As we ring in the fiscal new year, unfortunately we find ourselves with very little to toast. We have no budget. A continuing resolution to simply keep the government open has been a source of political brinkmanship. And worst of all, the full faith and credit of the United States remains threatened by our inability to reach agreement on raising the debt ceiling, which would leave us in uncharted territory that could be financially and economically catastrophic.
While we are all mired in the trees of this fiscal policy chaos, we should also keep sight of the forest: our nation’s long-term structural deficits.
The recent long-term budget report from the nonpartisan Congressional Budget Office shows that our already high levels of debt will climb during the next 25 years. The CBO projects that by 2038, our debt will reach 100 percent of the nation’s gross domestic product, assuming no changes to current law, or even a staggering 190 percent of GDP (based on a less optimistic alternative fiscal scenario).
The CBO warns that even under the rosier scenario, such rising debt would have “significant negative consequences for both the economy and the federal budget.” There’s simply no denying that America is on a dangerous path that could hurt our economy, endanger the most vulnerable and diminish America’s standing in the world. The good news is that we know what to do to prevent this all-too-foreseeable disaster. There are many proposed solutions, from Simpson-Bowles, to Domenici-Rivlin, to the six other think tanks — from across the political spectrum — that each successfully addressed the problem in our Peterson Foundation’s Solutions Initiative. After all, the key drivers of our unsustainable debt are no secret: the retirement of the baby boom generation and increasing longevity, compounded by a highly inefficient health care system and exacerbated by an insufficient revenue base.
Despite our obvious problem and the many solutions right in front of us, there are still many who say we should deal with this problem at some unspecified point “down the road.” They’re wrong. As soon as we get through this short-term mess, Congress and the president should immediately turn their attention to these structural challenges.
Why immediately? Like any debt problem, the sooner we act, the less painful it will be. An untreated disease never gets better with age, particularly a disease with compound interest. Waiting will only make the required reforms that much more difficult.
Over the next 10 years, our interest expense will already be a whopping $5 trillion. With no fiscal cure in place, it will just grow and grow, further threatening the economy by crowding out critically needed public and private investments in research and development, education and infrastructure.
Second, setting a path for long-term fiscal stability would actually be good for our economy today. A comprehensive long-term plan doesn’t have to mean immediate austerity, and shouldn’t — most plans delay implementation until the economy has fully recovered and then phase in reforms gradually thereafter. Putting a long-term plan in place now would bring an immediate boost in confidence and certainty that our economy desperately needs.
Third, it’s an issue of fairness. There’s no real fiscal solution that doesn’t involve changes to entitlements, and if we are going to adjust vital retirement programs, we must give people time to prepare. For this reason, many proposals exempt those within 10 years of retirement. A delay like this can work, but not if we continually defer action. Procrastinating for 10 years about a 10-year exemption makes it a 20-year exemption.
Simplifying our tax code should be another important part of the solution. Tax “expenditures” now total $1.3 trillion a year (which is almost as much as all of the income taxes we collect), and many are market-distorting, wasteful and unfair. Done right, tax reform would make the entire code simpler and more equitable, while lowering rates for everyone, and reduce the deficit. And when we consider changes to vital entitlement programs, as well as to the tax code, wealthier Americans should of course contribute their fair share.
We all hope that Congress and the president find a way through our immediate fiscal and political bedlam. Once they do, they should recommit themselves to developing a comprehensive, bipartisan plan to finally put the nation on a sustainable fiscal path.
No American wants a future in which our economy is saddled with debt, starved of investment and struggling to grow. By taking action now, our leaders can lay a foundation for more investment, stronger economic growth, a more secure safety net and a brighter future for our children. Rather than continuing to treat the painful recurring short-term symptoms, we would be much better off curing the underlying disease.
Our long-term fiscal challenges are clear, and the solutions are sitting right in front of us. Let’s get at it.
Michael A. Peterson is president and chief operating officer of the Peter G. Peterson Foundation.
Vice President Joe Biden waits to conduct a mock swearing-in ceremony with Sen. Brian Schatz, D-Hawaii, in the Capitol's Old Senate Chamber, December 2, 2014. Schatz was sworn in to serve the remainder of his term since he was appointed to the seat after Sen. Daniel Inouye, D-Hawaii, passed away.