[This is the sixth installment of a blog series Tom is writing on the national debt crisis. The first five are here, here, here, here, and here. Related, see also our signature on this open letter. – CZ]
Let’s be clear: the two proposals being presented to the House and Senate by Speaker Boehner and Leader Reid are not solutions to the debt problem. We encourage these efforts to cut deficits and raise the debt ceiling. But they are simply the first steps in the long journey America must make to get its fiscal house in order.
At best, the Boehner and Reid proposals are tiny blips in the upward trajectory of the nation’s debt march. But because they deal primarily with discretionary spending and potential savings from the gradual end of our military conflicts in Iraq and Afghanistan, they have little long-term impact.
More specifically, nothing being done here will grow the economy. And nothing in the Reid and Boehner initiatives will mitigate the relentless upward march of the share of GDP consumed by the entitlement programs – Medicare, Social Security, and Medicaid.
Without both economic growth (and the tax revenue that comes with it) and entitlement reform, there is no solution to our nation’s long-term debt problem.
In response to my inclusion in an earlier blog of CBO’s federal debt chart through 2085, an outside economist called to my attention that the CBO stopped the line representing debt under the “alternative fiscal scenario” at 2037 when it hit 200 per cent of GDP. In its accompanying spreadsheet, CBO uses the phrase "more than 200% of GDP" in the cells for the out year projections, even though it provided the assumptions needed to continue the projection. If the projections are extended, the chart looks like this:
(Credit: Dr. John Rutledge)
It’s no wonder that rating agencies are threatening to downgrade U.S. debt even if some version of the Boehner or Reid packages is approved. In simple terms, they don’t bend the curve.
That’s why Verizon has joined other businesses in calling for a debt reduction package that includes tax reform that encourages growth and improves the efficiency of our tax collection system. That means broadening the base by closing loopholes, while lowering rates to make the U.S. more competitive as a place to invest capital. It will result in more revenue for the federal government.
We also call for making the small changes in entitlement programs (e.g., updating the formula for determining cost-of-living increases, gradually raising the age for collecting Social Security for those who are now more than a dozen years from retirement, means-testing Social Security and Medicare) that will have no impact on those who are currently relying on these programs but will have major fiscal impact twenty years from now. The changes also will ensure that these programs survive.
The crisis atmosphere surrounding the debt ceiling will dissipate when it is raised in a few days. But the real crisis – the mounting and unsustainable debt – will still be with us. There’s no time for Congress and the Administration to take a “breather.” The push for economic growth and fiscal reform must intensify.