Every business person, and anyone who has ever managed a checkbook, knows you can’t survive by borrowing 40 cents of every dollar you spend. Yet this is what our federal government is doing – with no real improvement projected even after the economy recovers.
Tax cuts, trillion-dollar wars, deep recession, and the spending binge of the past 10 years have boosted our national debt to $13.8 trillion, over 90 percent of our total national output (GDP). This is two and a half times what it was 10 short years ago. Underfunded Social Security, Medicare and other entitlement benefits add another staggering $50 trillion to what the nation is obligated to borrow. That equates to about $200,000 in debt for every man, woman, and child in our country.
The country is broke and our lenders are about to run out of patience. As it has already done with Greece and Ireland, the international financial community can at any time begin “voting with its feet,” abandoning our debt for safer investments like commodities, land, or foreign securities. Doing so would cause the dollar to collapse and interest rates to surge. This would trigger renewed recession and a sharp decline in living standards since there is virtually nothing we Americans drive, wear, or work with that doesn’t have substantial foreign labor or material content.
Longer term, it also heralds inflation, since a poorer America with a weakened economy may have little choice but to accelerate the printing presses to service our towering debt burden. Our friends abroad, and even the International Monetary Fund, lack the resources – and perhaps the will – to bail us out.
To avert this catastrophe, the president and the new Congress must put their political differences aside and forge a bipartisan consensus to do what’s necessary for us to remain a global superpower, and for our children to have a future.
A bipartisan plan to cut the deficit
A bipartisan majority of the president’s deficit commission has endorsed a detailed plan to make the necessary changes. It cuts government spending and raises taxes, tackling even such sacred cows as defense spending, the Social Security retirement age, and the home mortgage interest deduction. An even tougher proposal has been unveiled by former Democratic budget director Alice Rivlin and former Sen. Pete Domenici (R) of New Mexico – both of the Bi-Partisan Policy Center. While we can debate the details, these plans present a template for the type of hard decisions our country must make.
The need to enact these recommendations is made ever more critical by the emerging political consensus to help jumpstart the economy by extending the Bush tax cuts another two years. This adds yet another $900 billion to the deficit. While the jobs outlook is so bleak that the deal makes economic sense in the short run, it is irresponsible for Congress to pass it without simultaneously committing to take the political castor oil required to rein in the deficit longer term.
While liberal lawmakers make passionate promises never to cut Social Security or tax Medicare benefits and conservatives continue to sign tea party-inspired blood-oaths never to raise taxes, reality demands we do both.
Both parties made the bad decisions that created this mess. Both must now work together to solve it. No politician should enter this debate without being prepared to sacrifice something valued by his or her constituents.
Making painful decisions
Trillion-dollar deficits are so large that they can’t be solved just by getting people back to work or by sharp cuts in government spending, as important as doing both is. Taming our deficits will also require dramatic and painful entitlement reform. And when both are done, we still must change our tax system in a way that yields more, not less, revenue. If we choose to keep the Bush tax cuts in place for another two years, we must then undertake comprehensive tax reform that raises revenue, as President Obama now suggests, or simply let them all expire. The hard reality is we can’t afford any of them long term.
As the CEO of a publicly-traded company before I was elected to Congress, I led my business through three recessions by pruning every expense from top to bottom. I cut my own salary first, gave up my bonus, flew coach, and shared motel rooms with other executives on business trips. Before the government asks the electorate to cut back and make sacrifices, elected officials must first demonstrate a similar willingness to do the same. Congress can start by eliminating earmarks, giving the president a constitutional version of the line-item veto, cutting its own salaries, and passing a budget with a five percent across the board reduction in Defense, Homeland Security, and all discretionary spending. No exceptions and no sacred cows.
If the president and the Congress fail to make tough decisions like these and those outlined by these two bipartisan panels, I fear for our country. Perhaps soon, China and Middle Eastern oil states will stop supporting our insatiable appetite to spend beyond our means by refusing to buy our debt. Our bond rating would fall, the dollar’s value would plummet, jobs would disappear, and the next generation of Americans will be the first to have a lower standard of living than their parents.
Unless we act, our nation’s future looks dark. Now, while there is still time, we must get serious about our debt and heed the recommendations of the deficit commission and other experts. Failure to do so risks condemning the leaders of both parties to the same scorn vested on President Hoover and the Congress after the dark days of 1929.