[This is the tenth installment of a blog series Tom is writing on the national debt crisis. They all can be seen here. Related, see also our signature on these two open letters. – CZ]
Without economic growth, it’s virtually impossible to address the long-term debt problem confronting the federal government. Even with cuts far greater than anything being proposed by the Simpson-Bowles Commission or the Senate’s “Gang of Six -- or even Senator Rand Paul’s $9 trillion package, without growth, we’d just be treading water. Economic growth is the “sine qua non” of every strategy for overcoming our national debt crisis.
There have been some terrific pieces published in the last few days which bring clarity to the challenge we face and how we go about addressing it.
The bi-partisan Committee for A Responsible Federal Budget, which does outstanding work, included a chart in an article entitled “Understanding the S&P Downgrade” that clearly demonstrates why the “proverbial” is now hitting the fan.
Here’s what the CRFB says: “Compared to other AAA-rated countries, the U.S. faces perhaps the most severe fiscal situation. According to the International Monetary Fund, General Government Gross Debt in the U.S. is higher than any other country. More importantly, all of the AAA countries, save Finland, are projected to have a stable or lower debt in 2015 than in 2011 – while U.S. debt will continue to grow.”
The Kevin Warsh / Jeb Bush op-ed, “A New Strategy for Economic Growth,” published in yesterday’s Wall Street Journal, made a strong (and what should be obvious) case that the focus of our economic policy must be long-term growth. Then they outline the core elements of a growth agenda, beginning with fundamental tax reform.
While there’s seemingly endless attention focused on the political divide that is hogtying Washington, what is striking, but rarely noticed, is the amount of common ground that exists on long-term issues.
· Most Democrats and most Republicans agree that we need tax reform. The Obama Administration and the leaders of both parties on the Hill have called for lowering corporate tax rates to roughly 25 per cent by closing and reducing “loopholes” – i.e., deductions and credits. While there is a lot of hot rhetoric about taxing the wealthy, there is also general agreement that the same approach – close loopholes and lower the rates -- should be pursued on individual income taxes. And it’s important to note that Republicans are willing to support “revenue increases” (above the revenue generated by current tax policy) that are the result of tax reform.
· Most Republicans and lot of Democrats are willing to make some common sense changes in entitlements. And at one time or another, Administration officials and congressional leaders on both sides of the aisle have spoken positively about means-testing Medicare, gradually raising the eligibility age of Medicare and Social Security for those who are currently under age 50, and updating the formula for determining cost-of-living adjustments.
· On discretionary spending, there are still more reforms and reductions that received support from those involved in the talks headed by Vice President Biden.
Congress probably can’t move on all the items on even this short list in the next six months. There’s no doubt, however, that Congress could approve some of these changes. That would be a huge step forward on what will be a journey, not a sprint, to develop the proper policy environment for economic growth and prosperity.
Our leaders should be focusing policymakers and the nation on the things we can agree on. That’s how a nation moves forward.