How We Can Solve the Debt Crisis. Really.
Leaders in Washington will soon have to decide whether to pursue a serious deficit-reduction agreement before the 2012 elections. Last month, Standard & Poor’s cut the outlook on the U.S.’s long-term credit rating from stable to negative for the first time since the bombing of Pearl Harbor. If we don’t change course soon, the next shot won’t be across our bow, but at our hull.
Congress’s lack of action is a major reason why I’ve spent several months meeting in an informal group called the Gang of Six with the hope of presenting a comprehensive deficit- reduction plan. We’ve made real progress, but we reached an impasse recently when it became clear the group wouldn’t agree to the kind of serious entitlement reform that would lead to a bipartisan deal.
While our impasse is frustrating, it is important for the American people to understand that the real hurdles are more political than philosophical. Neither party wants to compromise its political advantages or its brand heading into the next election. Republicans want to be able to say they have resisted revenue increases while Democrats want to be known as the champions of entitlement. What the American people want, however, is bravery, not branding.
In practice, neither party needs to compromise its core values, just its political agenda. I’ve argued that Republicans should be willing to consider increases in revenue -- not through higher tax rates but through eliminating tax earmarks, such as that for ethanol, and other expenditure that misallocates capital. To create the conditions for putting revenue on the table, there must also be a commitment to spending cuts and entitlement reform. After all, America’s looming debt is the product of an entitlement crisis more than a revenue crisis.
Republicans who consider this offer to be a "tax increase" are mistaken and are unwittingly opening the door to genuine tax increases. Doing nothing and waiting for a debt crisis will probably result in accelerating inflation and higher interest rates as well as emergency austerity measures, which may include direct tax-rate increases. Worst of all, the U.S. would face financial repression through the debasement of the dollar, leading to a decrease in the purchasing power of every American. This would be the worst form of tax increase. Any of these outcomes would devastate the middle class and wipe out vast amounts of wealth. Republicans who say they are "holding the line" aren’t holding the line on anything but a talking point.
Still, many Republicans believe they can secure additional spending cuts and help avert an economic meltdown without putting revenue on the table. I’m sympathetic to that argument. I’ve put holds on hundreds of bills that weren’t paid for, fought to eliminate countless earmarks sponsored by members of my own party, and proposed hundreds of amendments to cut spending.
However, having worked to expose and cut waste, I’m convinced we will never reform entitlements without putting revenue on the table. To attempt otherwise would require a Republican supermajority that will never happen in our democracy. We’re much more likely to enter a depression first.
Democrats have a similar problem. Many of them prefer to mislead the American people by claiming that Medicare, Medicaid and Social Security are fine, when they should be embracing the reforms that will protect those programs and the people who depend on them. By 2022, Medicare, Medicaid, Social Security and interest on the debt will consume the entire federal budget. Social Security, which Democrats say is secure until 2037, is already running deficits ($49 billion last year). These programs are "safe" only while the international financial community agrees to lend us money -- which may not be for long.
What is really happening behind closed doors in Washington would both sicken and inspire the American people. Some in both parties continue to play political games. Yet, many elected officials on both sides are willing to make hard choices. More than 40 senators have come together to discuss the crisis; dozens have privately expressed their willingness to take bipartisan action. But, right now, the possibility of a win-win agreement for America is being turned into a lose-lose stalemate because too many self-serving politicians, special-interest groups and political consultants in Washington are invested in the status quo.
The solution is obvious. Democrats have to accept the reality that structural entitlement reform is necessary. Republicans have to accept the reality that in order to get Democrats to make those changes we will have to agree to tax reform that will increase revenue but not rates. This solution isn’t a betrayal of either party’s values, but a defense of those values on behalf of future generations. Again, doing nothing would be the real act of betrayal that would lead to both higher taxes and the demise of entitlement programs for the poor and elderly.
If our leaders fail to make these choices before the next election, voters will have no choice but to replace them with leaders who will.
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