Congress is poised to approve a budget blueprint that would kick many long-term spending issues to next year. This budget offers no realistic way to pay for extending tax cuts for the middle class or for growing entitlement programs. In short, a fiscal tsunami looms on the horizon and little is being done to prevent a disaster.
The 2008 election campaign is an opportunity to begin to reshape the nation’s fiscal priorities and return to a more responsible path. So far, though, the candidates are avoiding the issue of the growing long-run deficit. Unless something is done, deficits will swell to at least $700 billion within a decade and then keep rising indefinitely.
Much of the nation’s debt is now owed to foreigners. Eventually we will need to pay them back, with interest.
The large tax cuts enacted in recent years have deprived the government of revenues needed to pay for the war, prescription drugs for the elderly and other commitments. The budget surpluses achieved in the late 1990s have spiraled into deficits and the nation’s fiscal future is in grave jeopardy.
Social Security, Medicare and Medicaid already comprise 42 percent of the budget, even before the massive demographic shift that is about to occur as the first baby boomers begin to draw benefits from these entitlement programs.
Health care spending per person has been growing about one-third faster than the economy. If this continues, the three large entitlement programs will have absorbed all of the federal government’s projected revenues before the mid-century. At that point, the government will be able to pay for these programs — and nothing else.
Despite the warning signs, presidential candidates and other national leaders are not seriously addressing the tsunami in the near distance. They prefer to discuss bold ideas for new spending and to hint that they can end deficits by cutting waste or “growing the economy” or by rolling back tax cuts just for the very wealthy.
The problem is solvable. A deficit reduction plan that I helped to develop would end the deficit in five years while still investing $37 billion more each year in the nation’s future. This plan has several features to control spending and increase revenue.
The plan includes an overall cap on discretionary spending. With an overall cap, some programs could enjoy increases, as long as they were offset by cuts to other programs. Because it would be limited to discretionary programs, the cap would not affect the huge entitlement programs — Medicare, Social Security, and Medicaid.
These entitlement programs must also be reformed over the longer run. One option is to increase the payroll taxes that fund Medicare and Social Security. Another is to gradually reduce benefits promised to future generations by, for example, raising the retirement age or asking the affluent elderly to accept smaller increases in their benefits.
Increased revenues must also be part of the solution. Congress could tighten almost all of the 14,000 tax loopholes adopted in the past 20 years (replacing them with a 15-percent tax credit). Policy-makers could also toughen enforcement of existing taxes, so law-abiding taxpayers will not subsidize large-scale tax cheaters.
Another worthy idea would be to phase in a carbon tax that would promote energy efficiency, combat global warming and stimulate energy alternatives to reduce our dependence on foreign oil, while bringing in $35 billion per year in revenue.
Other plans and strategies are possible, of course. But the approach outlined here illustrates that the presidential candidates and other leaders can propose fair and reasonable ways to shield America from fiscal collapse.
In short, it is time for the candidates to articulate how to prevent a catastrophe that could be far worse than the recession we now fear.
What should the voters of 2008 demand from the candidates? Voters should expect office-seekers to state unequivocally that deficits matter, to commit to ending deficit spending and fiscally irresponsible tax cuts, and to pledge bipartisan cooperation to meet this goal.
Will this historic chance be realized? Ask the candidates — and press them for an answer that is truly believable.