Like most Americans, we watched with dismay this summer as politicians failed to reach a timely agreement on raising the debt ceiling while crafting a plan to address our debt crisis.
Had the result of the debt ceiling debacle been a grand, bipartisan bargain to cut future deficits by $4 trillion or more, the fallout from the political wrangling would have been worth it. Instead, what we got was the lowest common denominator – some discretionary cuts unlikely be sufficient to get the debt under control.
Yet the debt deal opened a window in the form of a Select Committee, charged with recommending $1.5 trillion in additional savings.
To be considered a success though, $1.5 trillion won’t be enough. Instead, the Select Committee will have to go big, go long and go smart.
Why Go Big? Because $1.5 trillion isn’t enough to stabilize the debt. Under reasonable assumptions, even with the savings, the national debt will continue to rise from about 67 percent of gross domestic product this year to more than 75 percent by 2021. The historical average is less than 40 percent of GDP — so $1.5 trillion just isn’t good enough.
The goal should be putting the debt on a downward path relative to the economy, which will mean doubling or evening tripling the Select Committee’s savings target.
Why Go Long? The country’s short- and medium-term debt is important, but the worst problems are longer-term, as the baby boom generation retires and health care costs continue to grow. No matter how much they raise taxes or cut discretionary spending, the Select Committee will be unable to repair our fiscal situation unless they address the long-term drivers of our growing debt – Social Security, Medicare and Medicaid.
The Select Committee must pass serious, structural changes that slow the growth of federal health care spending by using every tool available. It must enact comprehensive Social Security reform, which would makes that program solvent for the next 75 years and beyond.
Why Go Smart? Because we can’t just take a sledge hammer to the budget and declare the problem solved. Instead, we need to put in place reforms that promote economic growth. Though we cannot grow our way out of this problem, it will be virtually impossible to keep the debt under control without robust economic growth.
The Select Committee should therefore replace low-priority spending with high-value investments; enact enough deficit reduction to leave fiscal space for an economic recovery agenda, and reform the byzantine tax code to lower the rates, broaden the base and generate more economic growth and revenue. Most broadly, we will have to revamp our budget from one that is is consumption-oriented to one that focuses instead on investment.
Going big, long and smart, isn’t just the right economic strategy. By putting the debt on a sustainable path and avoiding further downgrades from the rating agencies — it is the right political strategy.
First, it may actually be easier to agree to a $4 trillion package than $1.5 trillion. In a larger package, entitlement reform can put the country’s largest program on a sustainable path rather than rely on half measures. Revenues will come from a growth-enhancing overhaul of the tax system rather than just rifle shots that may close small tax loopholes but won’t fundamentally help the economy.
While tough measures will be necessary either way, they are a lot easier to swallow if they are part of a package that fixes the problem. It would be politically appealing to declare final victory, instead of yet another budget showdown that ends in a punt.
Second, the American people are fed up with the political system. Even the most casual observer can see the inability of our leaders to make hard choices. Going big would show the public that Washington can work.
Both parties in Congress and the White House need a reputational overhaul — and fixing the budget would do the trick.
The public is hungry for real progress on reducing the deficit. Sixty percent of Americans say the Select Committee should compromise on a grand bargain to reduce the deficit, according to a recent poll, even if the deal includes policies they disagree with.
We only hope the Select Committee is up to the job.