Rep. Jeff Flake (R-Ariz.) are expected to put up a fight on the House floor and express dissatisfaction for their party leadership’s concessions in the August debt deal. 

{mosads}Under the terms of agreement, the debt limit will increase unless the Senate and Obama go along with the House disapproval, an unlikely scenario. 

Instead, Rivlin, who was Budget director during the first Clinton administration, said Congress and the White House should turn their attention to constructive ways to reduce budget deficits. 

She has a two-pronged plan of what must be done — derived primarily from her work as a member of the Simpson-Bowles Commission and the Bipartisan Policy Center’s Task Force on Debt Reduction she co-led with former Sen. Pete Domenici (R) — “slow the growth of the entitlements over time, not immediately, but over the longer run and we’re going to need more revenues” to pay for an aging population.

For Rivlin that means reforming the tax system, “which is truly awful, so that we can raise more money with less drag on the economy.” 

There is a “huge problem of the structural deficit going forward that’s not because of the recession — it’s because the demands of the retiring baby boom generation and older people with whom we have made promises over the years,” Rivlin said. 

“They will drive spending up, especially healthcare spending and it will go up faster than revenues so that’s a major problem that has to be tackled,” she said. 

Despite rising deficits and debts, Rivlin acknowledged that the federal government needs to provide more economic stimulus to accelerate the sluggish economic recovery, which would help bring in more revenues, which have remained low while unemployment is high. 

“We are in a double problem: we have to get out of this slow recovery and accelerate and get back on the glide path,” she said. “That will happen, it’s happening very slowly right now and the economy needs more stimulus from the government to speed that up.” 

She suggested that Congress and the White House take on the issues at the same time — the congressional supercommittee had the chance to do it but failed — said and neither lawmakers nor the president “has been really willing to face up to the decisions that need to be made.”

“But there’s no way we can absorb this number of retirees without raising revenues,” she said.  

Some of those answers could come during an expected lame-duck session after the 2012 elections.

Rivlin said the White House and Congress will be forced to work toward a bipartisan compromise on extending the Bush-era tax cuts that were renewed for two years at the end of 2010 while deciding how to proceed with the automatic spending cuts that will go into effect in 2013 as worked out under the August debt deal. 

“There’s lots of reasons to think they may come together when faced with those dilemmas that have to be decided,” Rivlin said. 

She doesn’t think the tax cuts will be allowed to expire, so she is pressing for “thorough broad-based tax reform, which would enable us to raise more revenue from the individual and the corporations, and mean lower rates.”

“But it’s no free lunch because you get rid of or phase out or change the form of a lot of deductions and exemptions and exclusions that people hold deal.”