The Hill | Jan. 25, 2010
From Afghanistan to China to Copenhagen, the actions of President Barack Obama have international significance. However, the greatest worldwide implications will stem from a domestic issue that he must not ignore: our nation’s mounting government debt. The U.S. has a debt problem, and the world is watching. The administration’s response will dictate not only the standard of living of future generations of Americans, but also their country’s global standing.
Just as the White House recently said that it would not have an open-ended commitment when it announced its new Afghanistan strategy, the United States cannot have an open-ended reliance on deficit finance. It needs a fiscal exit strategy that puts the budget on a sustainable path, keeps the economic recovery on track, and avoids a future fiscal crisis.
The budget problems are not brand new. Even before the economic downturn, the long-term trajectory showed a sharp rise in budget deficits as a share of the economy. But recent policy actions have expanded their size and accelerated their arrival. Under reasonable assumptions about what policymakers are likely to do on tax and spending policies in the next year or so, the nation’s public debt will likely be larger than that run up during World War II and will exceed the size of the economy in less than 15 years.
What are the global implications of spiraling U.S. debt? An ever-growing proportion of our debt must be sold outside U.S. borders and some international investors have publicly expressed concern about continuing to finance our spending. It was no accident that the issue of U.S. debt arose during President Obama’s recent trip to Asia. If international markets come to the conclusion that the United States cannot manage its debt, the U.S. will be unable to continue to borrow as freely, or cheaply, as it now does. The American economy could falter and U.S. securities could lose their value as investors flee to alternatives.
Policymakers should tackle this threat immediately.
The White House and Congress should commit to stabilizing the public debt (as a share of the economy) as quickly as feasible. That commitment, in and of itself, if credible, will reassure credit markets around the world that the U.S. is serious about getting in front of the debt threat. This will require that over the next year the administration and Congress craft a package of specific spending cuts and tax increases to achieve that goal. Democrats who are engaged in a spending spree won’t like to contemplate the former. Republicans who are traditionally averse to higher taxes will balk at the latter. Both need to place a higher weight on their obligations as guardians of the economic opportunities and living standards of future generations.
We recognize the need to balance fiscal responsibility and economic recovery, so the policies should be phased in as the economy recovers.
But other countries’ experiences have shown that a credible commitment to reducing debt can improve creditors’ expectations and diminish the risks of a debt-driven crisis while bolstering the economy. After an investment downgrade and debt of more than 100 percent of GDP in the 1990s, Canada implemented a plan that brought a decade of budget surpluses, and lowered its debt by around 40 percent of GDP by 2008.
The economies of Denmark, Sweden and Ireland were also improved simply through the implementation of a fiscal stabilization plan.
The United States can send a powerful message to the world that it can still exhibit leadership, tackle challenging problems, and bridge partisan divides to make politically unpalatable choices. Any meaningful effort to address the budget problems will have to be bipartisan and cannot be undercut by rigid stands on certain taxes or particular programs.
The possibility that future generations might be saddled with a lower standard of living and a much less-dynamic economy has moved from rhetorical scare tactic to frightening possibility. Without concrete action soon, this devalued bequest may also include a nation with greatly diminished global clout.
The Hill | Dec. 18, 2009
At the same time he is weighing further economic stimulus plans, the President is also arguing for getting deficits under control. There is no question that the United States is on an unsustainable fiscal path. The large and growing federal debt looms over every legislative decision before Congress. This will be the case for years to come as our policymakers struggle to fund economic stimulus packages now or health care and the retirement costs of our aging population over the next two decades from revenue sources that will not grow nearly as quickly as those demands will. The consequences are serious for public policy, the economy, and the standard of living of the American people.
For the past year, along with our colleagues on the Peterson-Pew Commission on Budget Reform, we have wrestled with this critical issue — a federal debt that is out of control. The Commission members share a common concern: the fiscal future we leave to succeeding generations will lower their standards of living. It is our strong belief that we must take action now to prevent that from happening.
Even after the economy has recovered from the deep recession, structural deficits will remain. The debt is on course to reach levels never before experienced in the United States. While it was necessary to ramp up spending to respond to the recent sharp decline in the economy, the United States must adopt a plan to stabilize the debt immediately and take the first steps down that path very soon.
Under reasonable assumptions, debt held by the public is projected to grow steadily, reaching 85 percent of GDP by 2018, 100 percent by 2022, and 200 percent in 2038. Before the debt reached such high levels, the United States would almost certainly experience a debt-driven crisis—something previously viewed as almost unfathomable in the world’s largest economy.
On December 14, our bipartisan Commission presented a report containing recommendations for how lawmakers and the administration can tackle the debt – “Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt.” In the report, we recommend: that policymakers commit to a plan for stabilizing the public debt over a reasonable timeframe; specific policies to stabilize the debt; annual debt targets with an automatic enforcement mechanism to ensure targets are met; and that policymakers commit to reducing the debt level over the longer term.
But in short, we agree that any solution must include tough choices on both sides of the budget. Both tax increases and spending cuts will have to be part of the solution so everyone has skin in the game.
The biggest factor in whether Congress can succeed in this task is political will—members of all political persuasions will need to come together and make tough choices. Promises not to raise certain taxes or reduce certain benefits only stand in the way of a realistic plan. Any meaningful effort to address our fiscal problems will have to be bipartisan. Remember the public is ahead of us on the issue of fiscal responsibility. But we all have to join forces to get the tough job done.
Congress will soon, once again, raise the country’s debt limit so the lights can stay on through the holidays. Key senators are demanding the formation of a bipartisan fiscal task force to deal with our fiscal problems in exchange for their votes to raise the debt ceiling. Unfortunately, lawmakers have not yet come together in the face of international concerns about how the United States is dealing with its debt, and with average citizens across the country tightening their belts, to put together a fiscal management plan to secure our economic future.
Lawmakers can begin now to put such a plan in place. But they can phase-in the necessary revenue and spending changes starting in 2012 to allow the economy to recover and to give beneficiaries and taxpayers time to adjust to a tougher budget. Committing now to a fiscally-responsible future will show our international creditors that we are serious about getting our debt under control.
Republicans and Democrats alike need to accept that they will have to cut spending and raise taxes to bring our debt down to a manageable level. Everyone should have a stake in the outcome – skin in the game we like to say. If that happens, everyone can take the credit for leadership, and, more importantly, our children and grandchildren can reap the benefits.
New York Daily News | Dec. 16, 2009
For years, Americans have been conditioned to worry about federal deficits. Congress and the President, we've been told, should strive to balance the federal budget every year. When annual deficits got big, there was hand-wringing. When Bill Clinton left office with a federal surplus, there was celebration.
But by worrying only about annual red ink, policymakers have ignored a far larger problem - the now-looming federal debt that is growing by the day.
New Yorkers in particular are reminded of this every day. The city is, after all, home to the government debt clock, the digital billboard that keeps track of our massive, mounting obligations.
Even before the economic downturn, the government had debt that was expected to grow over the years as a share of the economy. Now, the projections have become staggering: Under reasonable assumptions about what policymakers are likely to do on tax and spending policies in the next year or so, the nation's debt will likely grow to 100% of Gross Domestic Product by 2022.
In other words, we'll owe loans that are equal to the entire value of all the economic activity generated in the United States in a given year. Soon after that, our debt would surpass levels seen just after World War II, when it reached 109%.
Yes, we recovered and prospered after that war. But times were different then - that government debt was owned nearly entirely by domestic investors, including everyday Joes and Janes who stepped up patriotically to help pay for the war.
What's happening today is a formula for crisis.
First, because about half of our public debt is held by overseas investors. Without action in Washington, we could someday see a headline like this on the Daily News' front page, "World to U.S.: Drop Dead."
Second because, as with your personal credit cards or mortgages, the government cannot borrow for free. It must pay interest. Interest payments, now at 6% of the budget, will grow to 15% by 2018, squeezing out other budgetary priorities.
Our creditors have traditionally seen the United States and its debt as a secure investment. But as concerns about our fiscal stability grow, investors may not want to buy more U.S. debt. The U.S. Treasury would then have to raise interest rates on U.S. bonds to attract the funds we need, further increasing the interest burden on the budget. It could become a vicious downward economic spiral.
It is not just the government that will pay more if this happens. Families and businesses will have to pay more, too. Everything from mortgages to school loans will cost more. So will business loans. Companies may not be able to borrow money to expand their operations and entrepreneurs may be less likely to start new small businesses, the source of most new jobs in our economy.
In Red Ink Rising: A Call to Action to Stem the Mounting Federal Debt, The Peterson-Pew Commission on Budget Reform calls on policy makers to stabilize the national debt through a six-step plan. Crafted over the past year by former heads of the CBO, OMB, GAO, and the congressional budget committees, the plan reflects a bipartisan approach to avoiding the tremendous global risks of America's expanding debt, without destabilizing the economic recovery. Red Ink Rising is the first of two major reports to be released by the commission.
St. Paul Pioneer Press | Dec. 14, 2009
In 1993, during my last term in the House of Representatives, Rep. John Kasich, R-Ohio, and I tried to convince Congress to pass our plan to cut $90 billion from the federal budget over five years. President Clinton lobbied furiously against us and we lost by six votes. Back then, the federal deficit was under $300 billion. It would take another four years before members of Congress and the administration could sit down and hammer out a budget agreement that would lead to a balanced budget.
But in recent years, we've returned to an era of reckless spending and $300 billion deficits seem like a distant past. The federal deficit is out of control at $1.4 trillion and has increased rather than shrunk within the last year. These deficits add to our massive and growing federal debt. If Congress and the Administration could only agree to the straightforward principle of living within its means, as many Americans have done during this economic crisis, then we would not be in the fiscal mess we are in today. The situation is dire and will only get worse if action isn't taken quickly.
Too much government debt results in rising interest rates, slowing growth of wages and lower standards of living. Future generations will be left with the burden of paying for today's borrowing and spending. Large tax increases and huge spending cuts will be needed and they will leave little room for setting future budget priorities. The increased federal debt will eventually make it more costly to borrow for housing, education, and business investments. People will be unable to buy a new house or send their kids to college if they are unable to borrow money; interest rates will be so high that they can't afford the loan. Higher interest rates will stop investment and hurt the creation of new jobs, something we desperately need.
There is no silver bullet when it comes to fiscal responsibility, but the bipartisan Peterson-Pew Commission on Budget Reform has come up with some concrete advice. In "Red Ink Rising - A Call to Action to Stem the Mounting Federal Debt," a report we released this week, we describe six steps that can be taken to solve the debt problem. We recommend that Congress and the White House formulate a fiscal framework that includes a commitment to stabilize the public debt (which is growing quickly from the current $ 7.6 trillion) over a reasonable period. The Commission offers a path for stabilizing the debt, annual debt targets with an enforcement mechanism and a plan to reduce the debt over the longer term.
Policymakers need to set clear goals and take action quickly, though not rashly, as the economy recovers. The Commission has developed a plan that includes both raising taxes and cutting spending, although the plan leaves the specific combination to Congress. As a former member of Congress, I understand the challenges of trying to please both sides of the aisle. I still bear the scars of trying to forge those compromises and I can say that having this bipartisan group of policymakers agree on a plan is quite an accomplishment.
Enacting our plan will be no easy feat, especially in this highly partisan political climate, but is necessary to achieve our common goal. If Republicans are willing to increase taxes and Democrats are willing to cut spending, we can get one step closer to fiscal responsibility. Leaders on both sides will have to come together and make the tough choices. This is not a Republicans versus Democrats issue. It is an issue that all Americans must confront so that we can maintain our standard of living and avoid a larger economic crisis. Waiting too long could fail to reassure our government's creditors. A commitment to something next year will show the world the U.S. is serious about debt reduction. Average citizens have tightened their own budgets and begun to live within their means. Now it is time for Congress to follow their example and do the same.