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Economic and fiscal challenges: How we got here, where we’re going

tannerheaderThere is new optimism that Congress will re-instate the common-sense budget rules that Tennessee families and businesses use to balance their own budgets. Specifically, we are hopeful the House of Representatives will write into law the pay-as-you-go (PAYGO) rules that helped balance our budget in the 1990s but were later allowed to expire.

Early 2000s: From Surplus to Deficit

Thanks in part to PAYGO, our nation’s fiscal forecast was positive in 2000.  The federal budget was in balance for the first time in decades, and a $5 trillion surplus was on the horizon. Many in Washington couldn’t wait to spend that money – even though it was just a projection. In June 2001, over the objection of many of us in the fiscally conservative Blue Dog Coalition, Congress enacted a short-sighted economic policy that failed to plan for such circumstances as a national emergency, war or an economic recession.

Unfortunately, all three of these fears came true three months later on Sept. 11. We experienced a national emergency unlike any we had ever seen, we were compelled to respond militarily, and an economic downturn was among the aftershocks. The Bush Administration and the majority in Congress, however, ignored these grim new realities and moved forward with a reckless spending spree that doubled our national debt, continued to cut our federal revenue and made us more dependent than ever on other countries, chiefly China, to finance our federal government.

Slowing Economic Freefall

By the end of last year, following eight years of fiscal recklessness, the incoming Administration faced a $10.6 trillion debt and an economy in freefall. Congress and the American people faced grave decisions about how to prevent a severe economic depression and ensure hard-working Tennesseans can keep working.

During that time, I talked with a number of reputable economists from across the political spectrum, and they all told me that government action was necessary to stop the downward spiral and save or create jobs. Inaction, we concluded, would have cost more lost jobs in the short term and made our long-term fiscal outlook even worse. It was under this guidance that the American Recovery and Reinvestment Act was enacted.

Return to PAYGO and Long-Term Fiscal Sanity

The severity of the crisis and the required response has made it more important than ever that we reform our mid- and long-term fiscal policy.

In the first bill transmitted by the new Administration to Capitol Hill, the President on June 9 asked Congress to reinstate statutory PAYGO. The Blue Dogs have joined House leaders in supporting this bill to make PAYGO mandatory.

PAYGO is a basic principle: If you want to spend money on something new, you have to pay for it. You follow that rule at home so your kids won’t be stuck with your debt, and the federal government should operate the same way, instead of borrowing money from other countries and handing the bill – with interest – to future generations.

Those of us who have long called for the reinstatement of statutory PAYGO hope that our Congressional colleagues from both parties will join us in passing this common-sense approach.

Why It Matters

As I have discussed with many of you for several years, we simply cannot continue down the path of borrowing from foreign countries to finance our government’s daily operations. If investors determine that our federal government is a bad investment, we will have a difficult time obtaining credit to keep our obligations to the American people.

There are also potential national security implications to this dependence on foreign investors. If we have to shift our foreign policy to appease lenders who may not see the world as we do, we create a true national security vulnerability and risk losing our economic freedom.

Additionally, we are transferring a sizable amount of our revenue base to make interest payments, now the fastest-growing expenditure in the federal budget. This is tens of billions of dollars each year which could be spent on health care, education and infrastructure development to help create jobs; no country has ever been strong and free with an unhealthy, uneducated workforce.

Taxpayer Return

Another encouraging development is news that some of the nation’s largest banks will return $68 billion to the U.S. Treasury of the money they received from the financial stabilization plan enacted in October 2008. The return of this money underscores that the financial stabilization act – designed to protect consumers, small businesses, farmers and retirement account contributors from a potential financial-system collapse – was designed to be a temporary loan with minimal risk to the American taxpayer.

At the time Congress was considering the financial stabilization bill, in fact, Congress adopted a provision I sponsored allowing American taxpayers to recoup their investment from financial institutions that use federal funds to balance their books.

As a strong believer in capitalism, I, along with many Tennesseans, have been frustrated by the economic challenges facing our country. If we are to leave a more sustainable future for those who come after us, it is imperative we enact long-term fiscal reform and begin to live within our means.

About Rep. John  Tanner

John TannerJohn Tanner is a founding member of the fiscally conservative Blue Dog Democrats. He  represents the 8th Congressional district in West and Middle Tennessee, and serves on the House Ways and Means Committee, where he chairs the Social Security Subcommittee, and on the House Foreign Affairs Committee. He also chairs the U.S. delegation to the NATO Parliamentary Assembly and is serving a two-year term as NATO Parliamentary Assembly President.

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