Americans understand that our nation’s strength and security depend on its fiscal health. This may not be foremost on their minds right now, but rarely do I address a public meeting at which no one expresses concern about the federal debt and our general fiscal condition. We face an ongoing, long-term mismatch between our spending and revenues, and year after year, administration after administration, the debt grows larger.
A lot of ordinary people worry about this. They believe that a healthy fiscal situation is essential to our success as a nation. And they want policies in place that allow us to address the debt without interfering with the economic well-being of the country.
But the presidential candidates aren’t giving serious attention to deficit reduction, and neither, for the most part, are members of Congress. This may be because the federal deficit — that is, the yearly difference between revenues and expenditures — has shrunk. But that’s only temporary, a respite from the deficit highs we incurred during the recession. With a rising proportion of older people and spending on entitlement programs such as Social Security, Medicaid and Medicare growing dramatically, we’re not far away from facing dangerous levels of debt. A fix is becoming increasingly urgent, and the longer we delay the more difficult it will be.
So what do we do? The solutions flow along three broad lines: spending cuts, tax increases, and economic growth. There are advocates for each, but it is hard to imagine that salvation lies in one approach alone.
Proposals to slash the deficit by cutting spending fall far short of what is needed. Indeed, our experience in the recent past offers no hope that politicians will find agreement on significant spending cuts. A similar issue confronts those who believe that we just need to unleash the forces of the market to propel economic growth — to make progress, we would need to see a growth rate far above anything we have a reasonable chance to reach and sustain. And although there may be politicians who quietly wish we could tax our way out of the deficit crisis, there is no political appetite for it.
In short, we need them all: a combination of tax increases, spending cuts in both defense and non-defense areas, and economic growth that will stabilize debt at a manageable level.
Each is difficult. Capitol Hill’s preferred tactic when it comes to taxes is to cut them, not increase them. The tax code is larded with tax “expenditures” — that is, the mess of preferences, loopholes, and tax breaks aimed at solving social problems or buttressing one industry or another. These are politically attractive because they don’t create additional spending, but the budgetary impact is the same: they reduce revenues and expand the deficit. In that atmosphere, actual tax increases — the kind that would help us get our debt under control — can seem remote.
On the spending side, the rhetoric coming from Washington — and out on the campaign trail — raises unrealistic expectations about the savings that can be achieved through budget cuts. Not only do most proposals fall far short of what is needed, but the demands we face on entitlement programs, the country’s evident need for public investment — especially in infrastructure — and higher interest rates on the debt are all powerful forces pushing in the opposite direction.
But really, what choice do we have? The three-pronged solution I’ve outlined — a combination of spending restraint, tax increases, and economic growth — is privately acknowledged by almost everyone I’ve encountered, whatever their public position, to be the only realistic approach. Yes, this kind of deal will have to be phased in over years, giving people and businesses time to adjust. But the urgency of the question is pressing and will only get greater as deficits go up. The longer we delay, the more painful the adjustment will be.
Our system has met greater challenges in the past. We’ve been through a civil war, two world wars, waves of immigration unseen by any other nation, and we’ve managed them all. It took strong political leadership, bipartisanship, negotiation, and compromise to thread our way through. That’s what getting our debt under control will require. We’d better get started.