With the cost of the “financial system bailout,” the budget deficit may well reach an astronomical $1 trillion this coming year. That is more than double the deficit for 2008, which totaled over $400 billion. And the 2008 deficit was more than double the previous year’s deficit of $161 billion. This is a very troubling trend!
We need to be alarmed because these deficit projections assume that President Bush’s tax cuts will expire and that the alternative minimum tax (AMT) will NOT be fixed. Beyond that, once the baby boom generation is fully retired and drawing their entitlement benefits, matters will only grow worse. For these reasons, even after the expense of the “bailout” is behind us, annual deficits are projected to remain above $400 billion.
Despite these alarming numbers, there is growing talk in Congress and on the campaign trail about the need for yet another fiscal stimulus package to address our faltering economy (this on top of the $150 billion tax rebate delivered earlier this year). Naturally, Democrats want more spending for unemployment, food stamps and infrastructure projects, and Republicans prefer more tax cuts. Both argue that additional near-term deficits are warranted in order to soften the recession. But debt is debt. And debt has long-term consequences that are more costly than any of the near-term gains provided by these proposed stimulus measures.
Result: slower long-term growth
All of this government borrowing crowds out private investment, resulting in slower long-term economic growth. In addition, high levels of public debt mean that more of the federal budget will be devoted to interest payments, thereby crowding out other priorities. Finally, deficits are also inherently unfair to future generations who will be stuck with the bill for today’s overspending.
Unfortunately, neither candidate for president has proposed a realistic plan to cut the deficit.
I serve on the board of a respected budget watchdog group, the Committee for a Responsible Federal Budget, which is co-chaired by former Clinton administration budget director Leon Panetta and former ranking Republican on the House Budget Committee Bill Frenzel. Other members of the board include virtually every former director of the Congressional Budget Office (CBO), the Office of Management and Budget (OMB) and the Government Accountability Office (GAO). In all, the board is composed of the most knowledgeable fiscal experts in the nation with near equal representation from Democrats, Republicans and independents.
Recently, the committee produced a report that analyzes the impact of the budget policies proposed by presidential candidates John McCain and Barack Obama. You can find our Voter Guide, “Promises Promises: A Fiscal Voter Guide to the 2008 Election,” here. In short — and disappointingly — the report shows that both candidates are advocating policies that would increase the deficit by more than $200 billion a year — above the currently projected level of $400 billion. This is not good news.
Voters are part of the problem
Part of the problem lies with us, the voters, of course. Voters tend to respond positively to promises of tax cuts and new spending programs — even when, deep down, we know the nation’s credit card has reached its limit. Sadly, it seems the electorate is not ready for frank talk about shared sacrifice on these fiscal challenges. After all, campaigns are designed to tell us what we want to hear, not necessarily what we need to hear. And we all know that after the election we still have a system dominated by interest groups that have NO interest in fiscal responsibility.
I believe that both Sens. McCain and Obama are realistic men who know we can’t keep up this seemingly insatiable appetitive for spending and tax cuts, but they have pollsters whispering in their ears warning them not to say it out loud.
However, I remain optimistic that once the election dust settles, we have in Obama and McCain two reformers who will be less interested in catering to interest groups — and more willing to tell the American public that “there is no free lunch.” Recall that Bill Clinton — in the weeks after his 1992 election — cast aside his promise of a middle-class tax cut in favor of a concerted effort to trim the deficit. Let us trust that likewise with Obama and McCain fiscal realities will matter more after the election than on the campaign trail.
Start with economic conference
In the aftermath of this fall’s election, an economic conference such as the one held 16 years ago in Little Rock would be a good place to start. In addition, it would be enormously helpful if the winning candidate would reach out to prominent people in the opposing party and from the private sector to join the administration. They should signal a new, more bipartisan way of addressing the nation’s fiscal challenges. A few business leaders in the Cabinet might also help identify more cost effective ways of delivering needed government services — not to mention rooting our some of the scandalous waste we’ve seen recently at the Pentagon, FEMA and Medicare.
Finally, it may be time to resurrect the notion of a bipartisan blue-ribbon panel with membership comprising both congressional and administration appointees to propose entitlement reforms followed by an up-or-down vote.
A test of real leadership will be whether the new president enters office and calls on all of use to roll up our sleeves, put an end to the fiscal party, and fix the budget. It might be wishful thinking, but it would actually be nice to see at least one of the presidential candidates talk about this approach before November.
Tim Penny is a board member of the Committee for a Responsible Federal Budget, and a former member of Congress from Minnesota.
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