The Renewing America Interview: Robert Reischauer on Fiscal Reform

This week, for the first time in more than ninety years, both houses of Congress put out their annual budget proposals before the White House, an anomaly that reflects the topsy-turvy world of fiscal politics in Washington today. The Obama administration has delayed its fiscal blueprint for a few more weeks, which White House officials blame on the chronic budget brinksmanship over the last several months.

"Relations between the parties are at a low for modern history," Robert Reischauer, former director of the Congressional Budget Office said in a recent phone interview. "We can go back to when members of Congress beat each other with canes on the floor—perhaps that’s why you can’t say this is totally unprecedented—but of course the stakes are a little bit higher now."

Few individuals are more familiar with budget hardball than Reischauer, who along with Alice Rivlin opened CBO's doors in 1975 and later led the non-partisan accounting agency from 1989 to 1995. "The environment has changed. A decade or two ago, I would have been much more optimistic about our ability to address some of these [fiscal] problems," he says. "Now, I think a grand bargain is highly unlikely because the parties feel they have to play to their base, number one; and number two: because most Americans don't understand they're going to have to tighten their belts a couple notches, either through higher taxes or reduced spending."

He says the dynamics of the current U.S. health care regime pose a particular challenge to the country’s financial reform efforts. "It’s not just the government health programs that are unsustainable, it’s the whole way we deliver and pay for health care in the United States that's unsustainable," he says.

"The way we supply health care for the under-65, non-disabled population is largely through employer-sponsored policies, the cost of which American workers have very little appreciation for, and what it's doing to reduce their wages." Nearly half the U.S. population has employer-sponsored health insurance that, unlike other individual earnings, is not subject to income and payroll taxes. This system, many critics say, encourages employers to provide generous health care packages, the significant costs of which most employees are unaware, and therefore are unable to assess for value.

"Educating Americans and offering them choices that are cheaper but have at least as good outcomes is essential," Reischauer says. "We’re moving a little bit in that direction with the emphasis on affordable care organizations and medical homes … and with your W-2 for last year, there's a little box in it that tells you how much your employers are paying for your health insurance."

While he supports president Obama's health care reforms, he suggests going further, faster. "What you want to do is to design a decade or two-long plan towards a different kind of delivery system supported by a different kind of payment system."

On the issue of taxes, Reischauer says the country needs an overhaul to the code akin to the fundamental reforms of 1986. "We have a tax system that’s riddled with preferences and exceptions and provisions that, on the whole, reduce the efficiency of our economy by stimulating one small or medium-sized sector and depressing activity in others. As a result, the whole system is extremely complex and costly to administer."

I asked Reischauer about his time at CBO and the legacy of the agency that in the coming weeks will provide objective assessments of the budgets emanating from both ends of Pennsylvania Avenue. "The first organizational chart I ever drew in my life was for the Congressional Budget Office," he says. "Alice [Rivlin] and I got in a cab and went down to Capitol Hill, and we were the Congressional Budget Office."

The legislature established CBO in 1974 to bring an end to the White House's effective dominance over the budget process. "Congress realized that as long as it dealt with budgets in a very fragmented and uncoordinated way, it would always be at a disadvantage relative to the executive branch," Reischauer says. Indeed, many critics have historically accused the Office of Management and Budget—under both Republican and Democratic administrations—of issuing rosy, self-serving economic projections to promote their policies.

Reischauer, who now serves as president emeritus at the Urban Institute, says that in its nearly 40 years, CBO "has changed how our public policy process works," and often in unseen ways. For instance, he notes that while many policymakers draft well-meaning legislation, much of it never sees the light of day because of prohibitive cost estimates CBO often provides.

Analysts say CBO's analysis was solely responsible for derailing the Carter administration's 1977 welfare reform plan, projecting triple the cost estimates of those of the White House. The agency also routinely sparred with the Reagan White House over its forecasting of defense spending and other GOP policy. Notably, many observers say Reischauer's candid appraisal of President Clinton's health care plan in 1994 ended up delivering a major blow to the administration's signature domestic initiative by ruling it represented a significant increase in the size of government.

"I feel it's remarkable that the most political body in the country and maybe the Western world tolerates the Congressional Research Service, the General Accountability Office, and the Congressional Budget Office—all of which are Congressional organizations there to provide analyses and often messages that Washington doesn't want to hear," Reischauer says.

Leading an independent CBO in such a partisan town was, he says, thrilling. "You basically have no boss—535 people think they're your boss, but you, like the president, the chairman of the Federal Reserve, and the comptroller general basically don't have bosses. You're paid to tell the truth and people have to listen—people at universities are paid to tell the truth, but nobody has to listen."

While both parties will have to take stock of CBO's appraisals in the coming weeks, the question is, as always, will they listen to each other. Will these proposals open a path to a meaningful fiscal compromise or will divergence and dysfunction persist?